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Tuesday, 10 October 17
DELIVERY OF CARGO WITHOUT ORIGINAL BILLS OF LADING - UK P&I CLUB
 KNOWLEDGE TO ELEVATE
- It is common in a lot of trades, whether bulk or oil, to accept a Letter of Indemnity (“LOI”) for non-production of bills of lading. Although it is commonly accepted in many trades, the consequences of non-performance can be extremely serious for Members.
- P&I cover is prejudiced if cargo is delivered against an LOI and claims arise where the cargo is mis-delivered.
- It is absolutely essential that Members get the wording of the LOI right and ensure that proper procedures are in place to demonstrate compliance with the LOI.
- Members must also actively weigh up the counter party risk of accepting an LOI. An LOI is only as secure as the party providing it.
- The Zagora is the most recent English High Court case which considers the issues arising from the non production of an original bill of lading.
Introduction
Delivery of cargo without presentation of an original bill of lading, although not recommended, is a reality of international trade. Delays in the documentary chain, and onward sales of the cargo while it is in transit, often means that original bills are not available when the ship reaches the discharge port.
When this occurs, the carrier invariably agrees to deliver the cargo in consideration of receiving a Letter of Indemnity (LOI) from their charterer/ receiver. In many cases, a delivery of cargo in this way will proceed without incident. However, whilst the practice is familiar, familiarity can sometimes lead to complacency. It is therefore important to remember the risks involved in such operations and to act cautiously in order to minimise risks to shipowning interests.
Risk Focus
There are four main risks associated with delivery of cargo without presentation of original bills of lading. The first is a risk of mis-delivery of cargo. It is well understood a bill of lading, amongst other functions, acts as a “key” to the warehouse which, when available at the discharge port, is presented to the Master in order to release the cargo to the “bearer” of the bill of lading. Where such a “key” is not available at the discharge port, it must be remembered that an LOI will not absolve the carrier from liability if the cargo is delivered to the wrong party (commonly referred to as a “mis-delivery claim”).
The lawful holder of the bill of lading can bring a mis-delivery claim against the shipowner, and this will most likely need to be dealt with by the Owner without support from their P&I Club (see below) as well as with the uncertainty as to whether the LOI provided will respond to protect the Owner. Of course, the easiest way to avoid a mis-delivery claim in these circumstances is to refuse to discharge the cargo unless an original bill of lading is presented. Absent any clause in the charterparty, an Owner cannot be compelled to deliver cargo without presentation of an original bill of lading. However, commercial pressures often are brought to bear, and in many charters, an Owner will have already agreed to discharge against an LOI, where original bills are not available under a Bills of Lading / Letters of Indemnity Clause (or similar). If such a provision exists in the charterparty, an Owner cannot refuse to deliver without originals, no matter how uncomfortable they may feel, save if there is evidence to suggest that the person demanding delivery is not entitled to possesion of the cargo.
Regardless of the Owner’s agreement to release cargo against an LOI, enquiries should always be made as to why an original bill of lading will not be presented at the discharge port. There may be perfectly legitimate reasons why an original might be delayed from arriving at the discharge port, such as banking delays. However, there may be another reason which might inform the shipowner of a risk of a mis-delivery claim. For example, the original bill of lading might be being held by the bank who has paid the seller under the letter of credit, but may not have cover from its customer (the Buyer) and thus retains the bill of lading.
Finally, a Master should still be vigilant and take care to verify the identity of the person (taking a record of their name and ID) attending the ship to take delivery, and to carefully confirm, so far as they are able, that the person corresponds to the person identified, either in the LOI or by the charterer (as provider of the LOI), as being or representing the party named in the LOI to whom cargo is to be delivered. Some prudent Owners will take a step further and try to obtain, in advance of arrival at the discharge port, the name and ID of the person who will attend the ship for delivery for the party named in the LOI. So far as Charterers are able to assist in this regard, this practice should be commended.
The second risk relates to insurance cover. It is well understood that liabilities arising as a consequence of mis-delivery are not covered under all P&I Club rules unless the Directors of the club in question otherwise agree (see, for example, Rule 2.17(c)(ii) of the UK P&I Club Rules). The LOI is designed to try to alleviate such risk, so far as it can, but it must be understood that an LOI effectively substitutes an Owner’s P&I cover for mis-delivery claims (if there is no causal connection between delivery without an original bill and the subsequent claim, cover will remain in place: so, for instance, claims for loss or damage to cargo will still be covered).
The UK Club offers Extended Cargo Cover, which, if appropriate to underwrite, includes cover for delivery of cargo without production of the bill of lading or at a port other than that stated in the bill of lading. 1 The third risk is whether the LOI will in fact respond in the event of a mis-delivery claim. The wording of the LOI is therefore critical. As previously mentioned, in the majority of charters an Owner has already agreed to accept an LOI under a Bills of Lading / Letters of Indemnity Clause (or similar). Quite often, charterers insist the standard IG LOI wording should be followed without any modification, but this may not take into account the facts on the ground at a particular port and at a particular time.
