Bills of Lading:
Indemnities and Bank Guarantees
Prof Martin Davies
Tulane Maritime Law Center, New Orleans
Intertanko International Chartering Forum
Singapore, 27 March 2006
Why LoIs and guarantees are
needed
• Eg, Steamship Mutual Rule 25(xiii), Proviso (viii):
“Unless and to the extent the Directors shall in their
absolute discretion otherwise determine, there shall be
no recovery from the Club under paras a-d of this Rule
25 xiii in respect of the Member’s liabilities, costs or
expenses arising out of:
(a) the discharge of the cargo or any part thereof from
an entered ship at any port or place other than a port or
place permitted by the relevant contract of carriage;
(b) the delivery of cargo carried on an entered ship
without the production of the relevant bill of lading”
2
Why LoIs and guarantees are
needed
• Delivery of cargo without production of
original BLs is not covered by P&I Clubs
– Not a mutual risk
– No cover unless Directors agree
– Or unless specially covered – eg, UK Club’s
Extended Cargo Cover
• Ditto delivery at a port other than that
named in the BL
3
International Group LoIs
• December 1998 Circular
– “If you must do it, do it like this”
• Later modifications
• Agreement by British Bankers’ Association
(BBA) on form of words for bankguaranteed LoI
4
International Group LoIs
• Int Group A: delivery without production
of original BL
– Int Group AA: requestor plus bank
• Int Group B: delivery at port other than
stated in BL
– Int Group BB: requestor plus bank
• Int Group C: delivery at port other than
stated in BL and without production of
original BL
– Int Group CC: requestor plus bank
5
Amount
• If requestor alone, usually unlimited
liability
• If bank agrees to join, usually stipulates
agreed maximum
– IG recommends 200% of sound market value
of cargo
6
Duration
• For A and AA: until presentation of original
BLs
• For B, BB, C, CC: until shipowner is
satisfied that no claim will be made
– Because there can still be claim for wrongport delivery even if original BLs presented
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Scope of security given
• Bail or security to prevent or lift arrest of
ship or surrogate/associated ship
• Requestor only; banks do not join in
giving of security, even under AA, BB, CC
8
Special tanker clauses
• Paragraph 4 in A, AA, C, CC (not B, BB):
• “If the place at which we have asked you
to make delivery is a bulk liquid or gas
terminal or facility, or another ship, lighter
or barge, then delivery to such terminal,
facility, lighter or barge shall be deemed to
be delivery to the party to whom we have
requested you to make delivery”.
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Given to whom? Enforceable by
whom?
• Laemthong International Lines Co. Ltd v. Artis (The
Laemthong Glory)(No. 2) [2005] 1 Lloyd’s Rep. 632
– Receivers ask voyage charterer-shippers to request delivery
without original BLs
– Charterers give LOI to owners; receivers give LOI to charterers
(copy to owners’ agents); cargo delivered
– Ship arrested at discharge port (Aden) by Yemen Bank alleging it
had paid charterers but had not been paid by receivers
– Owners sued charterers and receivers on LOIs
– Preliminary question: could owners sue receivers directly on
their LOI?
10
The Laemthong Glory (No. 2)
• Contracts (Rights of Third Parties) Act 1999 (U.K.), s. 1
– Person not a party to a contract may sue in its own right to
enforce a term of a contract if the contract expressly so provides
• Receiver’s LOI was not an indemnity in respect of
charterer’s liability under its LOI
• Receiver’s LOI was an indemnity in respect of delivery by
charterers “or their agents”
• For purposes of delivery, owner was charterer’s agent, so
LOI conferred a benefit on it
• Act applied, owners could enforce receivers’ LOI directly
11
Issued by whom? Who signs?
• “[A]n agent must have authority, whether
apparent, actual or implied, to bind his
principal” (Merrill Lynch Interfunding, Inc.
v. Argenti, 155 F.3d 113, 122 (2d Cir.
1998))
• If person who signed had no actual
authority, requestor or bank may refuse to
honor LoI
12
Actual authority
• Not enough that person who signs is an
employee, even a senior management
employee
• Must have authority to bind requestor or
bank to the liability being undertaken
(which may be millions of dollars)
13
Actual authority
• Pacific Carriers Ltd v. BNP Paribas (2004) 218
CLR 451 (High Ct Aus.)
– Manager of Documentary Credit Department of BNP
Paribas signed over bank “chop”: no actual authority
for this purpose (US$8 million indemnity)
• OOCL v. Kids International Corp., 1999 WL
76840 (S.D.N.Y.)
– Carrier not entitled to summary judgment on LoI
signed by “Director of Imports”
– Requestor presented admissible evidence she did not
have actual authority to bind it to LoI worth US$1
million
14
Actual authority
• China Shipping Development Co. Ltd v.
State Bank of Saurashtra [2001] 2 Lloyd’s
Rep. 691 (U.K. Comm. Ct.)
– Signature and bank stamps were forgeries
– Bank not bound on basis of actual authority
15
Apparent/ostensible authority
• Not enough that the person signing seems to
•
have authority
For apparent authority to exist, there must be
“words or conduct of the principal,
communicated to a third party, that give rise to
the appearance and belief that the agent
possesses authority to enter into a transaction”
(Standard Funding Corp. v. Lewitt, 656 N.Y.S.2d
188, 191 (N.Y. 1997))
16
Apparent/ostensible authority
• Thus, requestor or bank itself must give
the impression that person signing has
authority to do so
• Difficult, if the only communication from
the requestor or bank is the LoI itself
– Agent/employee cannot clothe himself/herself
with apparent authority
17
PCL v BNP Paribas
• Delivery of legumes in Kolkata without
presentation of original BLs
• Voyage charterer gives disponent owner
LoI, counter-signed by BNP Paribas
• Receiver/buyer refuses to pay
– Shipper claims aginst SO; TC indemnifies SO
• TC/disponent owner claims on LoI
• Voyage charterer now insolvent
18
PCL v BNP Paribas
• Bank employee who signed LoI over bank
•
•
“chop” had no actual authority to do so
Trial court (SCNSW) held BNP counter-signature
was not a guarantee at all
CANSW held LoI was a guarantee but BNP not
bound
– No actual authority
– No apparent authority – BNP had not given carrier
any representation that she had authority to sign
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PCL v BNP Paribas
• High Ct Aust.: there was apparent authority
• BNP itself made implied representations about
•
•
•
her authority by equipping her with her title,
status and facilities, including the “chop” stamp
Failing to take proper safeguards against
misrepresentation can impart appearance of
authenticity
Carrier’s reliance on signature over bank “chop”
was reasonable
Bank bound
20
UK?
• Similar argument about apparent authority
made in China Shipping v. State Bank of
Saurashtra
– “[A]ble and…highly ingenious argument”
made once it became apparent that
signatures and stamps were forgeries
– Failed: “not a shred of evidence” that bank
(and actually authorised employee) had
allowed forgery to happen
21
USA?
• Similar argument made in OOCL v. Kids
International Corp.
– Plaintiff not entitled to summary judgment
– Argument based only on employee’s job title
“Director of Imports” and status in “senior
management”
– Not enough, says S.D.N.Y.
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Conclusion
• Be very careful, even if you get an LoI and
even if it is (apparently) counter-signed by
a bank
• Fraud is already a concern if original BLs
not present or different port requested
• Requestor/bank not bound by fraudulent
signatures (Saurashtra Bank)
• If you can, question authority
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