Laemthong International Lines Co Ltd v Artis (The Glory)
Court of Appeal
Citations:  EWCA Civ 519;  2 All ER (Comm) 167;  1 Lloyd’s Rep 688;  1 CLC 739;  CLY 3791.
The claimant owned a ship named the Glory. The charterers chartered the Glory to transport sugar for the defendant. Clause 7 of the charterparty enabled the claimant to select the agents responsible for loading and discharging cargo at ports. Clause 42 stated that if the defendant did not have the bill of lading when the Glory arrived, they could instead present a letter of indemnity. The claimant would then deliver the sugar.
The letter of indemnity was a contract between the defendant and the charterer. It promised to pay any liabilities the claimant incurred ‘by reason of delivering the cargo’.
The letter of indemnity had two purposes. The first was to allow the defendant to receive the sugar without a bill of lading. The second was to protect the claimant against any adverse consequences of delivery without seeing the bill of lading.
When the ship arrived, the defendant relied on the letter of indemnity to receive the sugar. The claimant delivered the sugar to them. The Glory was subsequently arrested by a Yemeni bank. The bank purported to hold all the bills of lading for the ship’s cargo. They sued the claimant for $3 million.
The claimant sought a declaration from the court that they could enforce the letter of indemnity against the defendant. They accepted that they were not a party to the letter, but relied on the provisions of the Contracts (Rights of Third Parties) Act 1999. Section 1 of that Act states that:
‘(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if— (a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
- Did the letter of indemnity purport to confer a benefit on the claimant?
- Did it appear from the letter that the parties did not intend the claimant to be able to enforce it?
The Court of Appeal held in the claimant’s favour. The claimants acted as the charterer’s agents when they unloaded the goods. The letter was plainly intended to benefit the claimant by indemnifying them against losses arising from deliveries to the defendant. The defendant failed to discharge the burden of showing that the contract indicated that the parties did not intend the claimant to be able to enforce the letter.
This Case is Authority For…
Section 1(2) of the Contracts (Rights of Third Parties) Act 1999 requires the contracting party to show that the contract indicates that the parties did not intend to allow others to enforce it. The burden is not on the third party to show that the contract positively indicates that they can enforce it.
Whether s.1(2) of the Act is established depends on the proper meaning of the contract, construing it using normal rules of interpretation.