'FSL NEW YORK' – High Court Sides With P&I Club Over LOU Dispute

On 10 May 2016, Blair J delivered a judgment in the matter of (1) FSL-9 Pte Limited (2) Nordic Tankers Trading A/S v Norwegian Hull Club [2016], a case where some controversial issues on the subject of LOUs issued by P&I clubs arose. These included whether an LOU beneficiary had a direct right of action against the P&I club, and whether it could apply for a court order to increase the value of the security provided.

Facts

In the instant case, damage had been done to a chemical tanker during the loading process which resulted in the escape of some cargo; no pollution incident arose. In order to diffuse the various threats of arrest that were made by the owners against the charterers (in respect of vessels owned by a group to which the charterers belonged) and by the charterers against the owners, three LOUs were issued. One LOU, in the sum of USD 3.5 million, issued by the charterers' P&I club on behalf of their members, in favour of owners, formed the subject of the proceedings.

The LOU contained the following provision:

"It is agreed that both Charterers and Owners shall have liberty to apply [our emphasis] if and to the extent the Security sum...