Accordingly, care should be given to the wording of these clauses from the very outset to ensure that Owners are not placing too much risk on their shoulders. For example, often, Charterparty clauses are amended so that Owners “agree to discharge” cargo against an LOI as opposed to “agree to deliver” cargo against an LOI. Whilst this can be seen as desirable for the Owner so that the LOI applies from the moment of discharge, Owners are still required to “deliver” the cargo under the Bill of Lading. “Discharge” of the cargo and “delivery” of the cargo are two different concepts and therefore, unless the Owner retains possession or control of the discharged cargo (unlikely in most instances), they will be at risk of mis-delivery.
The BREMEN MAX2 case also highlighted the critical importance of adhering to the LOI wording. In that case, based on the LOI being considered, the judge highlighted that a shipowner might prejudice his right to demand and receive security under the LOI if they provide security to the cargo claimant before making his own demand for security under the LOI. The charterers also raised an argument that the indemnity was conditional upon delivery of the cargo to the party named as receiver in the LOI. In October 2010, the IG Clubs issued a circular recommending changes to the standard LOI to address these two points. It was the second of these points which was considered in the most recent LOI case, The ZAGORA3. In that case, the relevance of the LOI arose following a discharge which took place without production of an original bill of lading against the charterer’s LOI. More than eight months after discharge, the vessel returned to the same discharge port and was placed under arrest at the suit of the Bank of China, who asserted that they were holders of the original bill of lading, that they had not been paid, and that the cargo had been wrongfully discharged (i.e. without production of the original bill of lading).
The Owners duly called upon the Head Charterers to obtain the release of the vessel pursuant to the LOI they had provided. The Head Charterers passed the demand down the charter chain but, despite sub-charterers obtaining an interim mandatory injunction to force the Buyer to honour the LOI and put up security, the Buyer refused to do so. After some delay, the Head Charterers were eventually obliged to provide security to obtain the release of the vessel, whilst reserving its right to argue the LOI had not been engaged.
The dispute was litigated in the English High Court and the judgment was handed down almost three years after discharge. The Head Charterers argued that an LOI for delivery to “Xiamen or such party as you believe to be or to represent Xiamen” was not engaged where the Owners had discharged the cargo into the possession and control of shipping agents appointed by the ultimate Buyer of the cargo, and passed up the chain of charterparties. Rather, the Head Charterers argued, the shipping agents took custody of the cargo as agent for the Owners.
Ultimately, the English High Court upheld the LOI, finding that the shipping agent did represent “Xiamen” as the party to whom Owners were instructed to discharge and release the cargo.
However, this was not before an intensely factual investigation into the chain of charterparties and sales contracts, the evidence relating to the formation of the LOI up and down the contractual chains as well as the circumstances of the discharge operations including correspondence passing between the parties. The ZAGORA highlights the inherent difficulties where a chain of LOIs has been provided. The fourth and final risk concerns the creditworthiness of the party providing the LOI. This is well understood by shipowners but, it is worth highlighting that a claim under an LOI is not secured by any right of lien over cargo. Remember, the LOI may stand in place of P&I cover.
It is also important to emphasise that the creditworthiness to pay hire and other incidentals under a charterparty is not the same as the creditworthiness of a company to meet a mis-delivery claim for the value of the cargo. Claims will come at a later time and may be significant. The ZAGORA demonstrates the creditworthiness point for a charterer in the middle of the chain. In that case, a sub-sub charterer made no appearance in the proceedings which came to court three years after discharge, leaving Charterers higher up the chain to deal with the consequences of the mis-delivery of cargo.
Will the use of E-bills help?
The use of electronic bills of lading has increased significantly over recent years. In contrast to paper bills of lading, the risk of an E-bill not being available at the discharge port to enable cargo discharge is, on the contrary, remote, and the parties who have embraced electronic bills have commented that as a consequence, the number of LOIs issued has dropped dramatically. This being the case, the risks of mis-delivery are greatly reduced. The “closed” nature of electronic bill of lading systems also assists in establishing the identity of a party taking delivery of the cargo. Further information on e-bills can be found in the UK Club Legal Briefing on Electronic Bills of Lading. 4
Conclusion
The practice of delivery of cargo without presentation of original bills of lading is very familiar, and so far as paper bills of lading are concerned, is here to stay. However, mis-delivery claims do arise which must be dealt with without support of insurance as well as with the uncertainty of whether an LOI will effectively protect the shipowner in the event of claim. It is therefore crucial that Owners remain vigilant with their procedures for delivery of cargo as well as with regards to Charterparty clauses and LOI wording. If in doubt, Members should seek advice from the Club.
Source: UK P&I Club
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Friday, 13 October 17
U.S. COAL EXPORTS FOR THE FIRST SEVEN MONTHS OF 2017 TOTALED 51 MMST; UP 62% YOY, EIA DATA SHOWS
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15.2 million shor ...
Thursday, 12 October 17
THERMAL COAL PRICES IN EUROPE AND ASIA PUSHING HIGHER - DANIEL HYNES
Coal markets took the lead from the oil market, with thermal coal prices in Europe and Asia pushing higher says Daniel Hynes,Senior Commodity Strat ...
