Bills of Lading:Bills of Lading:Indemnities and Bank Indemnities and Bank

GuaranteesGuarantees

Prof Martin DaviesProf Martin DaviesTulane Maritime Law Center, New OrleansTulane Maritime Law Center, New Orleans

International Seminar: Tanker Chartering – A International Seminar: Tanker Chartering – A Legal PerspectiveLegal Perspective

IntertankoIntertankoHouston, 29 March 2007Houston, 29 March 2007

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Issuing and signing bills of Issuing and signing bills of ladinglading

• Owner undertakes that Master will Owner undertakes that Master will sign bills of lading presented by sign bills of lading presented by ChartererCharterer

• E.g., Shelltime 4, cl. 13:E.g., Shelltime 4, cl. 13: “ “The Master (although appointed by The Master (although appointed by

Owners)…shall sign bills of lading as Owners)…shall sign bills of lading as Charterers or their agents may direct…Charterers or their agents may direct…without prejudice to this Charter.”without prejudice to this Charter.”

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Charterers to indemnify Charterers to indemnify OwnersOwners• Sometimes expressly stated in CPSometimes expressly stated in CP

– E.g. Shelltime 4, cl. 13(a): “Charterers E.g. Shelltime 4, cl. 13(a): “Charterers hereby indemnify Owners against all hereby indemnify Owners against all consequences or liabilities that may arise consequences or liabilities that may arise (i) from signing bills of lading in (i) from signing bills of lading in accordance with the directions of accordance with the directions of Charterers or their agents…”Charterers or their agents…”

• If not express, then impliedIf not express, then implied– Not expressly stated in NYPE but implied: Not expressly stated in NYPE but implied:

The Berge SundThe Berge Sund [1993] 2 Lloyd’s Rep. 453 [1993] 2 Lloyd’s Rep. 453

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Duty to indemnify strengthens Duty to indemnify strengthens power to commandpower to command

• Owner/Master has very limited right of Owner/Master has very limited right of refusal because of indemnityrefusal because of indemnity

• The NanfriThe Nanfri [1979] 2 Lloyd’s Rep. 201, 206 [1979] 2 Lloyd’s Rep. 201, 206 per Lord Wilberforce:per Lord Wilberforce:– ““Clause 9, as is usual in time charters, contains Clause 9, as is usual in time charters, contains

an indemnity clause against all consequences or an indemnity clause against all consequences or liabilities arising from the master signing bills of liabilities arising from the master signing bills of lading. This underlines the power of the lading. This underlines the power of the charterers, in the course of exploiting the vessel, charterers, in the course of exploiting the vessel, to decide what bills of lading are appropriate for to decide what bills of lading are appropriate for their trade and to instruct the masters to issue their trade and to instruct the masters to issue such bills, the owners being protected by the such bills, the owners being protected by the indemnity clause.”indemnity clause.”

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““Without prejudice to the Without prejudice to the charterparty”charterparty”

• Does Does not not mean that Master may refuse to mean that Master may refuse to sign bills of lading exposing Owners to sign bills of lading exposing Owners to greater liability than under chartergreater liability than under charter– Owners are protected by express or implied Owners are protected by express or implied

indemnity from Charterersindemnity from Charterers

• Means only that the relationship between Means only that the relationship between Owners and Charterers is unaffected by the Owners and Charterers is unaffected by the signature of bills of lading in different termssignature of bills of lading in different terms– Turner v. Haji GoolamTurner v. Haji Goolam [1904] AC 826 [1904] AC 826– The NanfriThe Nanfri

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Only if “manifestly Only if “manifestly inconsistent”inconsistent”• Master may only refuse to sign if BLs Master may only refuse to sign if BLs

contain extraordinary terms or are contain extraordinary terms or are “manifestly inconsistent” with charter“manifestly inconsistent” with charter

• Clean bills for obviously damaged cargoClean bills for obviously damaged cargo– Master has right under charter and duty to Master has right under charter and duty to

receivers to refuse to signreceivers to refuse to sign– The Nogar MarinThe Nogar Marin [1988] 1 Lloyd’s Rep. 412 [1988] 1 Lloyd’s Rep. 412– Kennedy v. Weston & Co.,Kennedy v. Weston & Co., 136 F. 166 (5 136 F. 166 (5thth Cir. Cir.

