Terms of Letter of Indemnity

The Letter of Indemnity (LOI) will contain the following terms:

Beneficiary: who should be the beneficiary under the law? The obvious answer is the person who is doing what is asked, but the proper answer is anyone who might incur liability. Consequently, Letter of Indemnities (LOI) are widely addressed, for example, to owners, charterers, agents and/or servants, and the ship master etc. In a recent case, Laemthong Glory (2005), the Letter of Indemnity (LOI) was addressed to charterers and promised to indemnify charterers’ servants. The owners wanted to claim under the Letter of Indemnity (LOI) but the Letter of Indemnity (LOI) providers said the owners were not a beneficiary. The court held that the owners were charterers’ agents or servants, so they were a beneficiary to the Letter of Indemnity (LOI).

Details of the Voyage and Goods: these need to be sufficiently identified so that the request can make sense and any action under the Letter of Indemnity (LOI) can be made clearly.

Preamble – Description of Events and Request: this will usually say what is happening and why and will set out what the specific request is, for example, to discharge goods without production of bills of lading etc.

Indemnity: clear indemnity clauses will set out what the Letter of Indemnity (LOI) provider is liable for. It is common to include a provision that they provide security if, for example, the beneficiary’s vessel is arrested for security for a claim by the Bill of Lading (B/L) holder.

Duration: In some forms of Letter of Indemnity (LOI) a duration is stated. Typically, where there is delivery of goods without production of Original Bill of Lading (B/L), the LOI expires when the original bills of lading are produced to the Letter of Indemnity (LOI) beneficiary.

Jurisdiction: It is always sensible to have a jurisdiction clause in an Letter of Indemnity (LOI), as Letters of Indemnity (LOI) are enforced differently around the world.

Issuer/Signatory: Letters of Indemnity (LOI) must be properly signed and endorsed by the Letters of Indemnity (LOI) provider. It is very important to ensure that the person who signs has proper authority.

Counter Signatories: They agree to take on the same obligations as the Letters of Indemnity (LOI) provider. This is good for the beneficiary. It reduces his credit risk. Although banks are often asked to be counter-signatories, they will very rarely agree to this.