Bills of Lading: Indemnities and Bank Guarantees

1
Bills of LadingIndemnities and Bank Guarantees

• Prof Martin Davies
• Tulane Maritime Law Center, New Orleans
• Intertanko International Chartering Forum
• Athens, 14 April 2005

2
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
  Members 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

3
Why LoIs and guarantees are needed

• Delivery of cargo without production of original
  BLs is not covered by PI Clubs
• Not a mutual risk
• No cover unless Directors agree
• Or unless specially covered eg, UK Clubs
  Extended Cargo Cover
• Ditto delivery at a port other than that named in
  the BL

4
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 bank-guaranteed LoI

5
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

6
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

7
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 wrong-port
  delivery even if original BLs presented

8
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

9
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.

10
Who signs?

• An 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

11
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)

12
Actual authority

• Pacific Carriers Ltd v. BNP Paribas (2004) 208
  ALR 213 (High Ct Aus.)
• Manager of Documentary Credit Department of BNP
  Paribas signed over bank chop no actual
  authority for this purpose (US8 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
  US1 million

13
Actual authority

• China Shipping Development Co. Ltd v. State Bank
  of Saurashtra 2001 2 Lloyds Rep. 691 (U.K.
  Comm. Ct.)
• Signature and bank stamps were forgeries
• Bank not bound on basis of actual authority

14
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))

15
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

16
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

17
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

18
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
• Carriers reliance on signature over bank chop
  was reasonable
• Bank bound

19
UK?

• Similar argument about apparent authority made in
  China Shipping v. State Bank of Saurashtra
• Able andhighly 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

20
USA?

• Similar argument made in OOCL v. Kids
  International Corp.
• Plaintiff not entitled to summary judgment
• Argument based only on employees job title
  Director of Imports and status in senior
  management
• Not enough, says S.D.N.Y.

21
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