The Controversial Validity And Enforceability Of Letter Of Indemnity
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1. The controversial validity and enforceability of Letter of Indemnity
The use of LOI can lead to different effects and especially because of the question of the Validity and the enforceability of this mechanism. According to Professor Tetley, a LOI used against clean B/L are “usually the central document to a fraud or an accessory of fraud” , and P&I Clubs agreed but decided to go deeper by stipulating a general rule that leads to a deny of insurance cover in case of the use of a LOI against clean B/L, delivery of cargo at a different port or against non-production of a B/L . Indeed, whereas for the last LOI, the Court estimates that the LOI is fraudulent (because of a “false misrepresentation of a material fact”), for the first one, the Court can considered it as fraudulent, especially in absence of guarantee because it imposes an important responsibility on the carrier.
According to JP Mattout, “LOIs have been the practical way chosen by the parties even if they are far from being the perfect solution” . Indeed, the United Kingdom remains a Common Law country, in which there is not a general principle of good faith in contract, even if the principle of equity could be another solution. That is why; the Courts and English law generally reject the use of a LOI, the Court will not help and support an illegal act and an intentional breach of contract from the parties .
The most relevant illustration of a condemnation of this practice is the Brown Jenkinson & Co. Ltd v