UK: Scope Of LOI And LOU Given To Port For Damaged Vessel And Containers

Last Updated: 25 December 2012
Article by Kevin Cooper, Reema Shour and Joshua Williams

Yilport Konteyner Terminali Ve Liman Isletmeleri AS v. Buxcliff KG and others (CMA CGM Verlaine) [2012] EWHC 3289 (Comm)

The dispute in this case arose following a collision that caused damage to a vessel and a number of its containers while it was en route to Turkey. The vessel interests were required to, and gave, a letter of undertaking ("LOU") and a letter of indemnity ("LOI") to the Turkish discharge port authorities in view of the condition of the vessel and containers, but the parties subsequently disagreed as to the scope of both the LOI and the LOU. Given the frequency with which LOUs and LOIs are given in a shipping context and the tight timeframe within which they are normally negotiated and issued, this decision highlights the importance of giving careful consideration to the wording used to ensure that they achieve the effect intended by the parties and that they do not expose the party giving the LOI or LOU to any greater liability than originally expected.

The background facts

The original Turkish discharge port would not allow the vessel to discharge its containers there without the vessel interests agreeing to what was effectively a penalty payment. Agreement was therefore reached with an alternative Turkish port to discharge the containers destined for Turkey there, together with any damaged deck cargo. At a meeting between representatives for both sides, there was no discussion as to the port's costs for discharging the vessel, although it was agreed that the time charterers and vessel managers would provide a LOU, and the vessel's Club would provide a LOI, in view of the fact that the port might have to take additional precautions and safety measures.

Under the LOU, in consideration of allowing the vessel to berth and discharge some of its containers, the port would be paid:

"...all inward and outward charges including but not limited to tuggage, pilotage, port dues, berth dues, stevedoring, cranage and all other charges levied in accordance with the terms and conditions of Yilport."

Under the LOI, the Club undertook to indemnify the port as follows:

" respect of any and all consequences, liability, loss or damage that you may incur and which may arise, including but not limited to, damage to the port or its personnel and facilities, oil pollution, wreck removal and loss and damage to any cargo, its containers and from handling the damaged cargo and its containers including any delays, penalties or fines caused by or raised by the customs authorities and all reasonably and properly incurred legal costs and expenses."

The time charterers and vessel managers subsequently refused to pay part of the discharge costs claimed by the port on the grounds that they exceeded what the port was entitled to charge under the LOU and were unreasonable. The Club denied liability on the basis that all claims put forward by the port fell outside the scope of the LOI.

The Commercial Court decision


The LOU did not specifically provide for the port to charge an uplift on the standard tariff provided for in the its terms and conditions. Those terms and conditions did, however, provide for an additional percentage (which was not specified) to be charged over the standard rates for containers with dangerous cargo, and also for the tariff for damaged containers and/or vessels to be determined by the port depending on the type of operations required.

The judge held that it was commercially unrealistic that a standard basic tariff applicable to undamaged vessels and containers should apply to this particular discharge. It was also not commercially surprising, in his view, that the parties had adopted a "wait and see" approach to charging for the job in circumstances where they had not initially had a clear idea as to the severity of the damage to the vessel, or its containers, or what difficulties such damage might pose to the process of discharging the vessel.

He did, however, agree with the defendants that there was an implied term that the port charges would be reasonable. What was reasonable would depend on the circumstances of each case. This did not mean, however, that the port had to prove and vouch in detail each item of extra work that it sought to charge. That was not a reasonable expectation in an emergency situation such as this, dealt with on very short notice, where the port could not assess the scope of their task properly until after the ship had arrived and where the nature of the task changed fundamentally during the course of the operation.

The judge therefore found in favour of the port and allowed it to recover a substantial part of its outstanding claim.


The judge rejected the argument that the LOI operated, in effect, as a guarantee by the Club of the time charterers'/vessel managers' payment of the port's charges. Had that been intended, the Club could have been made a party to the LOU, or there could have been some cross-reference in the LOI to the LOU, or the LOI could have used the language of the LOU, in particular the words "all charges, dues and expenses".

The judge also agreed with the Club that the LOI did not impose on it a direct liability for the port's charges. Rather, the indemnity given by the LOI was in respect of fortuitous consequences, liability, loss or damage that the port might incur or that might arise as a result of the discharge, rather than the cost of discharge itself. As the judge put it, in circumstances where the parties well knew that there would have to be a charge for what the port was doing, "the silence of the LOI on that aspect is a deafening one".

The judge dismissed the argument that, to construe the LOI as not covering the port's bill would be uncommercial as, had there been an arrest of the vessel for non-payment of the port's bill, the Club would have put up security so that the vessel could trade. He commented that it was not for him to rewrite the parties' bargain and, on its wording, the LOI in this case could only apply to the port's charges in respect of damage to its equipment and installations.


This case underlines the importance of careful drafting in the wording of documents creating obligations, such as letters of undertaking or indemnities. The Club in this case was sufficiently protected by the wording of the LOI. On the other hand, the time charterers and vessel interests were potentially exposed to significant liabilities under the LOU, although admittedly the court did imply a term of reasonableness to what the port sought to charge. More certainty might have been achieved, however, had reference been made in the LOU to some external standard by which the uplift on the standard tariff could be measured or if a certain percentage of uplift had been agreed upfront (admittedly this is difficult where the scope of the task was uncertain at the outset).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.