The Court of Appeal had to consider whether a draft bill of lading contained any representations made by the shipper regarding the ‘apparent good order and condition’ of the cargo.
The owners were the disponent owners of the motor vessel "TAI PRIZE" under an amended NYPE charterparty with the shipowner dated 08 September 2011. The charterers chartered the vessel pursuant to a voyage charterparty dated 29 June 2012 for the carriage of one cargo of heavy grains, soya or sorghum from Brazil to China.
The vessel arrived at Santos for loading. A Congenbill 1994 bill of lading (B/L) was drafted by the shipper and offered 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 ‘63,366.150 metric tons Brazilian soyabeans clean on board’.
The B/L was executed by agents on behalf of the master without any reservations stating that the cargo had been ‘Shipped… in apparent good order and condition…’
The vessel arrived at Guangzhou and discharge commenced on 15 September 2012. It was suspended ‘due to charred cargo found’. The receiver brought a claim for damages in China which the shipowner contested but lost at first instance and on appeal.
Subsequently, the shipowner commenced arbitration in London against owners who settled the claim and then sought in further arbitration an indemnity for the amounts paid to the shipowner from charterers. There was no express provision in the charterparty under which owners were entitled to an indemnity.
The arbitrator found as fact that the damaged beans had been loaded in a pre-existing damaged condition and that the damage was not reasonably visible to the master or any agent of owners at or during loading. However, the arbitrator concluded that because the discolouration of the beans would have been visible on reasonable examination by the shipper, it followed that the cargo was not in apparent good order and condition when shipped notwithstanding her earlier conclusion. She held charterers liable to owners because the shipper was charterers’ agent and therefore they had impliedly warranted the accuracy of any statement as to condition contained in the B/L.
On charterers’ appeal in the Commercial Court the judge held that (1) by presenting the draft bill of lading to the master for signature, 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, (2) the bill of lading was not inaccurate as a matter of law, and (3) there was no room for the implication of an obligation to indemnify owners.
Owners appealed. The Court of Appeal had to consider the following three questions of law:
(1) Did the words ‘clean on board’ and ‘Shipped... in apparent good order and condition...’ in the draft B/L presented to the master amount to a representation by the shippers and/or charterers as to the apparent condition of the cargo or were they instead an invitation to the master to make a representation of fact in accordance with his own assessment?
(2) In light of the answer to question 1, on the findings of fact made by the arbitrator, was any statement in the B/L inaccurate as a matter of law?
(3) If so, were charterers obliged to indemnify owners against any consequences of that statement being inaccurate?
The meaning of ‘apparent good order and condition’ in a bill of lading
Males LJ delivering the leading judgment held that several points were clear from the relevant case law and textbook commentary:
First, a statement in a bill of lading as to the apparent order and condition of the cargo referred to its external condition, as would be apparent on a reasonable examination.
Second, what amounted to a reasonable examination depended on the actual circumstances prevailing at the load port. The master's responsibility was to take reasonable steps to examine the cargo, but he was not required to disrupt normal loading procedures.
Third, what mattered was what was reasonably apparent to the master or other servants of the carrier. The bill of lading contained a representation by the master and said nothing about what might be apparent to anyone else, such as the shipper.
Fourth, the statement related to the apparent order and condition of the cargo at the time of shipment, that was to say of receipt by the carrier, and not at any earlier time.
Fifth, the statement was based upon the reasonable examination of the cargo which the master had (or should have) undertaken.
Was the bill of lading accurate?
Once it was understood that a statement as to the apparent order and condition of the cargo referred only to its external condition as that appeared on reasonable examination by or on behalf of the master in the circumstances prevailing at the load port, it was clear that the bill of lading as issued and signed on behalf of the master in the present case was accurate. The arbitrator's additional finding that the shippers would have been able to discover by reasonable means the condition of the beans before they were loaded was nothing to the point. The issue was whether the cargo was in good order and condition ‘so far as met the eye’ and, for this purpose, it was the master's eye which counted.
In these circumstances the third question, which assumed the existence of an inaccuracy in the bill of lading, did not arise. However, the Court of Appeal agreed with the first instance judge that charterers were not obliged to indemnify the owners against liability for the cargo claim and that to impose liability on the charterers based on the tender of a draft bill of lading containing a statement that the cargo was shipped in apparent good order and condition would be contrary to the scheme of the Hague Rules.
The Court of Appeal confirmed that the words ‘clean on board’ and shipped ‘in apparent good order and condition’ in the draft B/L were merely an invitation to the master to make a representation of fact in accordance with his own assessment of the cargo's condition.
The judge had some sympathy with the arbitrator's observation that it was unfair for owners to be liable without recourse to the charterers when their liability arose from the shipment of damaged cargo and the shippers (on charterers' ‘side of the line’) could by a reasonable examination have ascertained its damaged condition when the master could not.
He noted that it might seem unfair for charterers who actually know about pre-existing damage to escape liability. The Court left open the possibility that, by tendering a draft bill containing a statement that the cargo is in apparent good order and condition, the shippers made 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. However, this was not a case where there was any finding of actual knowledge on the part of either the shippers or charterers so there was no good reason to distort the established meaning of a phrase such as 'shipped in apparent good order and condition', or the established understanding of what was happening when a draft bill containing those words is tendered to a master for signature, in order to address any perceived unfairness.