The commercial practice of delivering cargo to a recipient against a charterers' letter of indemnity without the production of bills of lading has long been commonplace in the shipping industry. Typically, the standard letter of indemnity wording refers to the delivery of cargo without production of the original bill of lading, without expressly referring to the discharge of cargo. However, the commercial purpose of a letter of indemnity is in fact to facilitate the discharge of cargo from a ship.
It is becoming increasingly common for ports – and particularly those in China – to split the delivery process into two stages: discharge and delivery. During discharge, the cargo is physically removed over the ship's rail and placed into the custody of a forwarding agent to be stored in a bonded warehouse. The recipient then requests delivery from the forwarding agent which issues a delivery order that allows the recipient to collect the cargo from the bonded warehouse.
This two-stage process can cause issues for owners that rely on the standard letter of indemnity wording, which refers only to the delivery of cargo. Although from a legal and commercial perspective a letter of indemnity should cover both discharge and delivery, owners risk being held liable if arguments to the contrary can be successfully made.
Given this risk, it is sensible for shipowners to ensure that discharge is explicitly covered in any letters of indemnity issued in their favour. This situation highlights the importance of the requirements which must be satisfied to trigger protection being made clear under a letter of indemnity.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Chris Grieveson or Julia Skisaker at Wikborg Rein by telephone (+44 20 7367 0300) or email (email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.