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Saturday, 08 March 14
LETTERS OF INDEMNITY - SKULD
KNOWLEDGE TO ELEVATE
In today's trading market, owners are frequently requested to accept a letter of indemnity (LOI) in exchange for complying with charterers' or shipper's request to take on risks which can fall outside the contractual demands normally placed on a carrier. These can also fall outside the scope of standard insurance coverage, and hence deserve careful attention.
Key points of advice
- Taking a LOI against a request may create obligations outside of the basic contractual agreement;
- These may impact on standard insurance coverage;
- Careful consideration needs to be had of the nature and terms of the request;
-nature and terms of the request
-terms of the LOI
-party making the request
-authority of the signor of the LOI
-enforceability of the LOI
It is best to address these issues, if foreseeable, at the outset of the fixture, with suitable charter terms and LOI templates included as addenda to the charterparty
Owner's obligations
Owners' basic obligations are very closely connected with the three functions of a negotiable Bill of Lading (B/L), in particular as a:
- Receipt of the goods, which operates as prima facie evidence of the goods' quality and condition
- Evidence of / being the contract of carriage, which gives to the parties of the sales transaction rights against the carrier in regard to the safe carriage of the goods and their delivery at destination
- Document of title which is subject to transfer and endorsement and gives a right to demand delivery
Market practice
The owner's obligations are set down in law, and are also the basis for the insurance coverage for cargo claims, yet in practice parties may seek to adopt alternative practices that aim to address commercial considerations that arise from time to time.
The most common way of dealing with traders' requests outside the contractual obligations are closely related to the use of letters of indemnity (LOIs). These should contain, effectively, a straight forward promise: if you do what I ask, I will make sure that you do not suffer any loss.
Main types of LOI situations
Broadly speaking, LOIs can be distinguished between those related to shipment and those related to discharge.
Shipment LOIs
In general terms, LOIs requested upon shipment are closely connected with a request to the Master to issue a B/L that contains a representation, which was made knowingly or without belief in its accuracy, about matters such as the nature, condition or quantity of the cargo – BUT which are not correct.
For example, B/Ls with an incorrect description of goods (quality and / or quantity), a failure to mention defective packaging or incorrect dates of shipment (Antedated or Postdated B/Ls).
Discharge LOIs
On the other hand, LOIs at discharge are usually related with a request to the Master to deliver the goods in good faith without the production of the original Bs/L and/or at a port other than the one stated on the B/L.
Other LOI situations
There are, however, various other occasions where an LOI may be the only commercial way to deal with charterer's requests, which go beyond contractual and insurance limits.
For example there may be a request for co-mingling of liquid bulk cargoes or mixing of dry cargoes which obviously raise various problems in relation to the description of the "new" cargo and issuance of new set of B/Ls. There can also be incidents where an Owner needs to serve a request for issuing split B/Ls or substituting a B/L with an amended one and it may not always be possible to have the original returned before the new set is issued. Again on those occasions the pragmatic solution can be found in a provision of an LOI.
Considering a LOI request
When an LOI is to be accepted, special consideration should be given to the terms and the extent of liability in order to provide sufficient protection to the carrier. The reality is that many anticipated pitfalls can be forestalled through careful drafting of the LOI wording; thus reducing the risks involved.
The key features of the IG recommended wordings are the provisions for "indemnity for any liability, loss, damage to expense of whatever nature arising out of complying with the request" as well as the issuer's obligation to provide sufficient funds to defend any claim and arrange the placement of adequate security to any third party.
It is always best to consider such matters at the outset of a fixture, and to pre-arrange suitable contract terms and LOI templates rather than seek to agree these ad hoc, often under urgent time pressure.
Risks
It is indeed quite evident that acceptance of an LOI is not a risk free exercise. What it is important to keep in mind is that the security is only as good as the person granting it and hence it is important to carefully assess the financial standing of the issuer.
Moreover, the clubs will recommend that the guarantee should be countersigned by a first class bank in order to provide the carrier with a safety net when trying to enforce the LOI. The reality though is that the majority of the traders tend to resist such a request, and LOIs are often issued without such countersignature.
Furthermore, the scope of the indemnity needs to be kept as wide as possible and preferably not to include any time limit.
In a nutshell, what needs to be considered and carefully assessed when seeking to minimize the risks related to LOIs is the creditworthiness of the issuer, the authority of the person signing the LOI and at last but not least the prospects of enforceability.
A particular point to note is that for instance there is no reciprocal recognition between P.R. China and the United Kingdom of Court Judgments, but both nations apply the New York Convention on Arbitration Awards. Therefore care needs to be taken when considering the applicable law and jurisdiction of the LOI.
