Bills of Lading 2 - Letters of Indemnity Claims Guides Common practices in shipping Owners are required to comply with charterers’ lawful orders under the charter party. Owners have an implied general indemnity against charterers under English law to recover losses which they may suffer as a result of following charterers’ orders under the charter party However this implied indemnity does not cover all situations. LOIs are often provided to owners so that they have an express indemnity in consideration for following charterers’ orders which may give rise to cover issues as well as increased cargo claim risks. The LOIs may be provided by charterers and/or another third party. LOIs are commonly requested in the following situations: a) Issuing clean bills of lading or bills of lading containing other misrepresentations against letters of indemnity The shipper and/or charterer may often pressurise the master to issue a clean bill of lading even where cargo is noted to be damaged upon loading, or issue a bill of lading showing shipment on date different to that on which the goods were actually shipped so they can present the bills of lading to the banks under the letter of credit system and be paid under the sale contract. The interests of the shippers/ charterers arising under letters of credit are of no concern to the carrier, who should be focussed on their liabilities arising under the contract of carriage and charter party. Owners are obliged, where the bills of lading are to be issued “for and on behalf of the master” to check the bills of lading contain accurate information. The master may be requested by the shipper or charterer to issue bills of lading which do not contain correct information regarding the condition, quantity or order of the cargo received in exchange for a LOI. Often the charter party expressly provides that the master is only permitted to issue a clean bill of lading against a LOI. In such cases, if there are any concerns with the quantity, order or condition, the master should consider: (i) issuing a clean bill and rejecting any goods which do not conform with the clean bill of lading description; or (ii) Accepting the goods on board but issuing a claused bill of lading If the master issues a clean bill of lading when he knows, or has reason to believe that the bill of lading does not accurately reflect the true condition of the cargo loaded (i.e. not rejecting the goods which do not conform), then P&I cover in relation to any cargo claims which arise as a result will likely be prejudiced. For example, if the shipper’s figures are clearly not accurate and the bills of lading are issued using those figures, P&I cover may be prejudiced in respect of any shortage claims. Bills of lading issued with misrepresentations (such as wrong shipment dates and wrong cargo descriptions) which the carrier knows are inaccurate, could be relied upon by an innocent third party receiver or transferee. P&I cover for such cargo claims will also be prejudiced. Any LOI provided in such cases may not be enforceable. These restrictions or even exclusions from Club cover are set out in Rule 2 Section 16 (C) (e). This note is intended to provide members with some general guidance regarding the issues which commonly arise when letters of indemnity (LOIs) are provided. This includes advice on how Club cover may be affected when LOIs are provided. b) Delivering the cargo without production of an original bill of lading One of the key functio