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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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Thursday, 06 February 14
PANAMAX: FAR EAST IS ALMOST ABSENT AND ATLANTIC ON SLOW STEAM
Handy
Due to ongoing Chinese New Year the market is still quiet. Slowly we can see some fresh coal cargos entering the market with second half Feb/ ...
Wednesday, 05 February 14
DRY BULK MARKET HAS LOST FURTHER GROUND THIS PAST WEEK - INTERMODAL
COALspot.com: The Dry Bulk market has lost further ground this past week as activity ex-Far East disappeared into the Chinese holidays and owners id ...
Wednesday, 05 February 14
MARKET INSIGHT - TASOS PAPADOPOULOS
KNOWLEDGE TO ELEVATE
COALspot.com: Let's take a break from market prospects, numbers, order book etc. and shed some light on the conclusions of ...
Tuesday, 04 February 14
NEWCASTLE PORT'S WEEKLY COAL EXPORTS HIT NEW HIGH OF 3.53 MMT
COALspot.com: In the week ended 3 February 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled ...
Monday, 03 February 14
SUB-BIT INDONESIA COAL SWAP GAINED WEEK ON WEEK
COALspot.com – Swaps prices gained for thermal coal loading from Indonesia, the world’s largest exporter of the fuel, according SGX.
...
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Showing 3866 to 3870 news of total 6871 |
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- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Ambuja Cements Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- Cigading International Bulk Terminal - Indonesia
- Wilmar Investment Holdings
- Siam City Cement PLC, Thailand
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Aditya Birla Group - India
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Sindya Power Generating Company Private Ltd
- Tata Chemicals Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Therma Luzon, Inc, Philippines
- The Treasury - Australian Government
- CIMB Investment Bank - Malaysia
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Deloitte Consulting - India
- Bayan Resources Tbk. - Indonesia
- GAC Shipping (India) Pvt Ltd
- Kobexindo Tractors - Indoneisa
- Australian Coal Association
- Gujarat Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Singapore Mercantile Exchange
- San Jose City I Power Corp, Philippines
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- Indonesian Coal Mining Association
- Thiess Contractors Indonesia
- Salva Resources Pvt Ltd - India
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Latin American Coal - Colombia
- Planning Commission, India
- OPG Power Generation Pvt Ltd - India
- Central Electricity Authority - India
- Ministry of Finance - Indonesia
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Globalindo Alam Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- Krishnapatnam Port Company Ltd. - India
- Toyota Tsusho Corporation, Japan
- Global Coal Blending Company Limited - Australia
- Iligan Light & Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- Grasim Industreis Ltd - India
- Gujarat Sidhee Cement - India
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- Renaissance Capital - South Africa
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indika Energy - Indonesia
- Vedanta Resources Plc - India
- CNBM International Corporation - China
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- Orica Australia Pty. Ltd.
- Ministry of Mines - Canada
- VISA Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Maheswari Brothers Coal Limited - India
- Pendopo Energi Batubara - Indonesia
- Sojitz Corporation - Japan
- Straits Asia Resources Limited - Singapore
- Anglo American - United Kingdom
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Bhushan Steel Limited - India
- Coastal Gujarat Power Limited - India
- Mjunction Services Limited - India
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Electricity Authority, New Zealand
- Energy Link Ltd, New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Chamber of Mines of South Africa
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Lanco Infratech Ltd - India
- IEA Clean Coal Centre - UK
- Alfred C Toepfer International GmbH - Germany
- Videocon Industries ltd - India
- White Energy Company Limited
- Independent Power Producers Association of India
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Barasentosa Lestari - Indonesia
- PTC India Limited - India
- Port Waratah Coal Services - Australia
- Timah Investasi Mineral - Indoneisa
- GMR Energy Limited - India
- Coalindo Energy - Indonesia
- Energy Development Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- ICICI Bank Limited - India
- Global Green Power PLC Corporation, Philippines
- Standard Chartered Bank - UAE
- Bangladesh Power Developement Board
- Kepco SPC Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Baramulti Group, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Mineral Development Corp Ltd - India
- Star Paper Mills Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement - Thailand
- Jindal Steel & Power Ltd - India
- Bhatia International Limited - India
- India Bulls Power Limited - India
- IHS Mccloskey Coal Group - USA
- Intertek Mineral Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Manunggal Multi Energi - Indonesia
- Minerals Council of Australia
- ASAPP Information Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Formosa Plastics Group - Taiwan
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ind-Barath Power Infra Limited - India
- Bharathi Cement Corporation - India
- Economic Council, Georgia
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Kaltim Prima Coal - Indonesia
- Heidelberg Cement - Germany
- Posco Energy - South Korea
- Uttam Galva Steels Limited - India
- Riau Bara Harum - Indonesia
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Orica Mining Services - Indonesia
- Simpson Spence & Young - Indonesia
- Madhucon Powers Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- The University of Queensland
- Savvy Resources Ltd - HongKong
- New Zealand Coal & Carbon
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Ceylon Electricity Board - Sri Lanka
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Edison Trading Spa - Italy
- Rio Tinto Coal - Australia
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Australian Commodity Traders Exchange
- Eastern Energy - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Global Business Power Corporation, Philippines
- Coal and Oil Company - UAE
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Medco Energi Mining Internasional
- Kumho Petrochemical, South Korea
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Sical Logistics Limited - India
- Larsen & Toubro Limited - India
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- Cement Manufacturers Association - India
- Binh Thuan Hamico - Vietnam
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