The Supreme Court has refused permission to appeal in Priminds Shipping (HK) Co Ltd v Noble Chartering Inc (The “Tai Prize”) and affirmed the decision of the Court of Appeal  2 Lloyd’s Rep 36.
Initial Claim and Arbitration Findings
The vessel had loaded a cargo of soyabeans in Brazil for discharge in China. Shippers had presented owners with a ‘clean on board’ and ‘apparent good order/condition’ bill of lading. A claim was lodged by receivers in China for damage to the cargo. Central to the arbitration and the legal issues arising was that the pre-existing damage was not reasonably visible to the master during loading operations.
Head owners, as carriers under the bills of lading settled the receivers’ claim, head owners then recovered 50% of their losses from disponent owners (time charterers) on the basis of the Inter-Club Agreement (ICA).
Disponent owners thereafter sought an indemnity from their charterers under the voyage charterparty, (North American Grain Charterparty 1973 form) on the basis that charterers were responsible for the shippers tendering of their draft bill of lading including the term, ‘apparent good order/condition’.
The Tribunal held disponent owners were entitled to an indemnity from charterers because the condition of the cargo (soyabeans) could not have been apparent to the master upon a reasonable inspection during loading and the draft bill of lading presented was therefore inaccurate given that it recorded that the cargo was shipped in ‘apparent good order and condition’.
Charterers were found to be in breach of an implied warranty to provide an accurate draft bill of lading and the Tribunal agreed that charterers should be held liable to indemnify disponent owners for their losses.
Commercial Court Findings
Upon appeal by the voyage charterers to the High Court, it was found that when shippers presented the draft bill of lading to the master for signature, this simply constituted an invitation to the master to make a representation of fact in accordance with his own reasonable assessment of the apparent condition of the cargo.
The arbitrator had made a factual finding that cargo damage was not apparent at the time of loading, and it followed therefore, that the draft bill of lading was not inaccurate as a matter of law.
The statements on the draft bill of lading provided by shippers did not amount to a warranty or representation. Implying a warranty or indemnity owed by shippers would also run contrary to the Hague Rules which were incorporated in the sub-charter.
The High Court reversed the arbitrator’s decision varying the arbitration award and disponent owners’ claim was dismissed. The judge however allowed permission for disponent owners to appeal the decision to the Court of Appeal.
Court of Appeal Findings
The Court of Appeal confirmed the Commercial Courts findings that the statement on the draft bill of lading provided by the shippers did not amount to a warranty or representation.
The statement by the shippers was an invitation to the master to make his own reasonable assessment of the apparent condition of the cargo at the time of shipment i.e. a representation of fact. The enquiry is therefore the master’s determination and not that of the shippers even though they may have alternative means of examination at their disposal.
A statement in a draft bill of lading refers to the external condition of the cargo as would be determined by a reasonable examination at the time of the receipt of the cargo.
As for what constitutes a “reasonable examination”, this is to be determined based on the actual circumstances at the load port and does not mean that the master is to be an expert in the cargo or required to interrupt cargo operations in order to make an assessment.
It was accepted that the master would have been unable to see the damaged cargo at the load port and the cargo was therefore shipped in ‘apparent good order and condition’. The decision in arbitration that the bill of lading was inaccurate was therefore wrong in law because the test is what is reasonably apparent to the master, not what might be apparent to the shippers.
It is the master’s responsibility to verify cargo condition at the time of loading and to establish whether or not to sign a draft bill of lading or not.
The master’s duty aligns with the Hague Rules which were incorporated in the bill of lading. To imply a warranty would be contrary to the Hague Rules. These rules oblige the carrier after receiving goods into his charge, to issue a bill of lading upon demand by the shipper containing information which the shipper guarantees, which is distinguished in the rules from the apparent order and condition of the cargo following a reasonable examination by the master.
The decision by the Court of Appeal establishes that, notwithstanding the information contained in a draft bill of lading provided by shippers, the master still has a duty to undertake his own reasonable examination of the cargo.
The Appeal Court however had sympathy for disponent owners’ position and left open the question as to whether or not the court would have come to the same conclusion, had the shippers been shown to have actual knowledge of the cargoes poor condition.
The Supreme Court has refused permission to appeal and has therefore affirmed the decision of the Court of Appeal.
The decision is a reminder that a master should exercise caution when signing a bill of lading especially in a situation where there may be reasonable grounds to suspect that cargo may not be in ‘apparent good order and condition’. Despite information on the draft bill of lading, it is key for the master to carry out his own assessment and clause the bills of lading to reflect the apparent condition of the cargo loaded.
The case demonstrates difficulties for time charterers attempting to pass down liability to voyage charterers where damage to cargo is found to be pre-shipment related and the master proceeds to sign a ‘clean on board’ bill of lading. It is a reminder of the master’s obligation to carry out a reasonable examination of the cargo as it is his duty to make such an assessment and decide whether to sign bills of lading presented by shippers.
Whilst it was not possible for disponent owners to claim an indemnity in this case, there remains a curiosity that a voyage charterer or shipper would not be held liable for the inaccuracy of the words ‘apparent good order and condition’ in a draft bill of lading, unless it can be proven that the shippers were aware of the pre-shipment cargo damage.
As matters currently stand, in the absence of an express indemnity in a voyage charterparty, a voyage charterer or shipper is not responsible for the inaccuracy of including the words ‘apparent good order and condition’ in a draft bill of lading.
A case on slightly different facts particularly if it could be shown that shippers had knowledge of the defective condition of the cargo, may well attract judicial consideration in the future.
We trust that you may find the above decision useful and that it will provide some guidance in your future operations.
Should you have any queries regarding this bulletin please contact your usual contact within our claims team in London, Dubai or Shanghai.