Priminds Shipping (HK) Co Ltd -v- Noble Chartering Inc [2020] EWHC 127 (Comm)

This was an appeal by the claimant voyage charterer in respect of three questions of law arising out of a final award ordering the claimant to pay the defendant disponent owner’s claim in the sum of US$500,000 and costs.

Factual background

The defendant was the time charterer of the motor vessel “TAI PRIZE”. By a voyage charterparty dated 29 June 2012, the defendant agreed to let the vessel to the claimant for the carriage of a cargo of heavy grains, soya and sorghum in bulk from Brazil to China.

Pursuant to the charterparty, 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 at the Port of Loading in apparent good order and condition on board the Vessel for carriage to the Port of Discharge …Weight, measure, quality, quantity, condition, contents and value unknown …’

The B/L incorporated the Hague Rules (HR) by operation of clause 2 on its reverse side. The contract of affreightment evidenced by the B/L was with the shipowner not the claimant.

The vessel arrived at Guangzhou and discharge commenced on 15 September 2012. On 17 September, discharge from two of the vessel’s holds was suspended ‘Due to charred Cargo Found’. That cargo was discharged but the receiver maintained that the cargo in those holds had suffered heat and mould damage.

The shipowner contested the receiver’s claim for damages in China but lost at first instance and on appeal and was ordered to pay a sum equivalent to US$1,086,564.70. Subsequently, the shipowner commenced arbitration in London against the defendant which agreed to pay US$500,000 to the shipowner in full and final settlement. In further arbitration, the defendant claimed from the claimant the right to be indemnified for the amount paid to the shipowner and the associated costs. There was no express provision under which the defendant was 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 crew or the stevedores or the attending surveyors or any agent of the claimant 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 that the damage from which the beans were suffering was not reasonably visible to the Master or crew or the stevedores or any agent of the claimant at or during loading. She held the claimant liable to the defendant because the shipper was the claimant’s agent and therefore the claimant had impliedly warranted the accuracy of any statement as to condition contained in the B/L or had impliedly agreed to indemnify the defendant against the consequences of the inaccuracy of any such statement.

The claimant voyage charterer appealed.

Legal issues

i) Did the words ‘Clean on Board’ and ‘SHIPPED at the Port of Loading in apparent good order and condition’ in the draft B/L presented to the agents for signature on behalf of the master amount to a warranty by the shippers 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; and

ii) In light of the answer to (i), on the findings made by the arbitrator was any statement in the B/L inaccurate as a matter of law.

When the charterer or shipper on his behalf tendered a bill of lading for signature by the master that contained a statement as to apparent condition in the same or similar terms to the wording in the B/L, the charterer or shipper was inviting the shipowner by its agent the master to make a representation of fact as to the apparent condition of the goods on shipment.

The obligation to record the apparent order and condition of the goods was owed by the shipowner to the shipper. The purpose of the representation was to record the carrier’s evidence as to the apparent condition of the goods when placed aboard the ship. It could be relied on by the consignee and all subsequent holders of the bill of lading as reflecting the reasonable judgment of a reasonably competent and observant master.

Further, the HR drew a clear distinction between the position in relation to information that appeared in the B/L that was provided by the charterer or shipper on the charterer’s behalf, which the carrier or master on its behalf was obliged to accept at face value and representations as to the apparent condition of cargo at shipment. HR, Art. III, Rule 3 provided for the inclusion within a bill of lading to which the HR applied of the ‘leading marks necessary for identification of the goods’ and ‘the number of packages or pieces or the quantity or weight’ of the goods constituting the cargo to which the relevant bill related, critically, in each case, as that information was ‘furnished in writing by the shipper’. Insofar as the bill set out this information, it was recording information supplied by the shipper. In that case the rule applied to the information that the cargo consisted of ‘63,366.150 metric tons Brazilian Soyabeans’.

Critically, the rule went on to provide that the bill should also set out ‘the apparent order and condition of the goods’. However, that was not something that was to be ‘furnished in writing by the shipper’. That was exclusively an assessment by the carrier (or the master on its behalf) of the goods at the point of shipment. Everyone in the shipping trade knew that the master need not sign a clean bill just because one was tendered; everyone knew that it was the master’s task to verify the condition of the goods before he signed.

By HR, Art. III, Rule 5 a warranty was deemed to have been supplied by the shipper to the carrier in respect of the information ‘furnished in writing by the shipper’ pursuant to HR, Art. III, Rule 3 but no such guarantee was deemed to be given in respect of the apparent order and condition of the goods. In making that assessment, the master did not act on the basis of the information provided to him by the shipper but made his own independent assessment.

There was no finding by the arbitrator that the master failed to carry out an independent assessment. To the contrary, the arbitrator found the damage to be pre-existing and not reasonably visible to the master or any agent of the claimant at or during loading. In those circumstances, the shipowner and defendant complied with their prime obligation to deliver the goods at the contractual destination in the apparent good order and condition they were in when shipped. It was difficult to see how there could be any causal link between the loss suffered by the defendant in settling with the shipowner and the making of the alleged representation by the claimant because the signature of the bill of lading did not preclude the defendant from establishing the true condition of the goods in the arbitration as between it and the shipowner.

Therefore, in answer to questions (i) and (ii) by presenting the draft B/L for signature by or on behalf of the master, in relation to the statement concerning apparent good order and condition, 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. In light of the finding by the arbitrator that the damage was not reasonably visible to the master etc. the B/L was not inaccurate as a matter of law. It contained no more than a representation of fact by the master as to apparent condition.

iii) Was the claimant obliged to indemnify the defendant against any consequences of that statement whether pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term.

The claimant and defendant’s contract was contained in the charterparty. It incorporated the HR. The HR made specific provision for what indemnities applied. The scheme of the HR was to impose on a charterer an express indemnity obligation in respect of information furnished by the charterer. The scheme did not provide for such an obligation in relation to statements concerning apparent order and condition of cargo. That was a deliberate omission. In those circumstances there was no room for the implication of a guarantee or warranty.

Terms were to be implied only if to do so was necessary in order to give the contract business efficacy or was so obvious that it went without saying. Recent caselaw had emphasised the need for particular care when considering implying terms into a sophisticated and professionally drawn and negotiated agreement between well-resourced parties. The reason was obvious. Where an issue has been left unresolved, it was much more likely to be the result of choice rather than error. This applied to contracts that incorporated standard forms or wordings contained in provisions such as the HR, which were the result of careful consideration over a number of years by experienced industry professionals.

Applying those principles to the charterparty led to the conclusion that it would be wrong to attempt to imply into the contract a provision that made the claimant liable by implication to indemnify the defendant when the drafters of the HR could have but decided not to provide expressly for such a provision.

Comment

This judgment makes clear that it is the master (on behalf of the carrier) who is to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo and it is the master’s task to verify the condition of the goods before signing any bill of lading presented by the charterer/shipper.

In his judgment HHJ Pelling QC emphasised the need for particular care when considering implying terms into a sophisticated and professionally drawn and negotiated agreement between well-resourced parties.

It is also interesting to note that with regard to the arbitrator’s concern that the defendant would be left without recourse, if no indemnity was implied, the court found that there was nothing unfair, unjust, uncommercial or unconscionable about an outcome that left ultimate liability with the defendant because there was no misrepresentation, no evidence or finding that the master had acted on the alleged misrepresentation rather than being unable reasonably to verify the condition of the goods and because it decided to pay the shipowner.