ABSTRACT
A letter of indemnity is an enforceable promise made by A to B to hold B harmless against any liability, loss or damage that B may incur as a result of complying with a request made by A, i.e. ‘If you (B) do what I (A) ask, I (A) will hold you (B) harmless against any loss, liability or damage that you (B) may incur as a result of doing what I (A) ask.’ Therefore, most letters of indemnity comprise two components:
A request by one party to another to perform a service; and
A promise by the requestor to hold the party complying with the request harmless against any loss, damage or liability that he may incur as a result of complying with the request.
In many cases, the contract of carriage will itself provide for an express indemnity. For example most charterparties have clauses such as the following:The Master shall be under the orders of the Charterers as regards employment, agency, or other arrangements. The Charterers shall indemnify the Owners against all consequences or liabilities arising from the Master, officers or Agents signing Bills of Lading or other documents or otherwise complying with such orders, as well as from any irregularity in the Vessel’s papers or for overcarrying goods. 1
Furthermore, even if the charter does not provide expressly for an indemnity, the common law will normally imply such a right in order to give effect to the dual components of the ‘request and promise’ arrangement described above. For example, the Court of Appeal in Strathlorne Steamship v Andrew Weir 2 approved the following principle that was laid down by Tindal CJ in Toplis v Grave: 3… when an act has been done by the plaintiff under the express directions of the defendant which occasions an injury to the rights of third persons, yet if such an act is not apparently illegal in itself, but is done honestly and bona fide in compliance with the defendant’s directions, he shall be bound to indemnify the plaintiff against the consequences thereof.
However, the mere fact that the shipowner has the right to be indemnified should they comply with the charterer’s request does not mean that the shipowner is necessarily bound to do so. For example, A might ask B to perform some task that is not within the boundaries of the contract, such as an order to perform a voyage that is outside the agreed charter party geographical limits. Furthermore, it has been repeatedly held that a shipowner is not bound to comply with an order to deliver cargo to a party that is not entitled to receive it, 4 or to deliver cargo to a party that may in fact have a right to receive it, if that party cannot produce the original bills of lading to verify such right. 5