THE TAI PRIZE: What does the term on a Bill of Lading “in apparent good order and condition” mean?

NOBLE CHARTERING INC. v. PRIMIDS SHIPPING HONG KONG LTD (“THE TAI PRIZE”) [2021] EWCA Civ. 87, 2021 WL 00275933

(28.01.21 – Court of Appeal Judgment)

Introduction

Issues relating to bills of lading and in particular cargo claims belong to the most common disputes in day-to-day shipping operations. Equally common is the wording used in “Clean” Bills of Lading, to describe cargo that has been loaded on board “in apparent good order and condition”. The importance of this case rests with the fact that for the first time, the Court of Appeal has dealt with questions of law pertaining to the interpretation of this widely used phrase. We will therefore discuss what is now considered to be the meaning of the words “good order and condition” under English law.

The Facts

1. The facts in this case were simple and common place. The “TAI PRIZE” (hereafter referred to as “the Vessel”) was time chartered to NOBLE under a charterparty on the NYPE Form dated 8^th September 2011 (hereafter referred to as “the Head Charterparty”). The Head Charterparty incorporated the terms of the NYPE Inter-Club agreement (as amended in 1996). NOBLE sub-chartered the Vessel to PRIMINDS (the “Voyage Charterers”) under a voyage charterparty dated 29 June 2012 (under the North American Grain Charterparty 1973 Form) for the carriage of one cargo of heavy grains, soya or sorghum from Brazil to China. The Charterparty provided that: “the Master is to sign Bill of Lading as presented…without prejudice to the terms, conditions and exceptions of the Charterparty”.

2. The Vessel loaded a cargo of 63,366.150MT of Brazilian soya beans in bulk between 24 and 29 July 2012, from various silos at the Cutrale Terminal in Santos, Brazil. Following completion of loading, a bill of lading was issued on the Congenbill 1994 form which was signed on behalf of the Master by the agents of the Head Owners. The bill of lading had been drafted by the local shippers and was presented to the Master for signature. It incorporated the Hague Rules.

3. Under the heading “Shipper’s Description of Goods” the Bill of Lading stated “CLEAN ON BOARD” and as part of the printed text it 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 get the goods specified above.

Weight, Measure, Quality, Quantity, Condition, Contents and Value Unknown”.

4. The Vessel arrived at the discharge port in China (Guangzhou Port) on 9^th September 2012. When the holds were opened, no damage was seen on the surface of the cargo in any of the holds. On 17^th September 2012, damaged cargo was found in Holds No.3 and No.5 and discharge was suspended. Discharge in the remaining holds continued normally. Discharge from Holds 3 and 5 resumed thereafter and was completed on 20^th September but heat and mould damage found in those holds led to a cargo claim by the receivers against the head owners.

5. On 19^th September 2012, the head owners’ P&I Club provided a Club Letter of Undertaking (“LOU”) to the receivers and the Vessel escaped arrest. The LOU was subject to Chinese law and the exclusive jurisdiction of the Chinese Courts. Subsequently, the receivers commenced proceedings against the head owners in China, whereby on 18^th February 2016, the head owners were held liable and paid to the receivers US$1,004,365.61 in damages.

6. The head owners thereby commenced arbitration proceedings in London against NOBLE, the time charterers, demanding a contribution under the Inter-Club Agreement, of 50% of the damages paid to the receivers (i.e 50% of US$1,004,385.61). However, that arbitration did not proceed because NOBLE agreed to settle the dispute by paying the head owners US$500,000 (inclusive of interest and costs) in full and final settlement.

7. The proceedings under discussion (leading to the current Court of Appeal decision) arose out of the recourse of NOBLE against the voyage charterers PRIMIDS in London arbitration, whereby Noble claimed for the amount it paid the head owners at US$500,000 (including its legal costs and expenses in defending that claim).

Please note that for the purposes of the remaining discussion and in line with the judgment itself (which follows in a link at the end of this article), NOBLE  (being the disponent Owners) will be referred to as “the Owners” and PRIMIDS as “the Charterers”.

