Refers to the decision of Farenco Shipping Co Ltd -v- Daebo Shipping Co Ltd (LLR (2009) Vol 1 81) in the English Commercial Court, we recommend ship owners/charterers to take below two further precautions when accept a letter of indemnity for delivery of cargo without production of the original bill of lading. (Make reference to recommended standard form letters of indemnity in Appendix).
1. The identity of the party to whom delivery is to be given We recommend below format for [insert name of party to whom delivery is to be made] in the opening paragraph of the letter of indemnity. The wording is designed to ensure that if the Member believes that the party to whom physical delivery of the cargo is given is X or is acting on behalf of X, he can rely on the letter of indemnity.
“X [name of the specific party] or to such party as you believe to be or to represent X or to be acting on behalf of X”
2. Timing of demands under the letter of indemnity In the event that a Member delivers cargo without production of the bill of lading in return for a letter of indemnity, and an allegation is subsequently made against the Member that it has misdelivered the cargo, accompanied by a security demand from the claimant, then the Member should immediately give notice to the issuer of the letter of indemnity that:
-
- a claim has been notified;
- security has been demanded from the Member;
- the Member now requires to be secured by the issuer in accordance with paragraph 3 of the letter of indemnity.
It is essential that this is done before the Member provides any security itself to the original claimant.
APPENDIX
STANDARD FORMS OF LETTERS OF INDEMNITY TO BE GIVEN IN RETURN FOR:
(A) Delivering cargo without production of the original bill of lading
(AA) Delivering cargo without production of the original bill of lading incorporating a bank’s agreement to join in the letter of indemnity
(B) Delivering cargo at a port other than that stated in the bill of lading
(BB) Delivering cargo at a port other than that stated in the bill of lading incorporating a bank’s agreement to join in the letter of indemnity
(C) Delivering cargo at a port other than that stated in the bill of lading and without production of the original bill of lading
(CC) Delivering cargo at a port other than that stated in the bill of lading and without production of the original bill of lading incorporating a bank’s agreement to join in the letter of indemnity.
