Legal opinion for issuance of Bank Guarantee to indemnify release of cargo without submission of the original bill of lading.

Mr. Z

Address….

Dear Sir,

RE:      Legal opinion for issuance of Bank Guarantee to indemnify release of cargo without submission of the original bill of lading.

Please refer to your letter dated 31 July 2007 on the above subject.

We have perused the papers/documents referred to us. We understand that, Bank 1 (“BANK 1”) has been approached to issue a Bank – Guarantee on non judicial stamp paper on behalf of their customer, Company 1 (“the L/C Applicant”) in favour of Company 2, (“the Carrier”) indemnifying the release of the consignment/goods to the L/C Applicant by the Carrier against a copy of the non-negotiable bill of lading as the original bill of lading has not arrived yet.

In these circumstances, you have asked us to give our legal opinion as to whether BANK 1 may issue such Bank Guarantee.

OUR OPINION:

According to the prevailing law, goods/cargo can only be delivered against submission of original bill of lading. Delivery to the consignee named in the bill of lading does not suffice to discharge the Carrier/Ship-owner where the consignee does not hold the original bill of lading. Delivery of Cargo to a party not holding an original bill of lading is a breach of the bill of lading contract and the legal holder of the bill of lading can subsequently sue the Ship-owner/Carrier who has wrongfully delivered the cargo/goods.

However, not withstanding the above situation in law, it has become a custom/practice that the Consignor may explicitly authorise the Carrier in writing to release goods without the original bill of lading against a Letter of Indemnity and/or Guarantee given by the Consignee and counter-signed by a bank. This Letter of Indemnity and/or Guarantee does not relieve the Carrier of liability to the consignor, it only provides for compensation from the party or parties issuing the indemnity for amounts which the carrier may have to pay to the holder of the original bill of lading or the consignor.

As stated above, the Letter of Indemnity and/or Guarantee is given by the Consignee and counter-signed by a bank. Therefore, we are of the opinion that, unless BANK 1 is the consignee of the bill of lading, BANK 1 should not provide the Bank Guarantee. BANK 1 should request the Consignee of the bill of lading to give a Letter of Indemnity and Guarantee and BANK 1 should counter-signed it. Only if BANK 1 is the Consignee of the Bill of Lading, BANK 1 may give the Bank Guarantee.

Subject to the above, our comments on the draft bank guarantee is given below:

Make sure that the following details are given at beginning of the bank guarantee:

1.      Name of Vessel;

2.      Bill of Lading Number, date and place of issue;

3.      Port of Loading and Port of Discharge according to the Bill of Lading;

4.      Description of Cargo – including but not limited to, quantity, weight, marks etc;

In the first clause of the bank guarantee, in the blank space insert “COMPANY 1”.

The Bank Guarantee is being given in order to indemnify the Carrier against future liability and loss which the Carrier may sustain as a result of delivering the goods/cargo without the original bill of lading. Clause 3 states that BANK 1 shall upon demand pay any freight and/or other charges due on the aforesaid goods. This clause 3 does not correspond with the purpose of the Bank Guarantee. Please check whether BANK 1 agrees to this clause and if BANK 1 does not agree to this clause then it should be deleted.

Please delete Clause 6, as the Bank Guarantee is being given by only one party i.e. BANK 1 and the Clause applies if there are more than one party signing the document. After deleting Clause 6, the following new Clause 6 should be inserted:

“6. This Bank Guarantee shall be limited to a sum or sums not exceeding in aggregate _______________________________ [insert currency and amount in figures and words], i.e. 200% of the invoice value of the above goods.”

Please delete Clause 8 and replace it with the following:

“8. This Bank Guarantee shall remain valid for 1 (one) year from the date of issuance of the Bank Guarantee except in respect of any demands for payment received by us on or before that date.”

Apart from the above observations the draft Bank Guarantee appears to be in order. If you have any query, please do not hesitate to contact us.

The papers/documents referred to us are returned herewith.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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