Authority to issue the letter of indemnity
In addition to carrying out a risk assessment exercise to ascertain the creditworthiness of the issuer before accepting an LOI, it is equally important to carefully scrutinize the original document and check the authority of the person signing it.
The LOI should be in a form of an original signed document on the issuer's headed notepaper (fax or e-mail may be sufficient) and should be signed by a clearly identified signatory accompanied by an express statement that he/she is authorized to sign on behalf of the issuer. Needless to say, the original LOI should be sent out to the owners as soon as possible.
In case of doubt or concern, a senior officer of the company, such as a director of the board, should be asked to either sign the LOI or delegate the authority to a designated person, backed by a clear board resolution given the authority.
Straight indemnity clauses
Most issues that arise when an actual LOI is to be provided can be sorted out at the outset by incorporating a "straight indemnity clause" in the charterparty.
Such a clause provides for charterers to indemnify owners where the cargo is discharged without production of the B/L or at a place other than the one stated in the B/L.
In practice such a clause can help to ensure fast resolution of requests, as no separate LOI wording needs to be negotiated or considered. Furthermore the basic law and jurisdiction provisions of the charterparty will apply, which again speeds up the process.
It is important, however, to ensure such clause retains discretion for the owners to refuse a request to deliver without the original bill and the indemnity included needs to be worded sufficiently widely. The former is important so that the owner can protect himself in case there are suspect circumstances at the delivery port.
Enforceability
The rule of thumb that one needs to bear in mind is that an LOI which is accepted in return of issuing a B/L which is not accurate, may be unenforceable as it has the effect of potentially prejudicing an innocent party. Indeed, under English law, it may actually be held to be a fraud on the 3rd party.
Nevertheless, enforceability will always depend on the jurisdiction which either is designated for the dispute resolution, or which is seized of the matter.
The ethical dilemma is that both the carrier and the charterer are parties to the same situation and LOI device, and if the carrier is not permitted to eventually invoke the LOI against the charterer because of the perceived "fraud", the charterers is thus indirectly permitted to benefit from the situation. The concern for a court, however, would typically be the innocent 3rd party that may have been disadvantaged, and both owner and charterer will be taken to have taken a calculated commercial risk and will have to take on board the consequences.
A LOI may be enforceable, however, if there is a genuine doubt about the underlying situation such as whether or not the cargo is damaged when loaded onto the vessel, or the precise quantity laden. Also, a LOI for delivery without production of original B/L and/or change of destination should be to be enforceable, if the owner can show he had no reason to suspect that there was any underlying foul play involved, and it was just – ostensibly – a genuine matter undertaken for commercial convenience.
Duration of the LOI
As far as the duration of an LOI is concerned, it is obvious that there are indeed conflicting interests between owners and the LOI issuer.
The usual time limit under English law for a contractual claim is six years while the time bar limit for claims against the carrier under the Hague-Visby Rules is one year from the date of delivery or the date when the cargo should have been delivered.
The owner is obviously better protected if the LOI is either without a time limit or it is clearly stipulated therein that the LOI will expire after seven years.
The relevant provisions included in the IG LOI wordings provide that liability is to be terminated only when the original B/L is delivered to the carrier, if not, liability continues.
P&I considerations
As within the frame of todays' demanding market there is a wide recognition of the commercial pressure faced by carriers. Nevertheless, it is common ground between all P&I clubs that the principle of mutuality needs to be maintained and hence all members must comply with the Rules.
A LOI is an alternative to P&I cover as it applies to situations where the carrier needs to operate outside the scope of the rules. However, the clubs are always willing to offer assistance with the drafting of LOIs for non-production of B/L or change of destination as well as to discuss any other issue related to a situation where a request for an LOI is to be considered.
The association invites all members to consult the individual claims handlers whenever an LOI related issue comes up for discussion within the scope of their vessel's trading operation.
Source: Skuld / Hellenic Shipping
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Friday, 21 March 14
MERCURIA ANNOUNCES ACQUISITION OF J.P. MORGAN PHYSICAL COMMODITIES BUSINESS
COALspot.com: Mercuria Energy Group announced that it has reached a definitive agreement with J.P. Morgan Chase & Co. to acquire its physica ...
Thursday, 20 March 14
CAPESIZE: WEST AUSTRALIA TO CHINA RATES HAVE CLIMBED BACK TOWARD USD 11 PMT - FEARNRESEARCH
Handy
From a slight improvement in the Atlantic to a more mixed picture this mid week. North Atlantic rounds showing softening signs whereas S ...
