Misdelivery without bills: When release instructions are not conversion – Valency International Pte Ltd v. JSW International Tradecorp Pte Ltd

Background

JSW International Tradecorp Pte Ltd (JSW) sold 55,000 MT of steam coal (the Cargo) to K.I. (International) Limited (Kamachi) under a contract dated 16 May 2018, and voyage-chartered MV Stella Cherise from Oldendorff to carry the coal from South Africa to India. Two original bills of lading were later switched into 22 bills of lading (the 22 BLs), each for 2,500 MT.

Kamachi arranged financing through Valency International Pte Ltd (Valency), which opened a letter of credit with HSBC in JSW’s favour. JSW discounted the letter of credit and received payment.

The Cargo was discharged at Krishnapatnam, India, into a bonded storage area without presentation of the 22 BLs, under a chain of letters of indemnity between Kamachi, JSW, Oldendorff Carriers GmbH & Co. KG (Oldendorff), and the vessel owners. Valency knew by 31 August 2018 that discharge had occurred without the 22 BLs.

At Valency’s request, control letters were prepared whereby: (a) Kamachi undertook not to move the Cargo except against delivery orders issued on Valency’s instructions; (b) JSW instructed Unicorn Maritimes (India) Pvt Ltd (Unicorn) (the discharge port agent) to issue delivery orders only against surrender of the 22 BLs; and (c) Unicorn acknowledged it would only release the Cargo upon surrender of the 22 BLs or Valency’s written instructions, recognising Valency’s title.

On 10 September 2018, shipping documents including the 22 BLs (endorsed in blank) were presented to HSBC and paid under Valency’s letter of credit. Valency simultaneously took an import trust receipt loan from HSBC and pledged the 22 BLs as security (the Pledge). On 11 September 2018, Valency obtained physical possession of the 22 BLs under a separate trust receipt, undertaking to hold them, the Cargo, and any proceeds on trust for HSBC.

On 13 September 2018, Oldendorff gave instructions by email to Unicorn to release delivery orders for the vessel (the Oldendorff Release Instruction). On 17 September 2018, JSW instructed Unicorn to issue delivery orders for the 55,000 MT at Krishnapatnam (the JSW Release Instruction). Between 17 September and 15 November 2018, Unicorn issued delivery orders enabling Kamachi to collect all the Cargo, without contemporaneously informing Valency. Valency did not appear to have had any contemporaneous knowledge that the Cargo had been delivered.

Meanwhile, Valency sent trade collection instructions to an Indian collecting bank enclosing the 22 BLs. When Kamachi did not pay, Valency refinanced with HSBC by discounting the 22 BLs, ending the Pledge by 25 September 2018. Kamachi paid for only 5,000 MT, leaving 50,000 MT unpaid. When the default crystallised and the 22 BLs were returned, Valency discovered the unpaid cargo had already been delivered to Kamachi.

Valency sued JSW, Unicorn, and Oldendorff in Singapore for conversion, contract, and conspiracy. The High Court dismissed the claims against Oldendorff and JSW, finding Valency lacked standing because HSBC, as pledgee, held the immediate right to possession at the time of the alleged conversion (13 and 17 September 2018). However, the Court found Unicorn partially liable for conversion after the Pledge ended on 25 September 2018.

Although it was unnecessary to decide this point, the High Court considered whether the release instructions could constitute conversion. It held that the Oldendorff Release Instruction would amount to conversion, but not the JSW Release Instruction, and that Unicorn’s issuance of delivery orders after 25 September 2018 constituted conversion.

Valency appealed the findings that: (a) it lacked standing to sue Oldendorff and JSW; and (b) the JSW Release Instruction did not constitute conversion. Oldendorff cross-appealed against the finding that its release instruction was an act of conversion.

On appeal, the Court of Appeal (CA) dismissed Valency’s appeal and allowed Oldendorff’s cross‑appeal, holding that the release instructions of JSW and Oldendorff did not amount to acts of conversion and that Valency lacked standing against them at the material time.