The Arbitration Decision

1. The Owners sought to recover damages from the Charterers by way of indemnity on the consequences arising from the issued bill of lading being inaccurate as to the apparent condition of the cargo.
2. The Tribunal found in favour of the Owners in that:
3. There was an inaccuracy on the face of the bill of lading because the cargo was not “in apparent good order and condition”. There was no representation by anyone in the bill of lading as to the actual condition of the cargo, which was stated on the bill of lading to be “unknown” to the Master. The arbitrator acknowledged that the words “in apparent good order and condition” refer to the condition of the cargo “so far as meets the eye and externally” or “upon reasonable examination” by applying the test in the 19^th century decision of The Peter de Grosse 91875) 1 PD 414. By applying that test, she held that the cargo was not loaded “in apparent good order and condition”.
4. On the question regarding the basis on which the Charterers could be held liable to the Owners for the consequences of any inaccuracy on the bills of lading the arbitrator held that the Master was obliged (as per his Charterparty obligations under Clause 6) to sign the bill of lading “as presented” and accordingly, there was an implied warranty by the Charterers that the statement contained in the bill of lading as to the apparent good order and condition of the cargo was accurate. The Charterers became liable through the actions of the shippers. The shippers (for whom the Charterers were responsible) could and would have been able to discover, by reasonable means, the condition of the soya beans prior to loading and as such, they must be “taken to know the actual apparent condition of their cargo”. In addition, the shippers were acting as agents of the Charterers for the purposes of supplying the cargo and drafting and presenting the bill of lading to the Master (for signature) and therefore the shippers’ imputed knowledge of the damage was to be taken as being imputed knowledge by the Charterers.
5. From a factual perspective the Arbitrator held that the damage to the cargo was not caused during the voyage (by reason of the Vessel’s unseaworthiness or any other factor attributed to the Owners) and as such, it was not Owners’ responsibility. The damage to the soya beans was pre-existent upon loading and was not reasonably visible to the Master or the crew at and during loading.
6. The basis of the arbitrator’s decision in favour of the Owners was that they were entitled to be indemnified against the consequences of the bill of lading being inaccurate as to the apparent condition of the cargo. The Arbitrator expressly acknowledged that the words “in apparent good order and condition” refer to the condition of the cargo “so far as meets the eye” and externally or “upon reasonable examination” and this was something that the Master and crew were not in a position to observe.

The High Court Decision (HHJ Pelling QC)

1. The Charterers appealed to the High Court for the determination of the following two questions of law:
2. 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?
3. 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?

The High Court Judge overturned the Arbitration decision and held in favour of the Charterers for the following reasons (taking each of the questions in turn):

For Question A

1. The Judge held that the words “CLEAN ON BOARD” and “SHIPPEED IN APPARENT GOOD ORDER AND CONDITION” did not amount to a representation or warranty by the shippers and/or Charterers as to the apparent condition of the cargo prior to loading. They simply formed an “invitation” to the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo. The Judge added that this was in line with common shipping practice where “Everyone in the shipping trade knows” that a representation of fact by the Master as to the apparent condition of the cargo is based on the Master’s own reasonable assessment of the cargo. Therefore the words describing the cargo “in apparent good order and condition” in the draft bill of lading do not give the Master a right to sign (i.e issue the bill of lading) without carrying out his own independent investigation first.
2. The Judge further justified this reasoning on the basis of Article III Rules 3 and 5 of the Hague Rules which draw a clear distinction between: (i) information about the cargo which the shipper is deemed to have guaranteed to the carrier and (2) the apparent order and condition of the cargo where no such guarantee is given (precisely because [the Judge stated] that is for the Master himself to assess.

For Question B

1. The Judge held that since the answer to Question A was that the words “in apparent good order and condition” did not amount to a warranty and since the damage was not reasonably visible to the Master or crew (or their agents) during loading, it followed that the bill of lading was not inaccurate. It contained nothing more than a representation by the Master that the cargo was “in apparent good order and condition” which representation was true (since the Master had no means of knowing other than what he (and the cfrew) could observe upon the cargo’s loading).