1905)1905)• Incorrectly dated billsIncorrectly dated bills

– The AlmakThe Almak [1985] 1 Lloyd’s Rep. 557 [1985] 1 Lloyd’s Rep. 557• Bills misstating loaded quantityBills misstating loaded quantity

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Express limits on duty to obey Express limits on duty to obey Charterers’ ordersCharterers’ orders

• E.g., Shelltime 4, cl. 13(b):E.g., Shelltime 4, cl. 13(b):– ““Notwithstanding the foregoing, Owners shall not Notwithstanding the foregoing, Owners shall not

be obliged to comply with any orders from be obliged to comply with any orders from Charterers to discharge all or part of the cargoCharterers to discharge all or part of the cargo

•(i) at any place other than that shown on the bill (i) at any place other than that shown on the bill of lading and/orof lading and/or

•(ii) without presentation of an original bill of (ii) without presentation of an original bill of ladinglading

unless they have received from Charterers both unless they have received from Charterers both written confirmation of such orders and an written confirmation of such orders and an indemnity in a form acceptable to Owners.”indemnity in a form acceptable to Owners.”

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Why LoIs and guarantees are Why LoIs and guarantees are neededneeded• Eg, Steamship Mutual Rule 25(xiii), Proviso (viii):Eg, Steamship Mutual Rule 25(xiii), Proviso (viii):

““Unless and to the extent the Directors shall in their Unless and to the extent the Directors shall in their absolute discretion otherwise determine, there shall absolute discretion otherwise determine, there shall be no recovery from the Club under paras a-d of be no recovery from the Club under paras a-d of this Rule 25 xiii in respect of the Member’s this Rule 25 xiii in respect of the Member’s liabilities, costs or expenses arising out of:liabilities, costs or expenses arising out of:(a) the discharge of the cargo or any part thereof (a) the discharge of the cargo or any part thereof from an entered ship at any port or place other from an entered ship at any port or place other than a port or place permitted by the relevant than a port or place permitted by the relevant contract of carriage;contract of carriage;(b) the delivery of cargo carried on an entered ship (b) the delivery of cargo carried on an entered ship without the production of the relevant bill of lading”without the production of the relevant bill of lading”

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Why LoIs and guarantees are Why LoIs and guarantees are neededneeded

• Delivery of cargo without production of Delivery of cargo without production of original BLs is not covered by P&I Clubsoriginal BLs is not covered by P&I Clubs– Not a mutual riskNot a mutual risk– No cover unless Directors agreeNo cover unless Directors agree– Or unless specially covered – eg, UK Club’s Or unless specially covered – eg, UK Club’s

Extended Cargo CoverExtended Cargo Cover

• Ditto delivery at a port other than that Ditto delivery at a port other than that named in the BLnamed in the BL

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International Group LoIsInternational Group LoIs

• December 1998 CircularDecember 1998 Circular– ““If you must do it, do it like this”If you must do it, do it like this”

• Later modificationsLater modifications

• Agreement by British Bankers’ Agreement by British Bankers’ Association (BBA) on form of words Association (BBA) on form of words for bank-guaranteed LoIfor bank-guaranteed LoI

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International Group LoIsInternational Group LoIs• Int Group A: delivery without Int Group A: delivery without

production of original BLproduction of original BL– Int Group AA: requestor plus bankInt Group AA: requestor plus bank

• Int Group B: delivery at port other Int Group B: delivery at port other than stated in BLthan stated in BL– Int Group BB: requestor plus bankInt Group BB: requestor plus bank

• Int Group C: delivery at port other Int Group C: delivery at port other than stated in BL than stated in BL and and without without production of original BLproduction of original BL– Int Group CC: requestor plus bankInt Group CC: requestor plus bank

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AmountAmount

• If requestor alone, usually unlimited If requestor alone, usually unlimited liabilityliability

• If bank agrees to join, usually If bank agrees to join, usually stipulates agreed maximumstipulates agreed maximum– IG recommends 200% of sound market IG recommends 200% of sound market

value of cargovalue of cargo

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Duration Duration

• For A and AA: until presentation of For A and AA: until presentation of original BLsoriginal BLs

• For B, BB, C, CC: until shipowner is For B, BB, C, CC: until shipowner is satisfied that no claim will be madesatisfied that no claim will be made– Because there can still be claim for Because there can still be claim for

wrong-port delivery even if original BLs wrong-port delivery even if original BLs presentedpresented

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Scope of security givenScope of security given

• Bail or security to prevent or lift Bail or security to prevent or lift arrest of ship arrest of ship or surrogate/associated or surrogate/associated shipship

• Requestor only; banks do not join in Requestor only; banks do not join in giving of security, even under AA, giving of security, even under AA, BB, CCBB, CC

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Special tanker clausesSpecial tanker clauses

• Paragraph 4 in A, AA, C, CC (not B, BB):Paragraph 4 in A, AA, C, CC (not B, BB):

• ““If the place at which we have asked you If the place at which we have asked you to make delivery is a bulk liquid or gas to make delivery is a bulk liquid or gas terminal or facility, or another ship, terminal or facility, or another ship, lighter or barge, then delivery to such lighter or barge, then delivery to such terminal, facility, lighter or barge shall be terminal, facility, lighter or barge shall be deemed to be delivery to the party to deemed to be delivery to the party to whom we have requested you to make whom we have requested you to make delivery”.delivery”.

