In the recent case “Breffka & Hehnke GmbH & Co KG and others v. Navire Shipping Co. Ltd and others” the English High Court ruled upon the effects of a “RETLA clause” in a bill of lading with reference to a heavily rusted cargo of steel pipes.

This case arose from the carriage of steel pipes, which were shipped under bills of lading from Ulsan (Korea) to Ports of the West coast of North America (Los Angeles, San Francisco and Vancouver, WA) and were found to be damaged by rust at the Port of discharge.

The goods were carried on board of the m/v “Saga Explorer” between September to October 2008 and the contracts of carriage were constituted by 13 bills of lading.

The bills of lading, on the front of the printed form, stated that the goods were shipped “in apparent good order and condition”. Moreover they contained the so-called “RETLA clause” which provided that:

“If the goods as described by the Merchant are iron, steel [or] metal (…) the phrase ‘apparent good order and condition’ set out in the precedent paragraph does not mean the Goods were received (…) free of visible rust or moisture (…) Nor the Carrier warrants the accuracy of any piece count provided by the Merchant or the adequacy of any banding or securing. If the Merchant so requests, a substitute Bill of Lading will be issued omitting this definition and setting forth any notations which may appear on the mate’s or tally clerk’s receipt”.

As is often the case in the steel trade, a pre-loading survey was arranged in order to assess the preloading conditions of the cargo, and it reported that the goods were in “apparent good order & conditions with the following damage/exception”. 16 pages then followed of what was described as “damage/exception prior to loading”, consisting in descriptions of the steel as “partly rust stained”, “wetted before shipment by rain and partly rust stained and slightly scratched”, “…rust stained in white oxidation on surface”. The survey recommended clausing the bills and mate’s receipt. In addition, the booking note stated that bills were to be issued as per the mate’s receipt.

The mate’s receipt also contained a RETLA clause and stated that the conditions of the cargo were related to surveyor’s report.

Although all the above damages/exceptions were acknowledged by the vessel’s master, the Owners did not clause the bills of lading and rather, on the Shippers’ request, issued the bills essentially clean. The Shippers then provided the Owners with a LOI (“Letter of Intent”).

So the cargo was notified as having been shipped in apparent good order and condition, however the surveyors who attended to it soon after discharge noted extensive oxidation.

For this reason, Cargo interests brought claims for damages against the Owners on the basis of a fraudulent misrepresentation of the cargo.

The English Court’s decision

The Owners affirmed that the RETLA clause should be widely interpreted and that all surface rust, to any degree and extent, was excluded from the representation of apparent good order and condition of the cargo. The Owners’ arguments were based on Tokio Marine & Fire insurance company Ltd. v. Retla Steamship Company case. In that case, the US Court of Appeals affirmed that the clause meant that there was not representation that the pipes loaded were free of rust.

On the other side, the Cargo interests contended that the RETLA clause had to be read restrictively, arguing that it only excluded surface rust which was likely to be found in any normal cargo and which would not detract from its overall quality and affect its merchantability.

The Court rejected the Owners’ argument that the RETLA clause applied to all rust of whatever severity affirming that RETLA “was not to be construed as a contradiction of the representation of the cargo’s good order and condition, but as qualification that there was an appearance of rust and moisture of a type to be expected…which is difficult,if not impossible, to avoid…” So the RETLA clause could not apply to all rust of any degree.

The Court agreed with the cargo interests’ expert, whose opinion was that the cargo should have been described as “rust spotted” or “partly heavily rusted”. The Judge concluded that the Owners deliberately issued and signed clean bills of lading containing a false and fraudulent representation with regard the condition of the goods. The representation was not an honest and reasonable non expert view of the cargo as it appeared, but a dishonest calculation made to the detriment of those who would rely on the contents of the bills of lading.

Therefore, the Court awarded a principal sum of close to half a million US dollars to the Cargo interests.

Concluding remarks

This decision focuses on the interpretation and application of the RETLA clause and recommends that Owners be more careful in issuing clean bills of lading, in order to ensure good and honest international trade.

Therefore, notwithstanding pressure from Shippers, Owners must respect their obligation to record the cargo’s condition. RETLA is not an instrument to avoid this duty.