The Court of Appeal

1. The Court of Appeal dismissed the Owners’ appeal and reinstated the High Court decision.
2. The Court of Appeal was requested to answer Questions A and B above as well as the following additional question:
3. Where an owner incurs liability as a result of misdescription of the apparent condition of the cargo in a draft bill of lading presented to the Master for signature, by or on behalf of the charterer, and the charterer knows or should know of the misdescription, is the owner entitled to an indemnity from the charterer (if the Master did not have reasonable means of discovering that the description was inaccurate) either pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term?

The Owners’ position

1. The Owners’ position was that the High Court Judge erred in law in that his decision was contrary to a number of cases which support the view that: “where charterers require the Master to sign a bill of lading which misdescribes the cargo, including the condition of the cargo and that misdescription cannot reasonably be discovered by the Master, charterers are liable to indemnify owners against the consequences”.

2. The above argument was based on the understanding that when the cargo on the face of a bill of lading is stated to have been “shipped in apparent good order and condition” that was a representation that the cargo was in apparent good order and condition to the shippers’ and Charterers’ knowledge – in other words that could not be seen simply as an invitation to the Master to make his own assessment (as to the condition of the cargo).

3. The Owners further argued that “apparent good order and condition” had the meaning explained in “Scrutton on Charterparties”: that is, it refers to the external condition of the cargo “so far as met the eye”. On the basis of that definition, the cargo here was not in “apparent” good order and condition because as found by the Arbitrator, the damage “would have been visible upon reasonable examination to the shippers before loading, upon reasonable inspection”.

The Charterers’ position

1. The Charterers of course applauded the High Court decision and argued that it was in line with normal shipping practice in that statements in the bill of lading as to the apparent order and condition of the cargo are representations made by the Master based on his own observations and assessment of the cargo. It therefore followed that a shipper makes no representation and gives no warranty about the apparent order and condition of the cargo (particularly when Article III Rules 3 and 5 of the Hague Rules apply to a bill of lading).

The Court of Appeal Decision

A. What does the term “shipped in apparent good order and condition” in a bill of lading mean?

1. After citing a number of cases, Lord Justice Males concludes as follows:

a) A statement in a bill of lading as to the apparent order and condition of the cargo refers to its external condition, as would be apparent on a reasonable examination.

b) What constitutes a “reasonable examination” depends on the actual circumstances prevailing at the loading port (e.g. whether loading is carried out at night, whether there are extreme weather conditions (e.g severe fog), whether there is sufficient light etc). The Master is responsible for taking reasonable steps to examine the cargo but he is not required to disrupt normal loading procedures.

c) The statement as to the condition of the cargo on the bill of lading goes as far as what the Master can see – that is what is “reasonably apparent to the Master or other servants of the carrier.

The said statement on the bill of lading relates to “the apparent order and condition of the cargo at the time of shipment (i.e at the time of receipt of the cargo by the carrier) and not at any earlier time; and

d) The statement is based upon the reasonable examination of the cargo which the Master has (or should have) undertaken at the time of loading.

e) Finally on this point the Judge concluded that this is consistent with and is confirmed by the Hague Rules.

The conclusion to this part of the judgment was that “the statement of the apparent order and condition of the cargo is based exclusively on the examination carried out by or on behalf of the Master acting on behalf of the carrier and does not depend on information provided by the shipper”.

B. Was the bill of lading accurate?

The Court of Appeal held that the Bill of Lading was accurate because the term “apparent order and condition” only referred to the external condition of the cargo “so far as met the eye” and for that purpose it is the Master’s eye which matters- as far as the Master considered the goods to be in apparent good order and condition upon loading then that suffices for the purpose of issuing an accurate bill of lading.

