Settlement Principle

Settlement Principle refers to the fundamental guidelines for handling claims and settlements in international trade. It typically applies in cargo transportation, insurance, or sales contracts when breaches such as cargo damage, shortage, or delayed delivery occur, guiding how the liable party should compensate based on the contract, letter of credit, or international practices (e.g., UCP600, Incoterms). Its core includes: contractual agreements as the primary basis, with international practices referenced in their absence; compensation limited to actual losses, following fault liability or strict liability principles; the insured/buyer must promptly notify, provide evidence, and mitigate losses. It is commonly used in marine insurance claims, letter of credit discrepancy claims, and quality disputes between buyers and sellers. Note: Terms like 'Settlement Principle' differ from 'Claims Procedure'—the former focuses on substantive rules (whether and how much to pay), while the latter on operational steps (how to file a claim); it also differs from 'Compensation Limit,' which only sets a monetary cap. In practice, attention must be paid to time limits (e.g., one year under maritime law), complete documentation, and exemption clauses.