Know Your LOI Counterparty: Lessons from the Court of Appeal

The recent Court of Appeal decision in Berge Bulk Shipping v Taumata Plantations [2025] EWCA Civ 876 serves as a stark reminder that Letters of Indemnity (“LOIs”) are only as reliable as the party issuing them, and they can expose the accepting party to substantial legal and financial risks if the issuer lacks proper authority or sufficient financial standing.

Factual Background 

Three New Zealand companies (“Exporters”) owned or had rights over forestry plantations.

Their logs were marketed and sold by TPT Forests Ltd (“Forests”) under agency agreements. In 2004, the TPT Group created TPT Shipping Ltd (“Shipping”), a wholly-owned subsidiary, to charter vessels for log exports. Shipping acted as charterer assuming the relative risks, while Forests, as agent for the Exporters, paid Shipping for its services.

The dispute arose from shipments from New Zealand to India. Berge Bulk, the disponent owner of the vessel m/v “XING ZHI HAI”, agreed to discharge cargo without original bills of lading against LOIs issued by Shipping, following approval from Forests. Forests did not seek the approval of the Exporters or their manager for the issue of the LOIs.

When misdelivery claims arose, Berge Bulk claimed against Shipping, Forests and the Exporters under the LOIs. By then, Shipping had become insolvent and therefore Berge Bulk pursued Forests and the Exporters on the basis that they were undisclosed principals under the LOIs and that the LOIs conferred English jurisdiction. Forests and the Exporters challenged the jurisdiction of the English court. The Judge at first instance held that in issuing the LOIs, Shipping had acted as principal, not as agent for Forests or the Exporters.  See the Club’s previous article on the first instance decision: In Pursuit of Undisclosed Principals – LOIs

The Court of Appeal Decision

Berge Bulk appealed the first instance decision.  Called to decide on jurisdiction under the LOIs and whether the Exporters were undisclosed principals, the Court of Appeal dismissed Berge Bulk’s appeal and confirmed that in entering into the charterparty and issuing the LOIs, Shipping contracted as principal, not as agent, and that the Exporters had not authorised Shipping to issue LOIs on their behalf.

The whole purpose of establishing Shipping was to insulate both Forests and the Exporters from the risks inherent in acting as the charterer of the carrying vessels. That purpose was inconsistent with any intention that Shipping should act as agents for the Exporters in entering into the charterparties. This was a highly material factor when considering whether there was the necessary consent from the Exporters that Shipping should act in this capacity.

The Court of Appeal reaffirmed that liability of an undisclosed principal requires actual authority, not ostensible authority or mere economic interest. The Exporters were not parties to the LOIs, and the English court lacked jurisdiction over them.

Key Legal Takeaways

1. Actual authority is essential: An undisclosed principal can only be bound if the agent had real authority to act. Implied or apparent authority is not sufficient.
2. Corporate structures matter: Courts respect separate legal personality. Attempts to “pierce the corporate veil” via agency arguments will fail without clear evidence.
3. Jurisdictional limits: Even if an LOI contains an English jurisdiction clause, it binds only the signatory, not third parties alleged to be principals.

Conclusion

LOIs can be a useful tool, but they are not without significant risk. Their effectiveness depends entirely on the financial strength of the issuing party. Members should satisfy themselves of the financial standing and authority of those who are issuing and signing any indemnity.

It is strongly recommended that Members consult their usual Club contact when such requests arise, to seek advice and guidance on potential cover implications and ensure Members’ interests are best protected.