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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, 28 February 14
PTBA TO INCREASE ITS COAL TERMINAL'S LOADING CAPACITY TO 25 MILLION TONS PER ANNUM BY JULY 2014
COALspot.com: PT. Bukit Asam (PTBA), the Indonesian government owned coal miner operates several coal mining units in Sumatera as well as in Kaliman ...
Friday, 28 February 14
U.S PRODUCED 1.9% LESS COAL WEEK ON WEEK
COALspot.com – United States the world’s second largest coal producer, produced approximately 18.8 million short tons (mmst) of coal in ...
Friday, 28 February 14
DRY BULK MARKET SLOWLY BUT STEADILY FINDS ITS FOOTING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market, hit by the low seasonal demand which is a typical characteristic of the first quarter of each year, is beginning to emerge from ...
Thursday, 27 February 14
PANAMAX : MARKET CONTINUED TO DECLINE IN THE ATLANTIC
Handy
The Atlantic handy/supra market experienced a downward trend this week but not a dramatic one. TA rates are down around USD 800 w-o-w lead b ...
Thursday, 27 February 14
SHIPPING LOANS WORTH $5 BILLION HAVE CHANGED HANDS OVER THE PAST YEAR, AS FUNDS INVEST IN SHIPPING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Funds investing in shipping has been the "talk of the town" over the past couple of years, as institutional investors, private equity and ...
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Showing 3826 to 3830 news of total 6871 |
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- Pipit Mutiara Jaya. PT, Indonesia
- Barasentosa Lestari - Indonesia
- New Zealand Coal & Carbon
- Semirara Mining and Power Corporation, Philippines
- Trasteel International SA, Italy
- GVK Power & Infra Limited - India
- Antam Resourcindo - Indonesia
- Bayan Resources Tbk. - Indonesia
- SMG Consultants - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- Bhushan Steel Limited - India
- Maheswari Brothers Coal Limited - India
- Bukit Baiduri Energy - Indonesia
- Merrill Lynch Commodities Europe
- Australian Commodity Traders Exchange
- Rio Tinto Coal - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Eastern Energy - Thailand
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Gujarat Sidhee Cement - India
- Commonwealth Bank - Australia
- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Georgia Ports Authority, United States
- European Bulk Services B.V. - Netherlands
- Cigading International Bulk Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- The Treasury - Australian Government
- AsiaOL BioFuels Corp., Philippines
- CIMB Investment Bank - Malaysia
- CNBM International Corporation - China
- Parliament of New Zealand
- Marubeni Corporation - India
- Singapore Mercantile Exchange
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- Energy Development Corp, Philippines
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- Indian Energy Exchange, India
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- Malabar Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Baramulti Group, Indonesia
- GAC Shipping (India) Pvt Ltd
- Larsen & Toubro Limited - India
- Central Electricity Authority - India
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Kumho Petrochemical, South Korea
- Makarim & Taira - Indonesia
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- Videocon Industries ltd - India
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- PetroVietnam Power Coal Import and Supply Company
- San Jose City I Power Corp, Philippines
- Metalloyd Limited - United Kingdom
- Energy Link Ltd, New Zealand
- London Commodity Brokers - England
- Agrawal Coal Company - India
- Kalimantan Lumbung Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- ICICI Bank Limited - India
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Power Finance Corporation Ltd., India
- LBH Netherlands Bv - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- IHS Mccloskey Coal Group - USA
- Banpu Public Company Limited - Thailand
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- White Energy Company Limited
- Uttam Galva Steels Limited - India
- Romanian Commodities Exchange
- IEA Clean Coal Centre - UK
- Orica Mining Services - Indonesia
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Indo Tambangraya Megah - Indonesia
- McConnell Dowell - Australia
- Xindia Steels Limited - India
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Karbindo Abesyapradhi - Indoneisa
- Anglo American - United Kingdom
- Posco Energy - South Korea
- Thai Mozambique Logistica
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Gujarat Mineral Development Corp Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Mintek Dendrill Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The State Trading Corporation of India Ltd
- Mercator Lines Limited - India
- Bukit Makmur.PT - Indonesia
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- The University of Queensland
- Ministry of Transport, Egypt
- Port Waratah Coal Services - Australia
- Planning Commission, India
- Edison Trading Spa - Italy
- Sical Logistics Limited - India
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Kohat Cement Company Ltd. - Pakistan
- India Bulls Power Limited - India
- Sree Jayajothi Cements Limited - India
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Altura Mining Limited, Indonesia
- Bharathi Cement Corporation - India
- Parry Sugars Refinery, India
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- Electricity Generating Authority of Thailand
- Bulk Trading Sa - Switzerland
- Straits Asia Resources Limited - Singapore
- Kaltim Prima Coal - Indonesia
- Lanco Infratech Ltd - India
- VISA Power Limited - India
- Tata Chemicals Ltd - India
- Siam City Cement PLC, Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karaikal Port Pvt Ltd - India
- MS Steel International - UAE
- Minerals Council of Australia
- Indonesian Coal Mining Association
- Bangladesh Power Developement Board
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Wood Mackenzie - Singapore
- Mercuria Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Bhatia International Limited - India
- PowerSource Philippines DevCo
- Meralco Power Generation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Grasim Industreis Ltd - India
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Australian Coal Association
- PNOC Exploration Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Wilmar Investment Holdings
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Deloitte Consulting - India
- Bhoruka Overseas - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Cement Manufacturers Association - India
- Kideco Jaya Agung - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- ASAPP Information Group - India
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Petron Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- Neyveli Lignite Corporation Ltd, - India
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