LETTERS OF INDEMNITY AT SHIPMENT ANDLETTERS OF GUARANTEE AT DISCHARGE
©Prof. William Tetley, Q.C.
Definition of a letter of indemnity (at shipment)
Letters of indemnity are also known as letters of guarantee and as counter-letters.In respect to carriage of goods, a letter of indemnity is a written undertaking by a shipper toindemnify a carrier for any responsibility that the carrier may incur for having issued a clean bill of lading when, in actual fact, the goods received were not as stated on the bill of lading.
A letter of indemnity is the document by which two parties to a misrepresentation againstthird parties settle their differences in advance should a third party in the future make a valid claimas a result of the misrepresentation.The misrepresentation may be of three types:a) in respect of the actual order and condition of the goods at time of shipment; b) in respect of the packing when it is in bad order at time of shipment. This latter misrepresentation is more complicated because the actual damage which may ensue from thedefective, insufficient or damaged packing is not fixed at the time of the signing of the letter of indemnity. Thus the extent of the commitment of the shipper to the carrier is not known;c) letters of indemnity have also been used on rare occasions when original bills of ladinghave been presumably lost or stolen and duplicate originals are issued.
This is an especiallyirresponsible procedure. Instead of issuing duplicate bills of lading against a letter of indemnity, the
Professor of Law, McGill University; Distinguished Visiting Professor of Maritime and Commercial Law, TulaneUniversity; counsel to Langlois Gaudreau O’Connor of Montreal and Quebec City. The author acknowledges withthanks the assistance of Vanessa Rochester, a third-year law student at the Faculty of Law of McGill University, and of Robert C. Wilkins, B.A., B.C.L., in the preparation and correction of the text.
See, for example, the letter of indemnity issued in
United Philippine Lines, Inc.
Metalsrussia Corp. Ltd.
1997 AMC2131 at p. 2133 (S.D. N.Y. 1997), whereby the shippers assumed the following undertaking vis-à-vis the carrier:“In consideration of your granting and delivering to us, at our request clean bills of lading. . . . We, the undersigned,do hereby undertake to have consignee(s), holder(s) of the above bills of lading or underwriters of the abovementioned cargoes refrain from any [sic] raising claim, based on the above mentioned clean bill of lading, againstyou in connection with or in any way related to the above mentioned exception(s).“We further undertake that, should a claim be raised against you . . . we shall protect you and hold you harmless atour cost and expense from any and all such claim(s) and should you be forced to defend, negotiate or settle any suchclaim, we shall indemnify you immediately upon your request. . . .”
Nikiforos Zervos v. Sam Houston
427 F. Supp. 500, 1978 AMC 238 (S.D. N.Y