At a glance: the words “CLEAN ON BOARD” and “SHIPPED in apparent good order and condition” in a draft bill of lading presented to the Master for signature, were merely an invitation by the shippers to the Master to make those representations in accordance with his own assessment.
Our previous briefing on this case can be found here.
This recent Court of Appeal decision concerns a claim under a voyage charterparty on an amended NORGRAIN ’73 form for carriage of soya beans from Santos, Brazil to Guangzhou, China.
The cargo was loaded at Santos in July 2012. A clean bill of lading on a CONGENBILL form was presented by the shippers and signed by the Master. On discharge at Guangzhou in September 2012, it was discovered that some of the cargo was subject to heat and mould damage. That damage was not visible on opening the hatches.
Head Owners’ P&I Club issued a Letter of Undertaking (LOU) stipulating that any disputes under the bill of lading would be subject to Chinese law and jurisdiction.
Cargo interests pursued a cargo claim in the Chinese courts and Head Owners were held liable as carrier under the bill of lading. Head Owners tried to appeal but were unsuccessful. Their liability exceeded US$ 1m.
Head Owners sought a contribution from their time charterers, Noble Chartering Inc, under the Inter-Club Agreement (ICA). In 2017, Noble settled the ICA claim for US$ 500,000 (inclusive of costs and interest over 5 years).
In turn, Noble, as disponent owner, commenced an LMAA arbitration against their voyage charterer, Priminds to recover their loss.
The local shippers, who were Priminds’ agents, had presented a clean draft bill of lading to the Master for signature with the usual words: “CLEAN ON BOARD”, “SHIPPED in apparent good order and condition”. Noble argued that:
i. The cargo was loaded wet/already damaged contrary to the Chinese court’s finding;
ii. The shippers who had prepared the draft bill of lading must have known this; and
iii. Because the cargo was not in apparent good order and condition, Priminds were in breach of an implied warranty that the draft bill was accurate when their agents presented it to the Master.
The sole arbitrator agreed with Noble and held that Priminds were liable to indemnify them for their loss incurred to Head Owners under the ICA.
In particular, the arbitrator held:
a. The cargo was wet on loading and had pre-existing heat damage;
b. This would not have been visible to the Master on shipment;
c. The shippers “must be taken to have knowledge of the actual” apparent condition of the cargo;
d. On those findings of fact, Priminds were in breach of an implied warranty that the statements in the draft bill were accurate; and
e. Agreement to an LOU subject to Chinese law and jurisdiction had not broken the chain of causation (a finding not subsequently challenged on appeal).
Decisions of the Commercial Court and Court of Appeal
Both the Commercial Court and, now, the Court of Appeal held that the arbitrator made an error of law. Priminds had made no representation as to the apparent condition of the cargo when their agents presented the bill of lading to the Master.
The Court of Appeal held:
• Presenting a draft bill of lading for signature and actually signing it are different things.
• Presenting the draft bill was merely an invitation for the Master to make representations of fact according to his own reasonable assessment of the apparent condition of the cargo on shipment. The shippers themselves made no representations, and hence did not misrepresent the apparent condition on shipment.
• It is well established that representations on the bill must be based on the Master’s own reasonable assessment of the apparent condition of the cargo on shipment.
• Based on the arbitrator’s findings of fact, the bill of lading signed by the Master was accurate. No damage was visible to the Master on loading. The representations on the face of the bill were true.
• The charterparty incorporated the Hague Rules. Article III Rule 3 stipulates the information that must be furnished by the shipper on a draft bill of lading. That does not extend to the apparent order and condition of the cargo, which the Master alone must assess. That also left no room for any implied indemnity in favour of Noble.
Noble accepted in the course of the Commercial Court proceedings that the arbitrator’s finding that Priminds “must be taken” to have known the actual condition of the cargo on loading was not the same as saying they had that knowledge. Instead, it was a finding that they had the means of discovering its condition.
Finally, Males LJ left open the possibility that where (unlike in this case) those tendering draft bills of lading were proven to have had actual knowledge of defects or damage prior to shipment, they might have made an implied representation that they were not aware of any actual defects or damage when presenting the bill to the Master for signature.
The result in this case is as one might expect given the long-established nature and legal effect of representations on a bill of lading signed by the Master. However, it leaves a bitter taste in the mouth of an owner / disponent owner where, on a finding of fact in arbitration, a charterer (or their agent) “must be taken” to know a cargo is defective or damaged, but where the evidence falls short of showing they had that knowledge. In this case, this meant Noble as intermediate charterer/disponent owner were unable to recover what they had paid to Head Owners.
The case underlines two practical points:
- The difficulties faced when a draft clean bill of lading is presented to the Master: he cannot rely on what a shipper or charterer has put in front of him and must exercise his own judgment based on what is observable on a reasonable examination of the goods. Although a master is not required to investigate any further, the case highlights the difficulties where neither the shipper nor the Master are deemed to know or be able to determine the true condition of the cargo. Owners / disponent owners will need to consider how best to protect themselves in this position.
- Different findings of fact in the same dispute in different jurisdictions can create a risk of one party, usually the intermediate charterer, being left exposed. Where a vessel is arrested or threatened with arrest, the carrier should move quickly to establish the law and jurisdiction clause that applies to the relevant bill(s) of lading. This may involve urgent requests down the charter chain for evidence of the law and jurisdiction clause in the relevant voyage charter.