In this case the court has considered the issue of acceptance inspection of the goods on board by the master of a vessel, the phrasing of a bill of lading in this regard and the consequences thereto for all parties involved.

Facts: The Charterers (Priminds) were the voyage charterers of the motor vessel “Tai Prize” pursuant to a charterparty dated 29th June 2012 contained in and evidenced by a fixture recap incorporating an amended North American Grain Charterparty 1973 form. The charterparty was for the carriage of one cargo of heavy grains, soya or sorghum from Brazil to the People’s Republic of China. It provided that:

“6. Bills of Lading. The Master is to sign Bill of Lading as presented on the North America Grain Bill of Lading form without prejudice to the terms, conditions and Exceptions of this Charterparty…”

The vessel loaded a cargo of 63,366.150 mt of Brazilian soya beans in bulk between 24th and 29th July 2012. The cargo was loaded from one or more silos via mechanical hoppers at the Cutrale Terminal in Santos, Brazil.

Following completion of loading, a bill of lading dated 29th July 2012 on a CONGENBILL 1994 form was issued, signed on behalf of the master by agents of the head owners. The head owners were, therefore, the party to the contract of carriage contained in or evidenced by the bill. The bill had been drafted by the local shippers and presented to the master for signature. It incorporated the Hague

Rules. In a box with the heading “Shipper’s description of goods” which formed part of the printed form were the typed words “CLEAN ON BOARD”. As part of its printed text, the bill stated:

“SHIPPED at the Port of Loading in apparent good order and condition on board the Vessel for carriage to the Port of Discharge or so near thereto as she may safely get the goods specified above.

Weight, measure, quality, quantity, condition, contents and value unknown”.

The vessel arrived at the discharge port, Guangzhou in China, on 9th September 2012. No damage was found on the surface of the cargo in any of the holds when the hatches were opened. Discharge commenced on 15th September and continued until 09:30 hours on 17th September, when discharge from hold 3 was suspended due to charred cargo being found. At 11:30 on the same morning discharge from hold 5 was suspended for the same reason. Discharge from the remaining holds continued without complaint. Discharge from holds 3 and 5 resumed and was completed by 20th September, but heat and mould damage to some of the cargo in those holds led to a claim by the receivers under the bill of lading.

On 19th September 2012 the head owners’ P&I club provided a Letter of Undertaking to the receivers as security for the cargo claim. It provided that the claim would be subject to Chinese law and the exclusive jurisdiction of the Chinese court.

The receivers subsequently commenced proceedings against the head owners in China. The head owners defended the claim, both at first instance and on appeal, but were unsuccessful. Eventually, on 18th February 2016, they paid to the receivers the amount for which they were held liable, which was the equivalent of US $1,004,385.61. The head owners then commenced London arbitration proceedings against the Owners for a contribution under the Inter-Club Agreement of 50% of this amount. Pursuant to a settlement agreement dated 24th July 2017 the Owners agreed to pay US $500,000 (inclusive of interest and costs). The Owners then sought to recover this from the Charterers, together with their costs of defending the claim by the head owners.

The Charterers contended that the damage found in holds 3 and 5 was caused during the voyage by heat transfer from the adjacent fuel oil tanks on board the vessel. However, the arbitrator rejected this contention. She found that the damaged cargo was loaded with an excessive moisture content and with pre-existing heat damage.

The arbitrator found that the damage was not reasonably visible to the master or crew at and during loading. She also found, however, that the shippers would have been able to discover by reasonable means the condition of the beans before they were loaded and “must be taken to have knowledge of the actual (apparent) condition of the beans”. It is a finding of fact that the shippers had the means of discovering the damaged condition of the beans in one of the silos at the load port. The arbitrator found also that the shippers were acting as agents of the Charterers for the purposes of supplying the cargo and presenting a draft bill of lading to the master for signature, so that the shippers’ imputed knowledge of the damage was also to be imputed to the Charterers.

The arbitrator found that the damage at the discharge port was pre-shipment damage, the head owners ought not to have been held liable to the receivers on a bill of lading which was subject to the Hague Rules. They would have been entitled to rely on the defence of inherent vice under Article IV, Rule 2(m). The arbitrator made no findings as to the reasoning of the Chinese courts, that is why it is not known on what basis the head owners were held liable to the receivers. It may have been because the Chinese courts took a different view of the cause of the damage, because they concluded (wrongly, on the arbitrators’ findings) that the damage was reasonably apparent to the master at the load port, because Chinese law (unlike the Hague Rules) does not recognise a defence of inherent vice, or perhaps for some other reason. Whichever it was, however, the arbitrator found that the head owners acted reasonably in providing a Letter of Undertaking subject to Chinese law and jurisdiction, that doing so did not amount to a new cause of the loss so as to break the chain of causation, and that it was reasonably foreseeable that if the Charterers presented an inaccurate bill of lading for signature when the cargo was in fact damaged, the receivers would bring a cargo claim before the Chinese courts which would apply Chinese law. There is no challenge to these conclusions.

Ruling of the court: this decision gave rise to an appeal to the Commercial Court under section 69 of the Arbitration Act 1996 on the following three questions of law¹:

(1) Did the words “CLEAN ON BOARD” and “SHIPPED in apparent good order and condition” in the draft bill of lading presented to the Master amount to a representation or warranty by the shippers and/or Charterers as to the apparent condition of the cargo observable prior to loading, or were they instead an invitation to the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the Cargo on shipment?

(2) In light of the answer to question 1, on the findings of fact made by the arbitrator, was any statement in the Bill of Lading inaccurate as a matter of law?

(3) If so, were Charterers obliged to indemnify Owners against any consequences of that statement being inaccurate, whether pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term?

(1) The words “CLEAN ON BOARD” and “SHIPPED in apparent good order and condition” in the draft bill of lading presented to the master did not amount to a representation or warranty by the shippers and/or Charterers as to the apparent condition of the cargo observable prior to loading; they were merely an invitation to the master to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo on shipment.

(2) On the findings of fact made by the arbitrator, the statement in the bill of lading that the cargo was shipped in apparent good order and condition was accurate.

(3) The 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.

Commentary: This case is notable for several reasons. First of all, it has gone all the way from arbitration to the consideration of the case on the questions of law in two instances of the courts of England and Wales. Second, the issues concerning phrasing and signing of the bill of lading involve many interested parties. Third, in order to determine certain criteria before making any conclusions one has to analyse really deep into the circumstances of the case, namely, into the process of acceptance of the goods on board of a vessel. Fourth, the question of who the person that should define what the apparent good order and condition of the goods is leads to the allocation of the liabilities and indemnities. Finally, since it concerns with the issue of the application of the Hague Rules, it is important as a piece of case law to many countries which have adopted them. ■

Notes