Shipper’s presentation of bill of lading for signature is merely an invitation to master to make his own assessment of cargo’s apparent condition on loading

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[Sample Bill of Lading, Image for Representation only]

A recent High Court decision, The Tai Prize [2020] EWHC 127 (Comm), has held that where an agent presents a clean bill of lading to the Master for signing, this is not a warranty to the Master that the cargo is actually in good order and condition.

On appeal by the charterer, the High Court overturned the award of a London tribunal ordering the charterer to indemnify the disponent owner for the payment it had made to the owner of the vessel in settlement of the latter’s claim for a 50% contribution to the sum paid to cargo receivers for damage to cargo. The cargo had been loaded heat damaged and the shippers’ statement on the bill of lading (as agents for the charterer) that the cargo was “clean on board” and “in apparent good order and condition” did not constitute a warranty in respect of the condition of the cargo nor did it preclude the master from taking reasonable steps to verify the condition of the cargo.

Background

Noble Chartering Inc (“Noble”), disponent owner of the MV Tai Prize (the “Vessel”) voyage chartered the Vessel to Priminds Shipping (HK) Co Ltd (“Priminds”) for the carriage of a cargo of heavy grains, soya and sorghum in bulk from Brazil to China (the “Charterparty”).

The bill of lading issued by the shipowner, drafted by the shippers and offered for signature by or on behalf of the Master of the Vessel (the “Bill of Lading”), described the cargo as being “…Clean on Board…” and “SHIPPED…in apparent good order and condition…”. It also incorporated the Hague Rules. Agents on behalf of the Master issued the Bill of Lading without any reservations.

At destination, the cargo was found to have sustained heat and mould damage. The receivers commenced proceedings against the shipowner before the Chinese courts and were awarded the sum of US$1,086,564.70. The shipowner claimed in arbitration against Noble a contribution of 50% to the sum that the former had paid to the receivers and Noble settled the claim. In separate arbitration proceedings, Noble sought to be indemnified by Priminds for the amount paid in settlement to the shipowner.

The tribunal held that the shippers, as agents for Priminds, had warranted the accuracy of the statements as to the condition of the cargo contained in the Bill of Lading and/or had impliedly agreed to indemnify Noble against the consequences of the inaccuracy of such statements. The cargo was loaded on board with pre-existing heat damage, which later led to the development of mould. The damage was not reasonably visible to the Master or any other agent for Priminds during loading; however, the shippers would have been able to discover the damage by reasonable means, therefore the cargo, contrary to what was represented by shippers, was not in apparent good order and condition when loaded and Priminds were liable to Noble.

Issues

The arbitral award was appealed against on the basis of three issues of law:

  1. Whether the statements as to the condition of the cargo contained in the Bill of Lading amounted to a representation or warranty by the shippers and/or Priminds as to the apparent condition of the cargo, observable prior to loading, or if they were an invitation to the Master to make his own assessment of the apparent condition of the cargo, following which he would make a representation of fact;
  2. Whether any of the statements in the Bill of Lading were inaccurate; and
  3. Whether Priminds were liable to indemnify Noble against the consequences of a statement being inaccurate either pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term.

Decision

  1. Following The David Agmashenebeli and The Saga Explorer, Judge Pelling QC observed that when a charterer or shipper on a charterer’s behalf tenders to the master for signature a bill of lading that contains a statement as to the “apparent order and condition” of the cargo (or similar), this amounts to an invitation to the master/owner to make a representation of fact as to the apparent condition of the goods on shipment. A shipper’s statement as to the “apparent order and condition” of cargo is not a warranty as to the accuracy of the represented facts nor is it (once the master signs the bill of lading) a representation as to the actual condition of the goods shipped. It is the owner who owes an obligation to the shipper to record the apparent order and condition of the goods when shipped, and such record should reflect the reasonable judgment of a reasonably competent and observant master. As per The Nogar Marin, if the defects in the goods are not apparent on reasonable inspection upon shipment, the master’s signature of the bill of lading without qualification does not preclude owners from establishing the true condition of the goods.

The judge went on to identify a key distinction between information that the charterer or shipper on the charterer’s behalf “furnishes in writing,” necessary for the identification of the goods, the number of consignments or the quantity or weight of the goods under Article III, rule 3 of the Hague Rules (incorporated in the Charterparty and Bill of Lading) and the apparent order and condition of the goods. In respect of the former information, the shipper or charterer warrants its accuracy under Article III, rule 5. On the other hand, information contained in the bill of lading in relation to the “apparent order and condition” of the goods is not furnished in writing by the shipper but rather is based exclusively on the independent assessment of the carrier or the master on the carrier’s behalf. The shipper/charterer does not guarantee the accuracy of the information nor is the master/carrier acting on that basis.

The judge held that nothing on the facts would suggest a deviation from the commonly held position in the shipping trade that “it is the master’s task to verify the condition of the goods before he signs [the bill of lading]”.

Therefore, by presenting a Bill of Lading for signature by or on behalf of the Master, in relation to the statement concerning apparent good order and condition, the shippers were merely inviting the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo.

2. The Arbitrator had found that the damage to the cargo pre-existed its shipment on board but was not reasonably visible to the Master or any agent of Noble. As a result, the judge held that the representation of fact by the Master as to the apparent condition of the cargo was not inaccurate because the Master did not and could not reasonably have discovered the relevant defects.

3. As a matter of principle, terms are to be implied only if to do so would be necessary in order to give the contract business efficacy or the terms to be implied are so obvious that they go without saying. Judge Pelling QC noted that the Hague Rules impose an express indemnity obligation on the charterer in respect of the information that he “furnishes in writing”. A charterer has no such obligation however in relation to statements regarding the “apparent order and condition” of the cargo. The Judge considered that this distinction was deliberate and therefore in the latter case “there is no room for the implication of an implied guarantee or warranty”.

Finally, addressing a concern of the tribunal, the judge observed that the outcome would not be leaving Noble without recourse: Noble’s liability to the shipowner was the result of their decision to pay the shipowner in settlement rather than defend the claim by reference to the true condition of the goods. It follows that there is nothing “unfair, unjust, uncommercial or unconscionable” about an outcome that leaves the ultimate liability with Noble.

The judgment highlights the importance of ascertaining the condition of cargo loaded on board but where this may not be practicable, the Judge’s closing remarks may not be apposite, given that Noble’s liability to the shipowner may not have depended upon the true condition of the goods. Further developments are anticipated, as Noble has been granted leave to appeal