Bangladesh’s maritime territory continues to play a crucial part in global trade, being strategically placed in the Bay of Bengal and as a result, the country has witnessed several landmark cases. A few of these significant judgments have established precedents that can guide numerous future maritime disputes in Bangladesh, where the operation of P&I Clubs has come under judicial scrutiny. One notable example is the case of United Edible Oils Limited v. the London Steam Ship Owners’ Mutual Insurance Association Ltd (P&I Club) and United Edible Oils Limited vs the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltd (P&I Club), where the Plaintiff imported consignments of crude degummed soya bean oil. Upon discharge at the port, there was a short landing of cargo, causing financial loss. To recover compensation, Admiralty Suit No. 09 of 2006 was filed concerning the vessel M.T. ASPHERON and Admiralty Suit No. 02 of 2007 concerning the vessel M.T. CHAMPION VENTURA, with arrest orders obtained against both vessels. To secure their release, the respective P&I Clubs: the London Steam Ship Owners’ Mutual Insurance Association Ltd. and the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltd. issued Letters of Guarantee assuring payment of any sums decreed against the vessel owners. In both Admiralty Suits, the defendants included the respective P&I Clubs as Defendant No. 1, along with their local correspondents as Defendant No. 2. The owners of the vessels were impleaded as Defendant No. 3. Consequently, the P&I Clubs and their local correspondents later applied under Order I, Rule 10(2) Civil Procedure Code of Bangladesh to have their names struck out, claiming no direct contractual relationship with the Plaintiff and no liability for the alleged cargo shortage.
Although there have been numerous admiralty cases in Bangladesh, this one stands out because, unlike typical admiralty disputes where liability rests solely on the shipowner, the P&I Clubs were directly involved by voluntarily issuing Letters of Guarantee to secure the release of the arrested vessels, thereby creating a direct contractual obligation to the Plaintiff. This shifted the legal focus from ordinary marine insurance to a contract of guarantee, making the Clubs liable as sureties under Section 128 of the Contract Act, 1872, co-extensive with the vessel owners’ liability. While P&I Clubs usually operate under the “pay to be paid” principle: reimbursing only after the member has paid. The Hon’ble High Court Division of Bangladesh exercising Admiralty Jurisdiction presided over by Lordship Mr. Justice Syed Refaat Ahmed as he then was, held that their guarantees established immediate enforceable liability, independent of their internal insurance arrangements. By stepping into the role of guarantors, the Clubs became necessary and proper parties, and the case set a precedent in Bangladesh for directly enforcing P&I Club guarantees, making it distinct from routine cargo shortage claims.
The High Court Division of Bangladesh dismissed the applications of Defendant Nos. 1 and 2 to strike out their names, affirming that they were necessary and proper parties to the Admiralty Suits. Although in The “Fanti” and The “Padre Island” cases established that third parties cannot directly claim under P&I Club indemnity contracts, as obligations run only to the member shipowner. In these Admiralty Suits, however, the Plaintiff’s claims were based on Letters of Guarantee, which created a direct, enforceable obligation to the Plaintiff. This distinction supported the Court’s decision to treat the P&I Clubs and their local correspondents as necessary parties in the suits.
The Court found the submissions of the Plaintiff’s counsel, Ms. Karishma Jahan, to be particularly persuasive; she meticulously distinguished the obligations under the guarantees from the Clubs’ usual indemnity role and demonstrated that the “pay to be paid” principle could not limit their liability. Consequently, the P&I Clubs and their local correspondents were required to participate in the suits, ensuring that the Plaintiff could fully realize its rights under the guarantees. While explaining the obligations under the guarantees from the Clubs’ she had drawn attention to several cases to support that a guarantor’s liability is immediate and co-extensive with the principal debtor.
This judgment can be cited as a precedent in cases involving P&I Clubs and Letters of Guarantee, establishing that such guarantees create direct, enforceable obligations independent of the shipowner. It confirms that the “pay to be paid” rule does not limit the Club’s liability and that P&I Clubs and their local correspondents can be impleaded as necessary parties. To apply this in practice, legal practitioners may frame claims as contracts of guarantee, submit relevant Letters of Guarantee, and distinguish between the Club’s indemnity role and its obligations as a guarantor to secure effective relief.