An update on the original article, answering questions raised by David Murray in the comments below..
Firstly, I think the confusion is because – The Bank Guarantee that i was talking about is related to release of cargo without presentation of original bill of lading and not the Bank Guarantee that comes into play when a transaction is completed successfully but the buyer does not pay for the goods.. IF that is not the case, then here’s the explanation..
Q 1: You say “bank guarantee” . . . . are you talking about a Letter of Credit? If not, please more fully describe what is a bank guarantee? I am confused
A 1: Bank Guarantee is different from a Letter of Credit.. Letter of Credit is established between a buyer and seller to carry out their trade and ensure that all the conditions of trade are met.. Bank Guarantee, if required, comes into play AFTER the shipment has been effected..
Purpose of a Bank Guarantee is to secure release of goods without the presentation of original bill of lading which may not be available due to postal delays or loss or due to issuance of a replacement bill of lading (original misplaced or lost)..
It is required by the shipping line in above cases and this is the only way a consignee can secure release of his goods where an ORIGINAL bill of lading is required..
Q 2: One more thing . . . we would need to know the terms of the “bank guarantee” . . . does the bank guarantee have an end date? If is, the buyer is not really protected. Would not the bank guarantee need to be good through the delivery of the goods to the buyer? If the bill of lading is lost, it would seem natural that the bank guarantee would be good until such time as the necessary documents are produced to conclude the sale and to see that the seller gets paid.
What am I missing here? I really don’t understand what is a “bank guarantee” and why a Letter of Credit was not used. And what is the big deal about a lost bill of lading? Why should a guarantee of payment be cancelled because of a paperwork snafu?
I’m afraid I don’t understand any of this. Thanks for clarifying.
A 2: Depending on the issuing bank, country and type of guarantee, a bank guarantee may or may not have a time frame attached to it..
If a bank guarantee has a term of say 5 years, then should the person who took out the guarantee wait for 5 years before the guarantee is released even if the cargo has been released to the right party and both sides have settled their payments..
That was the question i was trying to answer..
The answer is NO, they don’t need to wait.. If the conditions as per my article are met, then the banks generally will cancel the guarantee..
Q 3: And, sorry, but what does Alexander Robertson’s comment “Besides the comments above, as a carrier I will want to ensure that any claim which any party may have against the carrier is well and truly time barred.” have to do with whether or not a bank guarantee has a due date of cancellation because of a lost bill of lading? And if the carrier lost the original bill of lading, is it not the carrier who is responsible? And what does ” . . . well and truly time barred.” Mean. What is “time barred”? Is Alexander talking about a statute of limitations of actions under the laws of a particular jurisdiction?
I’m even more confused than ever on this.
A 3: Each shipping line has their own format of indemnity letter that the consignee would need to submit before securing release of goods against presentation of a Bank Guarantee..
When Alexander is talking about “time barred”, it relates to protecting the shipping line’s interest..
He is saying the carriers indemnity must be worded appropriately so that, any claims relating to improper release of the goods (even if it is against a bank guarantee) must be raised with the shipping line (if applicable) within a period of say “6 months or 1 year etc”..
Please also read this self explanatory document from Maersk Line which is a good example of the indemnity format, the banks confirmation and also the bank guarantee redemption/cancellation format and will help understand this subject more..
*** END OF UPDATE ***
I previously wrote about What to do when an Original Bill of lading is lost..
One of the questions that came up after that was, if a shipper is submitting a bank guarantee, how long is the guarantee valid because he cant afford to keep money held up for this..
Generally all that the bank needs to know before they cancel the guarantee, is that the cargo is being released to the rightful owner/consignee of the cargo..
The general process to be followed by the shipper (or the entity that put up the bank guarantee) is :
1) Get confirmation from the consignee of the bill of lading in writing on their letter head that
- That they have received the cargo covered under the bill of lading in full
- That they have paid the shipper of the cargo all their monies
- They are relinquishing any further claim on the cargo in full or part
2) Upon receipt of this confirmation, the bank that issued this guarantee will have to
- Verify that the letter is indeed authentic and has been issued by the actual consignee/receiver of the cargo
- The bank will have to verify this properly as different types of bills of lading will have different consignees (Direct, To Order (of Shipper), To Order of Bank etc)..
- Where the bill of lading is consigned To Order (of Shipper) or To order of Bank, the actual receiver/buyer of the cargo will have to be verified basis the contract or purchase order exchanged between the Seller and Buyer..
Needless to say, each bank will have their own working policies, but this would be the general route to follow..
In essence, once both buyer and seller have confirmed that the deal has been concluded and they have received the cargo and money respectively, the bank guarantee can be cancelled by the bank..