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Given to whom? Enforceable Given to whom? Enforceable by whom?by whom?

• Laemthong International Lines Co. Ltd v. Artis (The Laemthong International Lines Co. Ltd v. Artis (The Laemthong Glory)(No. 2)Laemthong Glory)(No. 2) [2005] 1 Lloyd’s Rep. 632 [2005] 1 Lloyd’s Rep. 632– Receivers ask voyage charterer-shippers to request Receivers ask voyage charterer-shippers to request

delivery without original BLsdelivery without original BLs– Charterers give LOI to owners; receivers give LOI to Charterers give LOI to owners; receivers give LOI to

charterers (copy to owners’ agents); cargo deliveredcharterers (copy to owners’ agents); cargo delivered– Ship arrested at discharge port (Aden) by Yemen Bank Ship arrested at discharge port (Aden) by Yemen Bank

alleging it had paid charterers but had not been paid by alleging it had paid charterers but had not been paid by receiversreceivers

– Owners sued charterers Owners sued charterers and receiversand receivers on LOIs on LOIs– Preliminary question: could owners sue receivers directly Preliminary question: could owners sue receivers directly

on their LOI?on their LOI?

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The Laemthong Glory (No. The Laemthong Glory (No. 2)2)• Contracts (Rights of Third Parties) Act 1999 (U.K.), s. 1Contracts (Rights of Third Parties) Act 1999 (U.K.), s. 1

– Person not a party to a contract may sue in its own right to 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 enforce a term of a contract if the contract expressly so providesprovides

• Receiver’s LOI was not an indemnity in respect of Receiver’s LOI was not an indemnity in respect of charterer’s liability under its LOIcharterer’s liability under its LOI

• Receiver’s LOI was an indemnity in respect of delivery Receiver’s LOI was an indemnity in respect of delivery by charterers “or their agents”by charterers “or their agents”

• For purposes of delivery, owner was charterer’s agent, For purposes of delivery, owner was charterer’s agent, so LOI conferred a benefit on itso LOI conferred a benefit on it

• Act applied, owners could enforce receivers’ LOI Act applied, owners could enforce receivers’ LOI directlydirectly

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Issued by whom? Who Issued by whom? Who signs?signs?

• ““[A]n agent must have authority, [A]n agent must have authority, whether apparent, actual or implied, whether apparent, actual or implied, to bind his principal” (to bind his principal” (Merrill Lynch Merrill Lynch Interfunding, Inc. v. ArgentiInterfunding, Inc. v. Argenti, 155 F.3d , 155 F.3d 113, 122 (2d Cir. 1998))113, 122 (2d Cir. 1998))

• If person who signed had no actual If person who signed had no actual authority, requestor or bank may authority, requestor or bank may refuse to honor LoIrefuse to honor LoI

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Actual authorityActual authority

• Not enough that person who signs is Not enough that person who signs is an employee, even a senior an employee, even a senior management employeemanagement employee

• Must have authority to bind Must have authority to bind requestor or bank to the liability requestor or bank to the liability being undertaken (which may be being undertaken (which may be millions of dollars)millions of dollars)

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Actual authorityActual authority

• Pacific Carriers Ltd v. BNP ParibasPacific Carriers Ltd v. BNP Paribas (2004) (2004) 218 CLR 451 (High Ct Aus.)218 CLR 451 (High Ct Aus.)– Manager of Documentary Credit Department of Manager of Documentary Credit Department of

BNP Paribas signed over bank “chop”: no actual BNP Paribas signed over bank “chop”: no actual authority for authority for thisthis purpose (US$8 million purpose (US$8 million indemnity)indemnity)

• OOCL v. Kids International CorpOOCL v. Kids International Corp., 1999 WL ., 1999 WL 76840 (S.D.N.Y.)76840 (S.D.N.Y.)– Carrier Carrier not not entitled to summary judgment on LoI entitled to summary judgment on LoI

signed by “Director of Imports”signed by “Director of Imports”– Requestor presented admissible evidence she Requestor presented admissible evidence she

did not have actual authority to bind it to LoI did not have actual authority to bind it to LoI worth US$1 millionworth US$1 million

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Actual authorityActual authority

