Key takeaways
Draft clean bill of lading
Master must assess apparent order and condition of cargo for himself.
No implied warranty
This would be inconsistent with Article III, Rules 3 to 5 Hague Rules.
Potential claims
Where shippers or charterers have actual knowledge of pre-existing defects in cargo.
This case is the leading authority on the meaning and legal effect of the statement in a bill of lading that the cargo is shipped in “apparent good order and condition.”
It also makes it clear that there is no implied indemnity in shippers tendering a draft bill of lading; the master must make an independent representation as to the condition of the cargo as it is apparent to him.
The background facts
The MV Tai Prize was chartered to carry soya beans from Brazil to China. The cargo was loaded onto the vessel from one or more silos using mechanical hoppers. The shipper presented a draft clean bill of lading to the master. The master signed the bill of lading as presented. On arrival at the discharge port, cargo in two holds was found charred.
Receivers commenced proceedings in China against head owners and carriers under the bill of lading and obtained judgment in their favour. The head owners subsequently recovered 50% of that amount from the disponent owners, Noble Chartering, under the Inter Club Agreement.
The disponent owners then sought to recover their losses from the voyage charterers, Priminds Shipping, by relying on an implied indemnity under the voyage charterparty. The dispute was referred to arbitration in London before a sole arbitrator.
Arbitration award
The sole arbitrator found the voyage charterers liable on the following grounds:
The words “in apparent good order and condition” referred to the condition of the cargo “so far as meets the eye, and externally” or “upon reasonable examination”.
The damage was pre-existing but it was not reasonably visible to the master at the time of loading, given the way in which the cargo was loaded from silos.
The shipper, however, for whom the voyage charterers were responsible, “must be taken to know the actual apparent condition of their own cargo”.
Given that the damage would have been visible on reasonable examination by the shipper, the arbitrator found that the cargo was not shipped “in apparent good order and condition” and that the statement on the draft bill of lading was inaccurate.
The master was obliged under the charterparty to sign the bill of lading as presented. Accordingly, the voyage charterers impliedly warranted the accuracy of the shipper’s statement in the draft bill of lading and were liable for the consequences of any inaccuracy.
The voyage charterers appealed to the Commercial Court under s.69 of the Arbitration Act 1996 (error of law).
The Commercial Court decision
The Commercial Court allowed the appeal and varied the award so that the disponent owners’ claim was dismissed. The Court held that:
The shipper’s presentation of the draft bill of lading was only an invitation to the master to make his own representation of fact, based on his reasonable assessment of the apparent condition of the cargo.
Since the sole arbitrator had found that the damage was not visible to the master upon reasonable examination, the statement in the bill of lading that the cargo was shipped in apparent good order and condition was not inaccurate as a matter of law.
There was no room to imply a warranty or an indemnity as this would run counter to Article III, Rules 3 to 5 of the Hague Rules, that were incorporated into the sub charterparty and the bill of lading.
In particular, Article III, Rule 5 provides that the shipper guarantees, and undertakes to indemnify the carrier in respect of the accuracy of information furnished by the shipper under Article III, Rule 3, such as the leading marks, number, quantity or weight of the cargo. However, there is no equivalent warranty in respect of the apparent order and condition of the cargo.
The Court gave leave to appeal and the matter proceeded to the Court of Appeal.
The Court of Appeal decision
The Court of Appeal upheld the Commercial Court decision, confirming that:
The presentation of a draft clean bill of lading is only a request by the shipper that the master should satisfy himself as to the apparent order and condition of the cargo. It does not amount to any representation or warranty by the shipper, as that would be inconsistent with the Hague Rules, which distinguish between (i) information provided by shippers, which shippers are held to guarantee and (ii) the apparent condition of the cargo, which is a matter for the master’s reasonable visual examination.
The representation “SHIPPED in apparent good order and condition” is made by the master, based on his own reasonable examination of the cargo at the time of shipment. What matters, therefore, is what would be apparent to the master at the load port and not to anyone else, such as shippers, who may have other means of examining the cargo at an earlier stage. If the master does not agree with the wording drafted by the shippers, the master is entitled to and, in fact, obliged to clause the bill of lading.
What amounts to a reasonable examination depends on the actual circumstances at the load port. The master must take reasonable steps in the circumstances, but he is not required to disrupt the loading operations in order to examine the cargo, say, for example, by waiting for daylight or better visibility. In this case, that meant that the master was not required to pause loading from the silos to allow dust to settle.
Importantly, the Court of Appeal left open the possibility that, by tendering a draft bill of lading stating that the cargo is shipped in apparent good order and condition, the shippers make an implied representation that they are not aware of any hidden defects, which, if known, would mean that the master would not sign the bill of lading as tendered.
However, that was not how the disponent owners put their case and there was no finding of fact by the sole arbitrator that the shipper or voyage charterers had actual knowledge of the pre-existing damage.
Comment
The Supreme Court refused permission to appeal. The Court of Appeal’s decision, therefore, stands as the leading authority on the meaning of “apparent good order and condition” in bills of lading.
This was also recently affirmed in ‘Stournaras Stylianos Monoprosopi EPE v Maersk A/S [2024] EWHC 2494 (Comm) (07 October 2024)’, in which the Court held that “the good order and condition of the cargo referred to its external condition as would be apparent from a reasonable examination”.
The Court of Appeal’s decision in the Tai Prize is, therefore, an important reminder that, even where a draft bill of lading has been prepared and presented by shippers, the master must still carry out his own reasonable examination of the cargo, exercise his own judgement and decide whether the bill should be signed clean or claused.
This does not mean, however, that shippers are being encouraged to misdescribe the condition of the cargo.
The Court of Appeal had sympathy for the owners’ position in circumstances where shippers/charterers had actual knowledge of pre-existing damage, noting that this might seem unfair. However, this was not the issue before the Court of Appeal on this arbitration appeal, which was confined to the bill of lading statement as to the apparent order and condition of the cargo.
Our specialist Shipping team advises owners, charterers and insurers on all aspects of cargo claims – from bill of lading disputes to recovery actions and risk mitigation strategies. Get in touch to find out how we can support you.
