Letter of Indemnity and the Delivery of Cargo Without Bills of Lading | ZFZ Postcard Cases
The English High Court considered claims arising under the enforcement of a letter of indemnity (LOI) against a charterer regarding the discharge of cargo without the original bill of lading.
Navig8 Chemicals (Claimant), was a charterer under a time charter with head owners. Aeturnum (Defendant) entered into a sub-voyage charter. Both charterparties provided that charterers could request that disponent owners discharge the cargo without the original bill of lading against an LOI. At Aeturnum’s request, Navig8 asked the head owner to discharge the cargo. However, the original bill of lading holder/true owner of the cargo subsequently sued for misdelivery and arrested the vessel. Navig8 invoked the LOI against Aeutrnum with the intention that Autrunum would provide security to release the vessel. However, Aueturnum failed to do so, and Navig8 eventually put up security. Navig8 sought to recover its losses from Aueturnum. The issue before the Court concerned Aueturnum’s liability under the LOI.
The Court held that (1) The LOI was engaged as the delivery was requested by Aueturnum. (2) Production of identification was not a condition precedent to triggering the LOI. (3) Navig8 was entitled to damages for the loss of vessel use during the period of arrest. (4) Navig8 was entitled to an indemnity of losses sustained because of the cargo delivery without the original bill of lading.
This judgment is an important reminder to parties relying on LOIs. The terms of each LOI are critical to its efficacy and there are always counter-party security risks to be considered when relying on an LOI.