Shippers' tender of draft clean bill is only an invitation for Master to assess the condition of the cargo

Noble Chartering Inc v Priminds Shipping (HK) Co Ltd (The "TAI PRIZE") [28.01.21]

It is trite law that a bill of lading signed by the Master contains a representation by him as to the apparent condition of the cargo – indeed in the Nogar Marin (1987) it was said that “Everyone in the shipping trade knows” that the representation is based on the Master’s own reasonable assessment of the cargo.

However, can that be qualified in circumstances where the shippers (or their agents) present a draft clean bill of lading stating that the cargo is in apparent good order and condition, but there is damage which the shippers would have been able to discover by reasonable means before it was loaded? This was the position taken by the disponent owners in the Tai Prize where some of the cargo arrived damaged.

Background

The shippers prepared the draft bill of lading stating that the cargo was in “apparent good order and condition”, which the Master signed. It was found that the shippers could have discovered the condition of the cargo before loading, but the damage was not apparent to the Master.

The head owners were found liable to the cargo receivers for cargo damage and obtained an award against the disponent owners.
The disponent owners sought an indemnity from their charterers, on the basis that the statement from the shippers (the charterers’ agents) was a breach of an implied warranty in the charterparty that the statement in the draft bill would be accurate.
The LMAA arbitrator found in favour of the owners, finding that there was a “general principle that where the contract required the master to sign a bill of lading as presented, and the charterer or a person for whom the charterer is responsible presents an inaccurate bill of lading, the charterer must be responsible for the consequences that follow”.
The charterers appealed, challenging the finding that a statement as to the apparent good order and condition in a draft bill of lading by them amounted to a representation by them.
The charterers’ appeal was successful before the High Court.

The High Court’s rationale

The High Court started with the general proposition the bill of lading signed by the Master is his representation of fact as to the apparent condition of the cargo.

The effect of the Hague Rules (as applicable in this case)

The Hague Rules and Hague-Visby Rules provide for the issuance of a bill of lading by the Master at Article III, rules 3 to 5. In particular, on demand of the shipper, the Master must issue to the shipper a bill showing “Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper.” (rule 3(b)) and “The apparent order and condition of the goods” (rule 3(c)). The representations made by the Master in this respect is then prima facie evidence of the vessel’s receipt of the cargo in that condition and, under the Hague-Visby Rules, it is conclusive evidence once the bill has been transferred to a third party acting in good faith (Article III, rule 4).

As part of its reasoning, the High Court recognised the distinction between rule 3(b) and 3(c). As far as the number of packages or weight is concerned (rule 3(b)), the information can be “furnished in writing by the shipper” and by Article III, rule 5 the shipper guarantees those figures furnished and indemnifies the carrier in that respect. However this does not extend to any representation given in relation to the apparent order and condition of the goods (rule 3(c)). Accordingly, pursuant to the Hague and Hague Visby Rules, where a representation is made by a shipper in respect of the number of packages etc and the apparent order and condition, they are only deemed to have made any guarantee (and must indemnify) in relation to the former and not the latter. It is for the Master to assess the order and condition.

Moreover it was relevant in this case that the arbitrator had found as a matter of fact that it would not have been reasonably possible for the Master to have seen the damage to the cargo during loading.

It was found that the Master did not rely on the draft bill and that the bill was in any event accurate – the cargo was in apparent good order and condition.

Court of Appeal

The Court of Appeal considered the meaning of “apparent good order and condition” and provided the following helpful summary:

A statement in a bill of lading as to the apparent order and condition of the cargo refers to its external condition, as would be apparent on a reasonable examination.
What amounts to a reasonable examination depends on the actual circumstances prevailing at the load port. The Master’s responsibility is to take reasonable steps to examine the cargo, but he is not required to disrupt normal loading procedures.
What matters is what is reasonably apparent to the Master. The bill of lading contains a representation by the Master and says nothing about what may be apparent to anyone else, such as the shipper, who may have other means of examining the cargo.
The statement relates to the apparent order and condition of the cargo at the time of shipment, that is to say of receipt by the carrier, and not at any earlier time.
The statement is based upon the reasonable examination of the cargo which the Master has (or should have) undertaken.

In this case, the Court of Appeal agreed that the cargo was in apparent good order and condition and so the statement on the draft bill of lading was accurate. But that was a statement from the shippers, only accurate to the shippers’ knowledge based upon their reasonable examination of the cargo, in a draft bill. The signed bill of lading contains the Master’s representation as to the apparent order and condition of the cargo, for which the Master is responsible. The Court of Appeal upheld the High Court’s decision that the tender of a draft bill is a request by the shipper that the Master should satisfy himself as to the cargo’s condition.

Comment

So what of the ‘general principle’ that the arbitrator had relied upon, that the charterers must be responsible for the consequences that follow an inaccurate bill of lading being presented to the Master? The Court did not doubt its application generally but explained that:

The Master did not have to sign a bill of lading stating that the cargo was in apparent good order and condition if, based upon his examination, he did not consider it to be so.
The bill of lading in this case was not inaccurate nor was it a representation about the apparent order and condition of the cargo. As the Court had found, it was a merely a request to the Master to satisfy himself whether the bill could be signed in this form. In this case, on the facts, he rightly concluded that it could be.

It was suggested that this position could encourage shippers to present bills stating that the cargo is in good order and condition when they know damage is present. The Court of Appeal did not have to address that question - there was no finding here that the shippers knew that the cargo was damaged. However, the Court did indicate that by tendering a draft bill stating that the goods are apparent good order and condition, “the shippers make an implied representation that they are not actually aware of any hidden defects or damage which, if known to the master, would mean that he could not properly sign the bill as tendered.”.

The Court of Appeal’s decision helps provide clarity to the general principle relied upon by the owners. The presentation of a draft bill of lading for the Master to sign is common – but this will be a reminder to owners that, as far as the condition of the cargo is concerned, it is for the Master to assess the condition himself and decide whether or not it is in apparent good order and condition. The presentation of a draft bill from shippers stating this does not derogate the Master’s responsibility in this respect.