Enforceable Letter of Indemnity

Not all Letters of Indemnity LOIs are illegal contracts unenforceable for fraud. Many are issued for the convenience of the charterer without affecting the receiver. Some examples are: • LOI for issuing split delivery orders – usually there is one delivery order at the discharge port for each bill of lading; if the goods are sold on to several buyers, split delivery orders will allow separate deliveries. • LOI for changing discharge port – sometimes charterers/sellers have not finalised their sale when the bills of lading are issued. The bills will show a discharge port which may need to change when the sale contract terms are finalised. A Letter of Indemnity is commonly offered for discharging/delivering goods from a ship without production of original bills of lading. As noted above, a bill of lading carrier is entitled to refuse to give delivery of goods except against production of the original bills of lading. He can sit and wait until the bill is produced to him. The charterer cannot force him to discharge the goods and deliver. If, however, a bill of lading carrier/shipowner agrees to discharge or deliver the goods, in return for a Letter of Indemnity from the charterer/receiver, then the bill of lading carrier/shipowner is creating an additional risk for himself. That risk is that the person to whom he delivers the goods is/will not become a bill of lading holder entitled to the goods. In that case, someone else will become the bill of lading holder and demand delivery of the goods which the carrier/shipowner has already delivered. The carrier/shipowner will then be liable to compensate that bill of lading holder for full value of the goods which he had misdelivered. The carrier/shipowner (LOI beneficiary) should be able to rely upon his Letter of Indemnity and recover his losses from the charterer/receiver. It is possible for an LOI given in return for a clean bill to be a legal contract. There must be a genuine dispute as to the condition of goods. The master may believe the goods are damaged and wish to clause the bill of lading. The shipper/ charterer will probably want the master to issue a clean bill of lading. If the shipper is able to produce good evidence, for example from an expert surveyor that, in fact, the goods are not damaged and/or that the condition of the goods will not reduce the value of the goods, then because there is a genuine dispute as to the condition of the goods there is no attempt to defraud the receivers by issuing a clean bill of lading. The LOI would not be an illegal contract. Thus if a claim is made against the carrier/shipowners, who suffer loss as a result of issuing a clean bill, the carrier/shipowner/LOI beneficiary would be able to claim under the Letter of Indemnity.