• China Shipping Development Co. Ltd China Shipping Development Co. Ltd v. State Bank of Saurashtrav. State Bank of Saurashtra [2001] 2 [2001] 2 Lloyd’s Rep. 691 (U.K. Comm. Ct.)Lloyd’s Rep. 691 (U.K. Comm. Ct.)– Signature and bank stamps were Signature and bank stamps were

forgeriesforgeries– Bank not bound on basis of actual Bank not bound on basis of actual

authorityauthority

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Apparent/ostensible Apparent/ostensible authorityauthority• Not enough that the person signing Not enough that the person signing seems seems

to have authorityto have authority

• For apparent authority to exist, there must For apparent authority to exist, there must be “words or conduct of the principal, be “words or conduct of the principal, communicated to a third party, that give communicated to a third party, that give rise to the appearance and belief that the rise to the appearance and belief that the agent possesses authority to enter into a agent possesses authority to enter into a transaction” (transaction” (Standard Funding Corp. v. Standard Funding Corp. v. Lewitt, Lewitt, 656 N.Y.S.2d 188, 191 (N.Y. 1997))656 N.Y.S.2d 188, 191 (N.Y. 1997))

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Apparent/ostensible Apparent/ostensible authorityauthority

• Thus, requestor or bank Thus, requestor or bank itselfitself must must give the impression that person give the impression that person signing has authority to do sosigning has authority to do so

• Difficult, if the only communication Difficult, if the only communication from the requestor or bank is the LoI from the requestor or bank is the LoI itselfitself– Agent/employee cannot clothe Agent/employee cannot clothe

himself/herself with apparent authorityhimself/herself with apparent authority

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PCL v BNP ParibasPCL v BNP Paribas

• Delivery of legumes in Kolkata without Delivery of legumes in Kolkata without presentation of original BLspresentation of original BLs

• Voyage charterer gives disponent owner Voyage charterer gives disponent owner LoI, counter-signed by BNP ParibasLoI, counter-signed by BNP Paribas

• Receiver/buyer refuses to payReceiver/buyer refuses to pay– Shipper claims aginst SO; TC indemnifies SOShipper claims aginst SO; TC indemnifies SO

• TC/disponent owner claims on LoITC/disponent owner claims on LoI• Voyage charterer now insolventVoyage charterer now insolvent

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PCL v BNP ParibasPCL v BNP Paribas

• Bank employee who signed LoI over bank Bank employee who signed LoI over bank “chop” had no actual authority to do so“chop” had no actual authority to do so

• Trial court (SCNSW) held BNP counter-Trial court (SCNSW) held BNP counter-signature was not a guarantee at allsignature was not a guarantee at all

• CANSW held LoI was a guarantee but BNP CANSW held LoI was a guarantee but BNP not boundnot bound– No actual authorityNo actual authority– No apparent authority – BNP had not given No apparent authority – BNP had not given

carrier any representation that she had authority carrier any representation that she had authority to signto sign

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PCL v BNP ParibasPCL v BNP Paribas

• High Ct Aust.: thereHigh Ct Aust.: there was was apparent authority apparent authority• BNP itself made implied representations BNP itself made implied representations

about her authority by equipping her with about her authority by equipping her with her title, status and facilities, including the her title, status and facilities, including the “chop” stamp“chop” stamp

• Failing to take proper safeguards against Failing to take proper safeguards against misrepresentation can impart appearance misrepresentation can impart appearance of authenticityof authenticity

• Carrier’s reliance on signature over bank Carrier’s reliance on signature over bank “chop” was reasonable“chop” was reasonable

• Bank boundBank bound

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UK?UK?

• Similar argument about apparent Similar argument about apparent authority made in authority made in China Shipping v. China Shipping v. State Bank of SaurashtraState Bank of Saurashtra – ““[A]ble and…highly ingenious argument” [A]ble and…highly ingenious argument”

made once it became apparent that made once it became apparent that signatures and stamps were forgeriessignatures and stamps were forgeries

– Failed: “not a shred of evidence” that Failed: “not a shred of evidence” that bank (and actually authorised employee) bank (and actually authorised employee) had allowed forgery to happenhad allowed forgery to happen

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USA?USA?

• Similar argument made in Similar argument made in OOCL v. OOCL v. Kids International Corp.Kids International Corp.– Plaintiff not entitled to summary Plaintiff not entitled to summary

judgmentjudgment– Argument based only on employee’s job Argument based only on employee’s job

title “Director of Imports” and status in title “Director of Imports” and status in “senior management”“senior management”

– Not enough, says S.D.N.Y.Not enough, says S.D.N.Y.

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Practice tipsPractice tips

• Be very careful, even if you get an LoI Be very careful, even if you get an LoI and even if it is (apparently) counter-and even if it is (apparently) counter-signed by a banksigned by a bank

• Fraud is already a concern if original BLs Fraud is already a concern if original BLs not present or different port requestednot present or different port requested

• Requestor/bank not bound by fraudulent Requestor/bank not bound by fraudulent signatures (signatures (Saurashtra BankSaurashtra Bank))

• If you can, question authorityIf you can, question authority