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M/V "TAI PRIZE" – Tendering a "Clean on Board" Bill of Lading - Court of Appeal Judgment

  • Market Insight 26 July 2021 26 July 2021
  • UK & Europe

  • Marine

Noble Chartering Inc v Priminds Shipping Hong Kong Co Ltd [2021] EWCA Civ 87

Facts

The background and detailed facts of this case, recently considered by the Court of Appeal, can be found in our earlier article relating to the 2020 High Court first instance judgment (accessible here). 

To briefly recap, head owners were found liable by the Chinese court for loss and/or damage to a cargo of Brazilian soya beans carried on board the vessel "TAI PRIZE". 

The head owners claimed (and recovered) from the time charterers (Noble), under the Inter-Club Agreement (ICA), 50% of the claim awarded to cargo receivers (approx. US$500,000). Noble, as disponent owners, sought an indemnity from the voyage charterers (Priminds) on the basis that, through the agency of the shipper, they had impliedly warranted the accuracy of the statement as to the condition of the cargo by tendering a draft bill of lading stating that the Cargo was "Clean on Board" and "in apparent good order and condition". It was argued that the voyage charterers (because the shipper was their agent) had impliedly agreed to indemnify the time charterers against the consequences of the inaccuracy of any such statement.

Arbitration Award

The time charterers' claim against the voyage charterers succeeded in arbitration. The Tribunal found that pre-existing damage to the bulk cargo of soya beans was not readily apparent to the master but the voyage charterers, through the agency of the shipper, had to be taken to have known of the damage. Therefore, the Tribunal concluded that the voyage charterers were obliged to indemnify the time charterers in respect of their contribution under the ICA to the claim brought by the receivers under the bill of lading. 

Appeal to the High Court 

In the High 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 Arbitrator made a 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; and 

(3) there was no room for the implication of an obligation to indemnify the owners. 

Accordingly, he allowed the appeal and varied the award so that the time charterers' claim was dismissed. However, the judge gave permission to appeal to the Court of Appeal. 

Court of Appeal Judgment

  • Meaning of "apparent good order and condition"

The starting point of the leading judgment given by Lord Justice Males was to consider the meaning of the statement "shipped in apparent good order and condition" in a bill of lading. The judgement states: 

  1. The statement refers to the external condition of the cargo, as would be apparent on a reasonable examination.
  2. A "reasonable examination" depends on the actual circumstances prevailing at the load port.
  3. What matters is what is reasonably apparent to the master or other servants of the carrier, not what may be apparent to others. 
  4. 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 any earlier time; and 
  5. The statement is based upon the reasonable examination of the cargo which the master has (or should have) undertaken. It is the master's task to verify the condition of the goods before he signs the bill of lading.

In the present case, the statement in the bill of lading was accurate because the Tribunal found that the damage was not reasonably visible to the master or crew. Any conclusion that the bill was inaccurate based on the shippers' knowledge (implied or actual) was wrong as it is not their knowledge that matters. It also did not matter that the master may have noticed the damage if the discharge operations had paused from time to time, as these were not the conditions under which the cargo was loaded or could reasonably have been expected to be loaded.

  • The tender of a draft bill of lading

The Court of Appeal judgment clarifies that the tendering by a shipper of a draft bill of lading containing a statement as to the order and condition of the cargo, is no more than a request to the master to satisfy himself that the bill of lading in these terms can properly be signed and does not give rise to any right of indemnity.  

The judge did not wish to close the door completely on the argument that tendering a draft bill of lading may amount to a representation of some kind by the shippers as to the condition of the cargo. In particular, the possibility that by tendering a draft bill of lading containing a statement that the cargo is in 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. However, as this was not what Noble had argued and on the basis that the Tribunal had made no finding of actual knowledge by the shippers, this possibility was not considered any further. 

The Court of Appeal judgement found that:

  1. A statement in a bill of lading as to the apparent order and condition of the cargo is a statement made by the master based on his own examination of the cargo at the time of shipment.
  2. It is well understood that the tender of a draft bill of lading is a request by the shipper that the master should satisfy himself as to the apparent order and condition of the cargo. It is ultimately the master's responsibility to decide whether to sign the bill of lading in the form it is tendered to him.
  3. The tendering of a draft bill of lading does not create an implied warranty in the charterparty that the statement in the draft bill of lading is accurate (as was found in the arbitration award). This is because the criteria required to imply a warranty, (i.e. it is necessary to give the charterparty business efficacy or is so obvious as to go without saying) have not been met.
  4. Implying a warranty by shippers or charterers as to the apparent order and condition of the cargo would run counter to the scheme of the Hague Rules.

Comment

The Court of Appeal found no support for Noble’s claim for an indemnity in these circumstances, and the appeal was dismissed. 

The judge commented that the Court may have some sympathy for the view that it is unfair for charterers who, by the agency of the shipper, have actual knowledge of pre-existing damage to escape liability. However, this was not argued in this case and the Court did not believe there was cause to manipulate the phrase "shipped in apparent good order and condition" or the established understanding of what is happening when a draft bill of lading containing this statement is tendered to a master for signature.

Ultimately, the Court of Appeal came to the same conclusions as the High Court that the words "CLEAN ON BOARD" and "SHIPPED in apparent good order and condition" in a draft bill of lading did not amount to a warranty or representation by the shipper. To make such a finding would be contrary to the Hague Rules (see our earlier article). 

The issues arising in this case stem from the head owners' decision to issue a letter of undertaking subject to Chinese law and jurisdiction to the receivers as security for the cargo claim. The lead judgment in the Court of Appeal seems to suggest that the time charterers perhaps missed an opportunity to argue that issuing a letter of undertaking on these terms amounted to a new cause of loss so as to break the chain of causation. However, this point was not explored in any more detail and constitutes an argument that should perhaps be kept in mind for similar situations in the future. 

End

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