DELIVERY WITHOUT PRODUCTION OF BILL OF LADING
One of the first things to note in relation to this situation is that, in most circumstances, Ρ & I cover does not operate to protect the carrier in respect of any claim arising out of delivery of goods without production of bill of lading. Clubs will advise on the wording of indemnities but this is one area where there is no cover. This is because it is a practice open to abuse and is one where there is not mutuality between club members, as some members would adopt this practice more frequently than others. Accordingly the only protection which a carrier who agrees to deliver goods without production of bill of lading has is the indemnity which he takes in return for so doing. He is therefore usually reluctant to accept a personal indemnity from the merchant and requires the indemnity to be countersigned by a reputable bank to guarantee performance.
Let us examine the terms of a typical indemnity of this type (which is shown opposite) and see what provision it contains and why.
1) This is the main indemnity clause in which the merchant indemnifies the carrier etc. against all consequences of complying with his request to deliver the goods to him without surrender of the appropriate documentation.
2) Disputes involving delivery of goods without production of a bill of lading to the wrong party often drag on for a considerable period of time. Therefore the carrier makes provision for being put in funds from time to time if complying with the Merchant’s request involves him in a court action with a third party.
3) If a third party takes action against the carrier for wrongful delivery, he may reinforce this action and guarantee his recovery in the event of a successful court action by arresting one of the carrier’s vessels or placing a Mareva injunction on some other asset. This clause provides for the carrier to take whatever action is necessary to remove the arrest or threat of arrest at the expense of the merchant. It is carefully worded to be an indemnity rather than a bail bond, under which the merchant would have to put up the necessary security to secure freedom from arrest, in order that the bank will countersign it, as most banks will not countersign bail bonds.
4) Sometimes the merchant may approach the carrier to request a delivery order for goods that are still in transit without production of a bill of lading. In this case it is possible that additional charges may accrue and it is even possible for general average to occur prior to delivery. This clause covers this situation but, if the voyage is completed and there is no further possibility of additional charges or general average, the clause may be amended accordingly.
5) This clause provides for the merchant to surrender an original bill of lading to the carrier as soon as it comes into his care. The merchant will probably do this very promptly in any event as he will wish to recover the bank supported indemnity from the carrier so that he can surrender it to his bank and stop the accrual of interest which he is paying to secure the bank’s countersignature to the indemnity. The Carrier needs to be wary of such occasions as delivering the goods without production of a bill of lading may have caused some third party to incur costs of which the carrier is unaware, so that there may be a claim forthcoming from a third party unbeknown to the carrier. He may also have incurred expenses, which he has not yet paid, that he will wish to recover from the merchant. For this reason he would be well advised to ask for a personal indemnity from the merchant (which the merchant should be quite happy to give if there is no hidden reason of which he is aware for it to need to be enforced) in return for the bank supported indemnity, so that the carrier still has an indemnity which he can enforce if the need arises. This is the thinking behind the last phrase in this clause.
6) The point of this clause is to allow the carrier to proceed directly against the bank in the first instance without first having to show that he has proceeded without success against the merchant. If, unbeknown to the carrier, the merchant is engaged in questionable activities, he is frequently very difficult to locate and, even if located, often less than co-operative. Accordingly, the carrier prefers to proceed against the bank and leave the bank to sort out the problem with its customer.
7) This draft indemnity applies English law and calls for the jurisdiction of the High Court of Justice of England. In some areas banks are averse to signing indemnities with foreign jurisdiction clauses and carriers may encounter resistance and have to compromise on the law and jurisdiction clause in indemnities. The extent to which they are willing to compromise will depend upon their view of the alternative law and court required by the bank. In this context it must be borne in mind that it is the carrier who is being asked to take the risk by delivering other than in accordance with normal commercial practice and he should therefore be allowed to require an indemnity in the terms of his choice.
8) Once upon a time banks were prepared to countersign indemnities unlimited in both time and amount but, with increasing regulation by central banks which require the banks to deposit funds with them based on their dependent liabilities, there is increasing pressure on banks to quantify their outstanding liabilities. For this reason banks are increasingly resistant to signing unlimited indemnities. As a claim based on delivery of goods without production of a bill of lading will frequently include other expenses in addition to the value of the goods, it is not possible to agree to limit the indemnity to the value of the goods. Two hundred per cent of the value of the goods is the arbitrary figure commonly used as a reasonable maximum to apply. So far as time bars are concerned, with the possibility of the Hamburg Rules with a two year time bar being involved, this is set at three years in case of a last minute claim being made at the end of two years to give the carrier time to investigate and refer it on the indemnity.
This clause provides for the indemnity from the merchant to be unlimited in time and amount but limits the bank’s countersignature to 200 per cent and three years in order to produce a finite guarantee, which banks find more acceptable for reasons outlined above.
Carriers would be well advised always to be on their guard whenever requested to deliver goods without production of a bill of lading, whether or not against a letter of indemnity as, amongst the genuine requests, there will be requests based on mischievous action. In most cases those “up to no good” will attempt to secure delivery without production of a bill of lading without an indemnity or against a personal indemnity pleading that the bill is coming tomorrow and will be surrendered then and the merchant wishes to avoid incurring the charges of the bank to secure the bank’s countersignature. Instances have occurred (more than one!) of naive shipping clerks being taken in by glib merchants with this type of request, when the real reason behind the request is that the merchant has an outstanding dispute with his supplier over an earlier consignment (poor quality etc.) and thinks that, if he can get hold of the next consignment without paying for it (i.e. taking up the bill of lading at the bank), he has the upper hand in any dealings with his supplier over his claim on an earlier consignment. On such occasions a suspicious mind and an insistence on checking back with the shipper that he has been paid, before delivery is effected against a bank supported indemnity, is essential if grief is wished to be avoided.
Takis Kalogerakos
Marine Underwriter
www.greenwoods.org
