The construction of P&I club letters of undertaking
(2007)Department of Law
- Abstract
- This dissertation examines the construction of P&&semicI club letters of undertaking by the English courts, and whether their approach can be criticised based on the legal nature of such contracts, the principles of construction which have been held applicable to them and their commercial purpose. A letter of undertaking serves as alternative security to an arrest and consists of a promise by the club to pay to the claimant the amount of any judgment, arbitral award or settlement agreement in the event of default by the defendant shipowner. The commercial purpose of a letter of undertaking is that the claimant obtains pre-trial security just as good as an arrest and that the shipowner prevents its vessel from being arrested or obtains... (More)
- This dissertation examines the construction of P&&semicI club letters of undertaking by the English courts, and whether their approach can be criticised based on the legal nature of such contracts, the principles of construction which have been held applicable to them and their commercial purpose. A letter of undertaking serves as alternative security to an arrest and consists of a promise by the club to pay to the claimant the amount of any judgment, arbitral award or settlement agreement in the event of default by the defendant shipowner. The commercial purpose of a letter of undertaking is that the claimant obtains pre-trial security just as good as an arrest and that the shipowner prevents its vessel from being arrested or obtains its release in order to keep trading it. The principles of construction which applies to other commercial contracts equally applies to letters of undertaking, thus, they should be construed as a whole, giving the words their natural and ordinary meaning in the factual matrix of the contract. Furthermore, a letter of undertaking is a contract of guarantee and should therefore be construed with care not to impose on the guarantor more than it must be said to have expressly undertaken and ambiguities should be resolved in favour of the guarantor. The English courts have been very protective of the claimants when the construction of letters of undertaking has been at issue. Almost all cases have been resolved in favour of the claimants, and this has been achieved either by a purposive construction, disregarding the wording of the undertaking, or by a restrictive, literal construction to the detriment of the club. No consideration has been taken to the fact that the club is acting as guarantor. This approach might be justified by looking exclusively at the commercial purpose of letters of undertaking. In this context the claimants always have the option of arresting the ship, and the possibility for the club and the shipowner to provide a letter of undertaking as alternative security is of great benefit to them&semic the shipowner saves a lot of money being able to keep trading its ship, and the club avoid the costs which are incurred when issuing bank guarantees as security. However, letters of undertaking are still private contracts entered into voluntarily, and just as the clubs have been left to look after their own interests, so should the claimants. Thus, having regard to the freedom of contract and its consequences, but also that these undertakings are guarantees, the right way to construe them is to apply the principles of construction in a more objective way with a better balance between a literal and purposive construction, having in mind that the club is acting as guarantor. (Less)
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- author
- Wollin Ellevsen, Anna
- supervisor
- organization
- year
- 2007
- type
- H3 - Professional qualifications (4 Years - )
- subject
- keywords
- Förmögenhetsrätt, Sjörätt
- language
- English
- id
- 1563122
- date added to LUP
- 2010-03-08 15:55:31
- date last changed
- 2010-03-08 15:55:31
@misc{1563122,
abstract = {{This dissertation examines the construction of P&&semicI club letters of undertaking by the English courts, and whether their approach can be criticised based on the legal nature of such contracts, the principles of construction which have been held applicable to them and their commercial purpose. A letter of undertaking serves as alternative security to an arrest and consists of a promise by the club to pay to the claimant the amount of any judgment, arbitral award or settlement agreement in the event of default by the defendant shipowner. The commercial purpose of a letter of undertaking is that the claimant obtains pre-trial security just as good as an arrest and that the shipowner prevents its vessel from being arrested or obtains its release in order to keep trading it. The principles of construction which applies to other commercial contracts equally applies to letters of undertaking, thus, they should be construed as a whole, giving the words their natural and ordinary meaning in the factual matrix of the contract. Furthermore, a letter of undertaking is a contract of guarantee and should therefore be construed with care not to impose on the guarantor more than it must be said to have expressly undertaken and ambiguities should be resolved in favour of the guarantor. The English courts have been very protective of the claimants when the construction of letters of undertaking has been at issue. Almost all cases have been resolved in favour of the claimants, and this has been achieved either by a purposive construction, disregarding the wording of the undertaking, or by a restrictive, literal construction to the detriment of the club. No consideration has been taken to the fact that the club is acting as guarantor. This approach might be justified by looking exclusively at the commercial purpose of letters of undertaking. In this context the claimants always have the option of arresting the ship, and the possibility for the club and the shipowner to provide a letter of undertaking as alternative security is of great benefit to them&semic the shipowner saves a lot of money being able to keep trading its ship, and the club avoid the costs which are incurred when issuing bank guarantees as security. However, letters of undertaking are still private contracts entered into voluntarily, and just as the clubs have been left to look after their own interests, so should the claimants. Thus, having regard to the freedom of contract and its consequences, but also that these undertakings are guarantees, the right way to construe them is to apply the principles of construction in a more objective way with a better balance between a literal and purposive construction, having in mind that the club is acting as guarantor.}},
author = {{Wollin Ellevsen, Anna}},
language = {{eng}},
note = {{Student Paper}},
title = {{The construction of P&I club letters of undertaking}},
year = {{2007}},
}