Guarantees

Protection and Indemnity Guarantees   -   Freight Demurrage and Defence Guarantees   -   Guarantees in respect of Misdelivery of Cargo   -   Relevant Rules Applicable to Guarantees

Protection and Indemnity

Claimants will often seek to secure their claims by applying to Courts, or in some cases to local port or other authorities, to detain assets belonging to the Member against which they wish to make a claim. The assets most often detained will be the ship in relation to which the alleged claim has arisen, or another vessel in the same ownership. Sometimes claimants seek to secure their claim by arresting bunkers belonging to a charterer, or even to detain cash assets held in bank accounts or resulting from a payment of a claim by the ship owner’s underwriters. One of the most important services offered by the Club is to provide guarantees to secure claims which fall within the scope of Club cover in order to avoid delays and commercial damage which may otherwise result from an arrest. Because the Club, as a member of the International Group of P&I Clubs, is recognised around the world as first class security, most guarantees are given by the Club itself either directly or through local correspondents. No charge is made by the Club for this service where the claim in relation to which the arrest is made is covered.

In some cases claimants refuse to accept International Group Club guarantees. In such cases the Club can assist in arranging for the provision of a bank guarantee on the Member’s behalf. The Club provides counter-security to the bank concerned instead of directly to the claimant; the same rules and procedures apply to the giving of the Club counter-security to the bank as to the provision of a Club guarantee direct to the claimant. The process is usually slower than the provision of a Club guarantee directly to the claimant especially when more than one bank is involved.

The provision of security by the Club is not a right under the Club Rules [See Club Rule 43]. The Club has complete discretion as to whether to provide a guarantee or not, and will consider a number of factors including the question of whether a Member's premium is fully paid up before giving a guarantee. The Club always tries to issue guarantees whether by itself or through a bank or banks as expeditiously as possible, but delays sometimes do occur because of communications difficulties and the like. The Club does not cover the Member for losses associated with delay, which are regarded as an unavoidable commercial risk.

In rare cases, particularly if the claimant is making an outrageously over-inflated claim for security or there are doubts as to whether the claimant is entitled to security at all, the Club may specifically ask the Member to allow his asset to remain in detention while Court proceedings are started to try to resolve the matter to the Club's and Member's advantage.

Freight, Demurrage and Defence

Although FD & D cover does not extend to the amount of any claim in dispute, the Club may be prepared to assist in releasing a Member’s assets from arrest for FD & D claims when this can be achieved more quickly and efficiently through the Club than through the Member’s bank.  Since the Club is not covering the claim itself and is acting, in effect, as a bank, full counter-security is required from the Member; this is generally accepted in the form of cash placed in an escrow account or a bank guarantee. The Club may charge commission for this service.  As with Protection and Indemnity guarantees, the Club has absolute discretion as to the provision of security for Freight, Demurrage and Defence claims and similar criteria apply in both cases.

Misdelivery of Cargo

One area in which guarantees are commonly employed which is outside the scope of the Club's service is in relation to delivery of cargo at a place not permitted by the contract of carriage or without production of the relevant original bills of lading.  This practice exposes ship owners to the risk of claims for the full value of misdelivered cargo and associated losses which would not be covered by the Club except in very special circumstances.

Cargo interests are commonly asked to provide guarantees to indemnify the discharging vessel against any consequences of misdelivery of cargo.  These should always be counter-signed by a first class bank.  The Club discourages this practice because of the major risks it brings to Members and has issued advisory Circulars about it.  However, the International Group has reviewed the forms of indemnity to be used in such circumstances.

Relevant Rules

Class I Rule 25 Preamble   -   Class I Rule 25 xiii Cargo Liabilities a,b, c and d   -   Class I Rule 25 xiii (viii) Discretionary Claims and b   -   Class I Rule 25 xx c Expenses Incurred under Discretion of the Club   -   Class I Rule 31 Handling of Claims   -   Class I Rule 43 Provision of Bail