Key holdings

(a) No conversion by JSW and Oldendorff

The CA held that JSW’s and Oldendorff’s instructions to Unicorn to “release delivery orders” were not themselves acts of conversion. In a multi party setting, it is not enough that a party issues directions in the background; the claimant must prove a factual causal nexus between those directions and the third party’s wrongful dealing with the goods.

On the evidence, it was not shown that Unicorn issued the delivery orders because of either the JSW or Oldendorff Release Instructions, particularly given Unicorn’s own direct undertakings to Valency and its subsequent misrepresentations to Valency. The CA therefore concluded that Unicorn knew it needed Valency’s instructions and did not appear to be acting under the JSW Release Instruction in allowing Kamachi to take delivery of the Cargo. In relation to the Oldendorff Release Instruction, which was given four days earlier than the JSW Release Instruction, the CA’s view was that, based on the evidence, these instructions did not direct Unicorn to effect delivery of the Cargo without bills or Valency’s consent, nor did Unicorn choose to follow them. 

 
(b) Valency had no standing to sue JSW and Oldendorff in conversion

The CA emphasised that a claimant’s standing to sue in conversion depends on actual possession or a right to immediate possession at the time of the alleged conversion – the “title owner” is not necessarily the person with standing to sue.

According to Valency’s case, the conversion occurred on 13 and 17 September 2018. On those dates, the 22 BLs were pledged to HSBC and physically held by Valency only under a trust receipt. In the CA’s judgment, the trust receipt did not extinguish the Pledge. On the contrary, the terms of the Pledge made it clear that HSBC did not intend to surrender its special interest in the BLs and the Cargo, despite the delivery of the BLs to Valency. Rather, on the evidence, the purpose of the redelivery of the 22 BLs to Valency was solely to allow it to take delivery of the Cargo and/or to sell the Cargo to repay the sums owing to HSBC under the import trust receipt loan. In the circumstances, the CA held that HSBC, not Valency, had the right to immediate possession of the Cargo. 

Practical implications and takeaways

The CA’s judgment provides helpful guidance to the various parties involved in the sale and purchase of commodities such as carriers and port agents, commodities traders, and financiers. 

(a) For carriers and port agents

Port agents who issue delivery orders contrary to clear undertakings (as Unicorn did) risk direct conversion liability if a claim for misdelivery is brought by the party with the right to immediate possession.

Conversely, upstream parties, such as sellers or carriers facing misdelivery claims, may avail themselves of the defence that their delivery instructions to port agents were not shown to be the operative cause of the misdelivery.

(b) For commodity traders and financiers such as Valency

In order to sue third parties in conversion, a claimant must have the right to immediate possession. Simply holding the bills of lading physically and being able to demand delivery from the carrier does not give a claimant standing to bring a claim if the bills are held subject to a bank’s continuing security and trust receipt terms.

If a potential misdelivery claim against the carrier is close to being time barred, it becomes crucial to carefully consider who holds the immediate right to possession at that point. The claimant may need to coordinate with its bank (including assignment or subrogation arrangements) to preserve claims. 

As a matter of English law, following the decision of the UK Supreme Court in The Giant Ace [2024] UKSC 38, a misdelivery claim subject to the Hague or Hague-Visby Rules will be time-barred within 12 months of the date of delivery, or the date the goods should have been delivered. While that point is not settled as a matter of Singapore law, it is strongly recommended that time is protected within the 12-month period.

(c) For banks and trade financiers

Properly drafted trust receipts can preserve a financier’s security over bills of lading even when documents are released back to the customer for purposes of seeking delivery over the pledged cargo. 
Some key conditions to include in the trust receipt wording are as follows:

• Acknowledgement of an existing pledge in favour of the financier
• Confirmation that the trust receipt undertakings are additional to, not substitutive of, security
• Requirement that:
  • cargo be stored in the bank’s name or for its account; and/or
  • sale proceeds of the cargo be held on trust and paid to the bank.

Client Alert 2026-041