Between 24 and 29 July 2012 the vessel m/v "TAI PRIZE" ("the Vessel") loaded a cargo of 63,366.15 metric tonnes of Brazilian soya beans ("the Cargo"). A Bill of Lading in the 1994 Edition of the Congenbill form was drafted by the shipper and submitted for signature by or on behalf of the Master of the Vessel. Under the heading "Shipper's description of Goods" the Cargo was described as being "Clean on Board". The Bill of Lading was executed by agents on behalf of the Master, without any reservations, and stated that the Cargo had been "SHIPPED at the Port of Loading in apparent good order and condition on board the Vessel for carriage to the Port of Discharge..."
The Bill of Lading incorporated the Hague Rules by clause 2 on its reverse side.
The Vessel arrived at the port of discharge on 9 September 2012. Heating, discolouration and caking damage was found during discharge in Holds No.3 and 5. The receiver of the Cargo pursued a claim against the Owners of the Vessel (the contractual carriers under the Bill of Lading) in the Chinese courts and succeeded, recovering US$1,086,564.70.
The Owners pursued a claim for a contribution of 50% from the time charterer in London arbitration, which was settled in the sum of US$500,000. The time charterer then pursued the voyage charterer for an indemnity in respect of this settlement.
The basis of this indemnity claim was that, the voyage charterer through the agency of the shipper had impliedly warranted the accuracy of any statement as to the condition of the Cargo contained in the Bill of Lading. That is, by the shipper tendering a Bill of Lading stating that the Cargo was "Clean on Board" and "in apparent good order and condition", the voyage charterer (because the shipper was their agent) had agreed to indemnify the time charterer against the consequences of the inaccuracy of any such statement.
The Arbitrator found as fact that:
- The relevant part of the Cargo suffered from two types of damage being (a) heating, caking and discolouration of some of the beans and (b) mould in some places;
- The damaged beans had been loaded in a pre-existing heat damaged condition and the mould damage was caused by this;
- The damage was not reasonably visible to the Master during loading; but
- The shipper would have been able to discover the condition of the beans by reasonable means because some of the damaged beans were or would have been discoloured at or before loading.
On this basis, the Arbitrator found that the shipper had warranted that the Cargo was "...SHIPPED at the Port of Loading in apparent good order and condition..." by inviting the Master or his agent to sign the Bill of Lading containing the statement as to apparent good order and condition. The Cargo was not shipped in apparent good order and condition and the damage would have been visible on reasonable examination by the shipper. Therefore, the voyage charterer (because the shipper was their agent) was liable to indemnify the time charterer in respect of their contribution to the Owners' liability to the receivers.
The Arbitrator's decision was appealed on three questions of law:
i) Did the words "Clean on Board" and the words ".... SHIPPED at the Port of Loading in apparent good order and condition..." in the draft bill of lading presented to the agents for signature on behalf of the Master amount to a representation or warranty by the shipper and/or the claimant as to the apparent condition of the cargo observable prior to loading or were they an invitation to the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the Cargo;
ii) In light of the answer to (i), whether on the findings of fact made by the Arbitrator any statement in the bill of lading was inaccurate as a matter of law; and
iii) If so, are the claimants obliged to indemnify the defendants against any consequences of that statement being inaccurate whether pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term.
The Appeal Decision
In coming to his decision, the Judge considered the warranties deemed to have been given by the shipper under the Hague Rules ("the HR").
Article III r.3 of the HR requires the carrier to issue a Bill of Lading that shows the leading marks necessary for identification of the goods and the number of packages or pieces or the weight "as furnished in writing by the shipper" and "the apparent order and condition of the goods".
Article III r.5 of the HR states:
"The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall indemnify the carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars".
The requirement for the Bill of Lading to state the apparent order and condition of the cargo is not qualified by the words "as furnished in writing by the shipper". In that case, the guarantee identified in Article III r.5 is not given in respect of the apparent condition of the cargo, because that is a representation given on behalf of the shipowner by the vessel's Master, based on his assessment of the apparent order and condition of the cargo. In making that assessment, the Master does not act on the basis of the information provided to him by the shipper but makes his own independent assessment.
The Judge concluded, in relation to the statement concerning the apparent good order and condition, that by presenting the draft Bill of Lading for signature by or on behalf of the Master, the shipper was doing no more than inviting the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the Cargo. The Judge held that it would be wrong in principle to attempt to imply into the contract a provision that makes the shipper liable by implication to indemnify the carrier when the drafters of the HR decided not to provide expressly for such a provision (when they could easily have done so).
In answering question (ii), the Judge referred to the Arbitrator's finding of fact that the Cargo damage was not apparent at the time of loading and so the Bill of Lading was not inaccurate as a matter of law. In light of the findings in relation to questions (i) and (ii), it was held that the voyage charterer was not obliged to indemnify the time charterer in relation to their liability to the Owners for the loss and/or damage to the Cargo.
"Clean on Board"
One point that was not decided in either the arbitration or the appeal was the effect of including the words "Clean on Board" in the cargo description box on the Bill of Lading. In their award, the Arbitrator said of this statement:
"The typed words "clean on board" were located in the box headed "shipper's description". I understand that to amount to an express representation made by the shippers, but neither party argued this before me. As to whether this is relevant, it would probably not add anything to my decision ... that the [claimant is] to take responsibility for the shippers in the context of this dispute."
In his judgment, the Judge agreed with the Arbitrator's observation that the inclusion of the phrase within the shipper's description box on the draft Bill of Lading was at least arguably an express representation made by the shipper to the effect that the goods were in apparent good order and condition. He stated at paragraph 22 of the judgment:
"It is conceivable that it might have been argued by reference to the inclusion of this representation that the Shipper...thereby represented that the goods were in apparent good order and condition. However, that was not argued before the Arbitrator and there are no findings to the effect that the Master acted on the truth and accuracy of the representation in signing the [Bill of Lading] without carrying out the reasonable assessments referred to in the case law referred to earlier."
The HR make it clear that the purpose of the representation "loaded in apparent good order and condition" is to record the carrier's assessment of the apparent condition of the goods when placed (shipped) aboard the vessel.
However, the effect of the addition of the words "Clean on Board" in the shipper's description box remains unclear. This judgment has left open the argument that this could amount to an express representation by the shipper as to the condition of the cargo on loading. This argument may have more force in respect of cargoes where it is more difficult for the Master to make his own assessment (such as bulk liquid cargoes where the shipper has more opportunity to assess the condition of the cargo).
It is possible that this argument may be pursued in a future claim. In our view it may be difficult for a carrier to rely on this argument as they would have to show that they were unable to make their own assessment of the condition of the cargo and that they have relied on the representation to their detriment. However, an argument of this nature could obviously raise commercial problems between the cargo shipper and the consignee. If there is any concern that an argument of this nature may arise, it should be considered whether a mutual release between the carrier and the cargo interests can be obtained at the time of finalising settlement of the cargo claim.
The decision also reinforces the Court's reluctance to imply terms into a sophisticated and professionally drawn and negotiated agreement between well-resourced parties. This applies with equal force to a contract that incorporates standard forms of wordings contained in provisions such as the HR, which are the result of careful consideration over a number of years by experienced industry professionals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.