Males LJ went on to say that the arbitrator’s findings that the bill of lading was inaccurate was “wrong in law” because if the arbitrator’s decision was based on the shipper’s knowledge (or their deemed knowledge) of the condition of the cargo, it is not their knowledge that matters and alternatively if it was based on the requirement of the Master to carry out a more thorough examination of the cargo during loading that was equally not necessary.

The basis of the Court of Appeal’s decision on the two questions above was the clear distinction in the Judge’s speech between a draft bill of lading and an issued bill of lading. He explained in paragraph 56 and thereafter, that the words “in apparent good order and condition” in a draft bill of lading refer to what is “apparent” to the shippers based on an examination which they are deemed to have undertaken at some unspecified time prior to shipment and it is a representation made by them, whereas once a bill of lading has been issued then the words “in apparent good order and condition” have a different meaning in that they refer to what is apparent to the Master based on his examination of the cargo at the time of shipment, hence it is a representation made by the Master (as opposed to the shippers).  For this reason, he concluded that it would be confusing to regard the tender of a draft bill of lading as a representation by the shippers (or as giving rise to a contractual obligation on the Charterers) about the apparent condition of the cargo at some other time, other than the time of loading/shipment when the bill of lading is actually issued. As such, the tender of a draft bill of lading served simply as an invitation to the Master (upon a request by the shipper) to issue the bill provided that they satisfy themselves as the apparent order and condition of the cargo so far as same meets their own observations. If the Master is not so satisfied then they have a choice not to sign on the cargo being in “apparent good order and condition” or alternatively to clause the bill accordingly to represent the condition of the cargo as they see it.

In addition, the judge made it clear that a representation on a draft bill of lading cannot constitute a warranty by the shippers (or the Charterers) not only for the practical reasons explained above but also because it would be contrary to the provisions of the Hague Rules.

Condition of the cargo as opposed to its “apparent good order and condition”

Another important distinction made by Males LJ was the condition of the cargo as stated on the bill of lading which is commonly stated to be “unknown” under the words “Weight, Measure, Quality, Quantity, Condition, Contents and Value Unknown” and the “apparent condition” of the cargo upon shipment. The shippers in the draft bill of lading stated that the condition of the cargo was unknown, therefore they did not misdescribe the cargo. The apparent condition of the cargo, as explained above is the responsibility of the Master (prior to signing the bill of lading) upon his reasonable examination. It therefore follows that any misdescription of the “apparent condition” of the cargo upon shipment should have been reasonably discovered by the Master.

In relation to question C: the Judge said that the third question becomes obsolete as it assumes an inaccuracy in the bill of lading. In any event he agreed with the High Court decision that the Charterers were no obliged to indemnify the Owners against liability for the cargo claims 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 way that the Hague Rules operate.

CONCLUSION

The most important rule that this Court of Appeal decision has established is that a Master has the ultimate responsibility for the “apparent condition” of the cargo upon its loading/ shipment onto their Vessel, based on the Master’s reasonable observations “so far as meet the eye”. It is therefore important that the Master should take caution when signing a bill of lading, especially in circumstances where they have reasonable grounds to suspect that the cargo is not in “apparent good order and condition”, by either refusing to issue such a bill or by clausing it accordingly to reflect the actual condition of the cargo being loaded.

It is also interesting to note that in paragraph 76 of the judgment, the Judge distinguished upon the facts of this case with cases where the charterers actually know about a pre-existing damage and misdescribe the cargo in order to escape liability. He said that this was not a case where there was a finding of fact (by the Arbitration Tribunal) that there was actual knowledge on the part of either the shippers or the Charterers about the defects in the cargo and he refrained from taking a view as to the legal position had there been such a finding of fact. He therefore repeated that the Court of Appeal only had an obligation to decide upon the three questions of law on the basis of the facts as established by the Tribunal and nothing further.

We hope that you will find the above decision useful and that it will provide guidance in your future cargo operations. A copy of the Court of appeal Judgment may be found here.

 

Maria Stavropoulou

Solicitor (England & Wales), Greek Lawyer (Athens Bar Association)