Letters of indemnity

Capt. Zin Maung Tun

When the carrier notes that

the goods do not correspond to the shipper's

statement and,
especially, when he fails to describe them as in 'good
order and condition',
the shipper has a problem.

Capt. Zin Maung Tun

The bill of lading is no longer 'clean', and the shipper

may have difficulty in selling the goods by

transferring the bill of lading.
As a result, the shipper will exert considerable
pressure on the carrier to issue a clean bill of lading.

Capt. Zin Maung Tun

If a clean bill of lading is issued,

this is often in return for a so-called 'letter of

indemnity
which is a document whereby
the shipper promises to indemnify the carrier for any
liability arising due to the issue of a clean bill of
lading.

Capt. Zin Maung Tun

the practice of the issue of a letter of indemnity to

secure an unclaused bill of lading may be regarded as

a fraud perpetrated against the consignee who has
bought the goods in reliance on the description in
the bill of lading.
Banks, advancing payment against the production of
a clean bill of lading

Capt. Zin Maung Tun

In a situation of fraud,

e.g. when the carrier has issued a clean bill of lading where this
was clearly inappropriate,

the letter of indemnity cannot be invoked before the

courts (it is not the courts' function to allocate losses

between crooks!).

Capt. Zin Maung Tun

The disappointed consignee will have a claim

not only against the carrier but also against
the shipper when he has engaged in fraud

Capt. Zin Maung Tun

The general question of whether an agreement to

indemnify against the consequences of issuing a

clean bill of lading is enforceable has been decided
by courts.

Capt. Zin Maung Tun

On this occasion it was said that there may perhaps

be some circumstances in which indemnities can

properly be given.

Capt. Zin Maung Tun

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In the opinion of the authority "such indemnities

might be useful where there was a bona fide

dispute as to the condition or packing of the goods
in order to avoid the necessity of rearranging a letter
of credit which might cause difficulty where time was
short" [Wilson].

Capt. Zin Maung Tun

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It is worth mentioning that

the Hamburg Rules warrant
the practice of the issue of letters of indemnity if

such a practice is not of a deceitful and fraudulent

character.

Capt. Zin Maung Tun