Wednesday, 19 March 14
INSTEAD OF DECIDING WHETHER THE GLASS IS HALF FULL OR HALF EMPTY, I AM CURRENTLY GLAD THERE IS WATER IN THE GLASS - EVA TZIMA
By Eva Tzima
Research Analyst
Intermodal Research & Valuations
Right when you think that you have all your facts straight, right wh ...
Wednesday, 19 March 14
EUROCOKE SUMMIT 2014
Press Release: ThyssenKrupp, Steel Institute VDEh, SSI and more headline Smithers Apex’s Eurocoke Summit
The leading coke, coal and s ...
Wednesday, 19 March 14
DRY BULK MARKET REBOUND LEADS TO MORE NEWBUILDING ORDERS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The steady rise of the dry bulk market, as evidenced by the return, yesterday, of the Baltic Dry Index above the 1,500-point mark (1,518), is fu ...
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Showing 3791 to 3795 news of total 6871 |
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- Trasteel International SA, Italy
- Salva Resources Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Mercator Lines Limited - India
- Iligan Light & Power Inc, Philippines
- London Commodity Brokers - England
- Planning Commission, India
- Samtan Co., Ltd - South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Minerals Council of Australia
- Xindia Steels Limited - India
- Sojitz Corporation - Japan
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Thai Mozambique Logistica
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Bayan Resources Tbk. - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Interocean Group of Companies - India
- Makarim & Taira - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Tamil Nadu electricity Board
- Attock Cement Pakistan Limited
- Georgia Ports Authority, United States
- Medco Energi Mining Internasional
- Intertek Mineral Services - Indonesia
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- Eastern Energy - Thailand
- Singapore Mercantile Exchange
- Manunggal Multi Energi - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Banpu Public Company Limited - Thailand
- Dalmia Cement Bharat India
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- Grasim Industreis Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Orica Australia Pty. Ltd.
- SN Aboitiz Power Inc, Philippines
- Orica Mining Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Chamber of Mines of South Africa
- SMG Consultants - Indonesia
- Globalindo Alam Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Agrawal Coal Company - India
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- Australian Coal Association
- Posco Energy - South Korea
- Videocon Industries ltd - India
- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Jindal Steel & Power Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Cement Manufacturers Association - India
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Larsen & Toubro Limited - India
- Krishnapatnam Port Company Ltd. - India
- Metalloyd Limited - United Kingdom
- Bharathi Cement Corporation - India
- Central Electricity Authority - India
- ASAPP Information Group - India
- Directorate Of Revenue Intelligence - India
- Timah Investasi Mineral - Indoneisa
- Wood Mackenzie - Singapore
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- Edison Trading Spa - Italy
- Indo Tambangraya Megah - Indonesia
- Altura Mining Limited, Indonesia
- Renaissance Capital - South Africa
- Petron Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Green Power PLC Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Energy Development Corp, Philippines
- South Luzon Thermal Energy Corporation
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- Independent Power Producers Association of India
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Chettinad Cement Corporation Ltd - India
- Ministry of Mines - Canada
- Kumho Petrochemical, South Korea
- Neyveli Lignite Corporation Ltd, - India
- Toyota Tsusho Corporation, Japan
- Economic Council, Georgia
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Price Waterhouse Coopers - Russia
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- CNBM International Corporation - China
- Offshore Bulk Terminal Pte Ltd, Singapore
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- White Energy Company Limited
- PNOC Exploration Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- Electricity Generating Authority of Thailand
- Kobexindo Tractors - Indoneisa
- Coastal Gujarat Power Limited - India
- GMR Energy Limited - India
- Jaiprakash Power Ventures ltd
- Gujarat Sidhee Cement - India
- The University of Queensland
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- Malabar Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Star Paper Mills Limited - India
- Power Finance Corporation Ltd., India
- Siam City Cement - Thailand
- Indogreen Group - Indonesia
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- Ind-Barath Power Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Rio Tinto Coal - Australia
- Parliament of New Zealand
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- GVK Power & Infra Limited - India
- Ambuja Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Latin American Coal - Colombia
- Sindya Power Generating Company Private Ltd
- Tata Chemicals Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- The Treasury - Australian Government
- Thiess Contractors Indonesia
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Bhatia International Limited - India
- Rashtriya Ispat Nigam Limited - India
- SMC Global Power, Philippines
- Karbindo Abesyapradhi - Indoneisa
- PTC India Limited - India
- Kartika Selabumi Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- OPG Power Generation Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Carbofer General Trading SA - India
- AsiaOL BioFuels Corp., Philippines
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Gujarat Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Finance - Indonesia
- Bukit Baiduri Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Indian Oil Corporation Limited
- ICICI Bank Limited - India
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