We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
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
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Friday, 21 February 14
INDONESIA PLAN TO CAP COAL OUTPUT AND HIKE ROYALTY; START MUSIC
COALspot.com: Energy and Mineral Resources Ministy of Indonesia is planning to increase the royalty for coal miners particularly for Mining Business ...
Friday, 21 February 14
THE WORLD'S SECOND LARGEST COAL MINER MINED 19.2 MMST OF COAL IN A WEEK, EIA SAYS
COALspot.com – United States the world’s second largest coal producer, mined approximately 19.2 million short tons (mmst) of coal in a w ...
Friday, 21 February 14
DRY BULK MARKET SHOWS SIGNS OF LIFE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has slowly started to emerge from the downfall it's been since the start of the year, as rates have began to pick up over the c ...
Friday, 21 February 14
INDONESIA COAL OUTPUT CAP TO HURT MINERS RELIANT ON VOLUME GROWTH, FITCH SAYS
Fitch Ratings says that the credit profiles of mining sub-contractors and miners highly reliant on increasing volumes to support high debt servicing w ...
Thursday, 20 February 14
LENGTHY DELAYS TO PANAMA CANAL EXPANSION POSE GLOBAL TRADE RISKS; US COAL PRODUCERS TO GREATLY BENEFIT ONCE COMPLETE, SAYS WOOD MACKENZIE
Wood Mackenzie expects the recent cost overrun disputes around the Panama Canal expansion to be resolved with limited disruption due to the signific ...
|
|
|
Showing 3841 to 3845 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Wilmar Investment Holdings
- Dalmia Cement Bharat India
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- The Treasury - Australian Government
- Salva Resources Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Vizag Seaport Private Limited - India
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- TNB Fuel Sdn Bhd - Malaysia
- Bayan Resources Tbk. - Indonesia
- Goldman Sachs - Singapore
- Electricity Authority, New Zealand
- Sojitz Corporation - Japan
- Ministry of Finance - Indonesia
- New Zealand Coal & Carbon
- Rio Tinto Coal - Australia
- SMC Global Power, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aditya Birla Group - India
- Central Java Power - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Ind-Barath Power Infra Limited - India
- Trasteel International SA, Italy
- Mercator Lines Limited - India
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- Mjunction Services Limited - India
- Rashtriya Ispat Nigam Limited - India
- Merrill Lynch Commodities Europe
- Offshore Bulk Terminal Pte Ltd, Singapore
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Australian Commodity Traders Exchange
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- GVK Power & Infra Limited - India
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Kepco SPC Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Planning Commission, India
- Heidelberg Cement - Germany
- Semirara Mining and Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Indo Tambangraya Megah - Indonesia
- PowerSource Philippines DevCo
- Singapore Mercantile Exchange
- Sinarmas Energy and Mining - Indonesia
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- CNBM International Corporation - China
- Jindal Steel & Power Ltd - India
- Indika Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Ministry of Mines - Canada
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- IEA Clean Coal Centre - UK
- PTC India Limited - India
- Uttam Galva Steels Limited - India
- Vedanta Resources Plc - India
- Global Business Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Therma Luzon, Inc, Philippines
- Eastern Energy - Thailand
- Malabar Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Sindya Power Generating Company Private Ltd
- Deloitte Consulting - India
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Sakthi Sugars Limited - India
- ASAPP Information Group - India
- Samtan Co., Ltd - South Korea
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Kalimantan Lumbung Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- The University of Queensland
- Australian Coal Association
- Electricity Generating Authority of Thailand
- Intertek Mineral Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Cement Manufacturers Association - India
- Kideco Jaya Agung - Indonesia
- SMG Consultants - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Oil Corporation Limited
- Maharashtra Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- Commonwealth Bank - Australia
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Lanco Infratech Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- White Energy Company Limited
- India Bulls Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Central Electricity Authority - India
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- Chamber of Mines of South Africa
- Xindia Steels Limited - India
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- Essar Steel Hazira Ltd - India
- Parliament of New Zealand
- San Jose City I Power Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- AsiaOL BioFuels Corp., Philippines
- Formosa Plastics Group - Taiwan
- VISA Power Limited - India
- McConnell Dowell - Australia
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- CIMB Investment Bank - Malaysia
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Power Finance Corporation Ltd., India
- Price Waterhouse Coopers - Russia
- Metalloyd Limited - United Kingdom
- Port Waratah Coal Services - Australia
- Marubeni Corporation - India
- Miang Besar Coal Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Riau Bara Harum - Indonesia
- Mintek Dendrill Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Madhucon Powers Ltd - India
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Barasentosa Lestari - Indonesia
- Orica Mining Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Videocon Industries ltd - India
- Kumho Petrochemical, South Korea
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Eastern Coal Council - USA
- Standard Chartered Bank - UAE
- Borneo Indobara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Agrawal Coal Company - India
- Straits Asia Resources Limited - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Maheswari Brothers Coal Limited - India
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Iligan Light & Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Altura Mining Limited, Indonesia
- Wood Mackenzie - Singapore
- Meenaskhi Energy Private Limited - India
- Georgia Ports Authority, United States
- Indian Energy Exchange, India
- Banpu Public Company Limited - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thai Mozambique Logistica
- Sarangani Energy Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Cigading International Bulk Terminal - Indonesia
- MS Steel International - UAE
- PNOC Exploration Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Romanian Commodities Exchange
- Indonesian Coal Mining Association
- Tata Chemicals Ltd - India
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- TeaM Sual Corporation - Philippines
- Ministry of Transport, Egypt
- Thiess Contractors Indonesia
- Sree Jayajothi Cements Limited - India
|
| |
| |
|