Wednesday, 11 October 17
2020 DEBATE AT IBIA'S LISW EVENT: COMPLIANCE & ENFORCEMENT – IT'S COMPLICATED : IBIA
There is no doubt about the start date for the 0.50% marine fuel sulphur limit in MARPOL Annex VI, but questions remain around how it will be enfor ...
Wednesday, 11 October 17
SHIPPING MARKET INSIGHT - TIMOS PPADIMITRIOU
With the majority of second-hand tonnage transactions taking place in the dry bulk sector it’s easy to lose sight of what is happening over a ...
Monday, 09 October 17
INDONESIAN COAL PRICE REFERENCE HITS NEW HIGH FOR 2017
COALspot.com: Indonesian coal benchmark price surges 2.13% in October month over month, the latest ministerial decree showed.
The benchmark pr ...
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Showing 1916 to 1920 news of total 6871 |
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- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- The University of Queensland
- Rio Tinto Coal - Australia
- Latin American Coal - Colombia
- Standard Chartered Bank - UAE
- GVK Power & Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Mines - Canada
- Vijayanagar Sugar Pvt Ltd - India
- Goldman Sachs - Singapore
- Kumho Petrochemical, South Korea
- Vedanta Resources Plc - India
- OPG Power Generation Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- MS Steel International - UAE
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Orica Australia Pty. Ltd.
- VISA Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Oldendorff Carriers - Singapore
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- SMG Consultants - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Vizag Seaport Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Gujarat Mineral Development Corp Ltd - India
- CIMB Investment Bank - Malaysia
- Binh Thuan Hamico - Vietnam
- Ind-Barath Power Infra Limited - India
- Georgia Ports Authority, United States
- Indo Tambangraya Megah - Indonesia
- Madhucon Powers Ltd - India
- Star Paper Mills Limited - India
- Planning Commission, India
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Central Electricity Authority - India
- Interocean Group of Companies - India
- Meenaskhi Energy Private Limited - India
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- Siam City Cement PLC, Thailand
- Thai Mozambique Logistica
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- Sojitz Corporation - Japan
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Electricity Authority, New Zealand
- Africa Commodities Group - South Africa
- Sindya Power Generating Company Private Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Electricity Generating Authority of Thailand
- Global Green Power PLC Corporation, Philippines
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- Meralco Power Generation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Independent Power Producers Association of India
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- Bulk Trading Sa - Switzerland
- TeaM Sual Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Transport, Egypt
- White Energy Company Limited
- Carbofer General Trading SA - India
- Semirara Mining Corp, Philippines
- Commonwealth Bank - Australia
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Kohat Cement Company Ltd. - Pakistan
- Chamber of Mines of South Africa
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Coalindo Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- SN Aboitiz Power Inc, Philippines
- Marubeni Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Kepco SPC Power Corporation, Philippines
- Videocon Industries ltd - India
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Essar Steel Hazira Ltd - India
- Merrill Lynch Commodities Europe
- CNBM International Corporation - China
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Xindia Steels Limited - India
- Salva Resources Pvt Ltd - India
- Eastern Energy - Thailand
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- Edison Trading Spa - Italy
- Romanian Commodities Exchange
- Thiess Contractors Indonesia
- Economic Council, Georgia
- Manunggal Multi Energi - Indonesia
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- Anglo American - United Kingdom
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- Price Waterhouse Coopers - Russia
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Minerals Council of Australia
- Borneo Indobara - Indonesia
- Australian Coal Association
- Sinarmas Energy and Mining - Indonesia
- Tata Chemicals Ltd - India
- Intertek Mineral Services - Indonesia
- Gujarat Sidhee Cement - India
- London Commodity Brokers - England
- Metalloyd Limited - United Kingdom
- European Bulk Services B.V. - Netherlands
- Holcim Trading Pte Ltd - Singapore
- Eastern Coal Council - USA
- New Zealand Coal & Carbon
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sree Jayajothi Cements Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- The Treasury - Australian Government
- Port Waratah Coal Services - Australia
- Samtan Co., Ltd - South Korea
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
- Bukit Makmur.PT - Indonesia
- Siam City Cement - Thailand
- Cement Manufacturers Association - India
- Bangladesh Power Developement Board
- Bayan Resources Tbk. - Indonesia
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Kartika Selabumi Mining - Indonesia
- Australian Commodity Traders Exchange
- IEA Clean Coal Centre - UK
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dalmia Cement Bharat India
- Coastal Gujarat Power Limited - India
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Lanco Infratech Ltd - India
- Ambuja Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Mintek Dendrill Indonesia
- Heidelberg Cement - Germany
- Maharashtra Electricity Regulatory Commission - India
- Jaiprakash Power Ventures ltd
- Bhoruka Overseas - Indonesia
- Jindal Steel & Power Ltd - India
- Orica Mining Services - Indonesia
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Global Coal Blending Company Limited - Australia
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- The State Trading Corporation of India Ltd
- IHS Mccloskey Coal Group - USA
- Trasteel International SA, Italy
- Pendopo Energi Batubara - Indonesia
- Posco Energy - South Korea
- Kobexindo Tractors - Indoneisa
- Kaltim Prima Coal - Indonesia
- Bhatia International Limited - India
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
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