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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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Monday, 10 February 14
SUPRAMAX STILL AT AROUND US$ 5K + BB 50K DELIVERY KALIMANTAN FOR A TRIP TO INDIA - CAPT. REDDY
COALspot.com: The BDI was down by 1.71 pct and closed at 1091 points week ended 7 February 2014. The BDI seemed to reach the bottom as the cape inde ...
Saturday, 08 February 14
U.S PRODUCED 84.5 MMMST OF COAL IN JANUARY; 2.05% UP MONTH ON MONTH, EIA SAYS
COALspot.com – United States the world’s second largest coal producer, produced approximately 18.8 million short tons (mmst) of coal in ...
Friday, 07 February 14
DRY BULK MARKET ON ' REVERSE' MODE DUE TO CHINESE HOLIDAYS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has kept its uninspiring mood throughout yet another week, with the Baltic Dry Index (BDI) hovering slightly above the 1,000-poi ...
Thursday, 06 February 14
INDONESIA'S BAN ON THE EXPORT OF RAW MINERAL ORES COMES INTO FORCE - INCE & CO
COALspot.com: On 12 January 2014, the ban on the export of unprocessed mineral ores came into effect in Indonesia. This ban enforces the Mining Law ...
Thursday, 06 February 14
THE WORLD LARGEST COAL EXPORTER SHIPPED AROUND 35.90 MMT OF COAL IN DECEMBER 2013
COALspot.com: Indonesia, the world 4th largest coal producer and the Global largest multi grade coal exporter shipped around $2* billion worth ...
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Showing 3861 to 3865 news of total 6871 |
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- CNBM International Corporation - China
- Energy Development Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Medco Energi Mining Internasional
- Trasteel International SA, Italy
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Georgia Ports Authority, United States
- ICICI Bank Limited - India
- Tamil Nadu electricity Board
- Orica Mining Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- The Treasury - Australian Government
- Ambuja Cements Ltd - India
- Dalmia Cement Bharat India
- Romanian Commodities Exchange
- Sree Jayajothi Cements Limited - India
- Australian Commodity Traders Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Baramulti Group, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- The University of Queensland
- TNB Fuel Sdn Bhd - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Tata Chemicals Ltd - India
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Marubeni Corporation - India
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- Makarim & Taira - Indonesia
- SMG Consultants - Indonesia
- Salva Resources Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Mintek Dendrill Indonesia
- New Zealand Coal & Carbon
- Altura Mining Limited, Indonesia
- Intertek Mineral Services - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Coalindo Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indogreen Group - Indonesia
- Metalloyd Limited - United Kingdom
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Eastern Coal Council - USA
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Interocean Group of Companies - India
- Indian Energy Exchange, India
- Singapore Mercantile Exchange
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Kobexindo Tractors - Indoneisa
- Karaikal Port Pvt Ltd - India
- Economic Council, Georgia
- Vijayanagar Sugar Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- India Bulls Power Limited - India
- South Luzon Thermal Energy Corporation
- Jorong Barutama Greston.PT - Indonesia
- Commonwealth Bank - Australia
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining Corp, Philippines
- Price Waterhouse Coopers - Russia
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Kaltim Prima Coal - Indonesia
- Mercuria Energy - Indonesia
- Anglo American - United Kingdom
- Indian Oil Corporation Limited
- Heidelberg Cement - Germany
- Maheswari Brothers Coal Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- MS Steel International - UAE
- ASAPP Information Group - India
- GMR Energy Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Chamber of Mines of South Africa
- VISA Power Limited - India
- Meralco Power Generation, Philippines
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Mercator Lines Limited - India
- Bhoruka Overseas - Indonesia
- Samtan Co., Ltd - South Korea
- Savvy Resources Ltd - HongKong
- Sakthi Sugars Limited - India
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Petron Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- Wilmar Investment Holdings
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- Agrawal Coal Company - India
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Merrill Lynch Commodities Europe
- SMC Global Power, Philippines
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Gujarat Sidhee Cement - India
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Vizag Seaport Private Limited - India
- Wood Mackenzie - Singapore
- LBH Netherlands Bv - Netherlands
- Malabar Cements Ltd - India
- IHS Mccloskey Coal Group - USA
- Ministry of Mines - Canada
- Kepco SPC Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- Australian Coal Association
- Kapuas Tunggal Persada - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Bukit Makmur.PT - Indonesia
- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- Pendopo Energi Batubara - Indonesia
- Formosa Plastics Group - Taiwan
- Eastern Energy - Thailand
- London Commodity Brokers - England
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- White Energy Company Limited
- Ministry of Finance - Indonesia
- Minerals Council of Australia
- PTC India Limited - India
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Central Electricity Authority - India
- Lanco Infratech Ltd - India
- Oldendorff Carriers - Singapore
- Kartika Selabumi Mining - Indonesia
- Banpu Public Company Limited - Thailand
- Parliament of New Zealand
- Electricity Authority, New Zealand
- Indo Tambangraya Megah - Indonesia
- Antam Resourcindo - Indonesia
- Latin American Coal - Colombia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- Deloitte Consulting - India
- Directorate Of Revenue Intelligence - India
- Standard Chartered Bank - UAE
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Ind-Barath Power Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Sojitz Corporation - Japan
- Edison Trading Spa - Italy
- PowerSource Philippines DevCo
- Sical Logistics Limited - India
- SN Aboitiz Power Inc, Philippines
- Xindia Steels Limited - India
- Videocon Industries ltd - India
- Madhucon Powers Ltd - India
- Orica Australia Pty. Ltd.
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Central Java Power - Indonesia
- Bharathi Cement Corporation - India
- Timah Investasi Mineral - Indoneisa
- Indika Energy - Indonesia
- Global Business Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
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