Clean on Board? ‘Tai Prize’ Court of Appeal
In January 2021 The English Court of Appeal, The Tai Prize  EWCA Civ 87, has upheld the 2020 decision of the High Court and in doing so restated established principles in relation to representations made in the cargo description on a Bill of Lading.
Summary of the Facts
The dispute arose between Time Charterers, Noble Chartering Inc (‘Noble’) and Voyage Charterers, Priminds Shipping (HK) Co Ltd (‘Priminds’) over a cargo of Brazilian soyabeans discharged in China.
The B/L was issued ‘Shipped at the Port of Loading in apparent good order and condition’ without any reservations. The B/L incorporated the Hague Rules by operation of a clause on the reverse side.
Head Owners settled a claim with Chinese Receivers for over US$1 million and Noble paid US$500,000 to settle their indemnity claim under the Time Charter. Noble then claimed an indemnity from Priminds.
The Arbitrator made a finding in fact that the cargo damage was due to pre-shipment condition, which would have been reasonably apparent to the Shippers but would not have been reasonably apparent to the Master during the loading operation.
The arbitrator’s decision was that by presenting a clean B/L to the Master the Shippers (as Priminds’ agent) had warranted that the cargo was in good order and condition. Therefore, they impliedly agreed to indemnify Noble against the consequences of the inaccuracy of the statement of apparent good order.
The High Court
The High Court considered only questions of law arising out of the Arbitration award, being obliged to accept the findings of fact. The Arbitration decision was overturned.
The High Court stated that the presentation of the clean B/L for signature was merely an ‘invitation’ to the Master, from the Shippers, to issue a clean B/L if the master was satisfied that as to the apparent good order and condition of the cargo at that time.
The Master has a duty, pursuant to the Hague Rules, to assess the ‘apparent order and condition of the cargo.’
The Court held that the Hague Rules do not impose any obligation on the Shippers relating to statement in the bill of lading concerning the apparent good order and condition of the cargo, and it was for the master to assess this. Therefore, no indemnity could be implied from Priminds to Noble.
The Court of Appeal
The Court of Appeal upheld the High Court’s decision for the same reasons.
The apparent good order and condition at shipment refers to the external condition of the cargo ‘so far as meets the eye on reasonable examination.’ What is a ‘reasonable examination’ depends on the circumstances at the load port and that this does not require the Master to disrupt usual loading procedures to carry out this examination. It is what is apparent to the Master that is important, not what might have been apparent to the Shippers - who may have had more opportunity to inspect the cargo.
A draft B/L presented by Shippers does not constitute a warranty to the Carrier that the statement ‘shipped in apparent good order and condition’ on the B/L is true. It is an ‘invitation’ to the Master to make his own assessment of the apparent condition of the cargo and satisfied that was an accurate statement to sign the bill of lading. Moreover, the Hague / Hague Visby Rules distinguish between information in the bill of lading which is provided by the shipper, as to which the shipper is deemed to have given a guarantee of its accuracy and has an obligation to indemnify the carrier in the event that the information is inaccurate (Article III R 5), and the apparent order and condition of the cargo, which is not provided by the shipper and as to which the shipper gives no guarantee and undertakes no obligation to indemnify the carrier (Article III R 3).
It is for the Master to ascertain the apparent order and condition of the cargo and either sign a clean B/L or clause it appropriately.
The test is whether the condition of the cargo is reasonably apparent to the Master during normal loading procedures and that it is the Master’s responsibility to take reasonable steps to examine the cargo.
The observations by the Court of Appeal are helpful when considering grain cargoes, usually loaded in bulk, where the Master is not required to pause loading to examine the cargo in the holds and event then may only be able to observe the surface of the stow. This may, of course, be different when considering the apparent condition of different cargoes, for example steel pipes where the apparent condition may be noted as the loading process is underway. In such a case it is worth noting that if described as “rusty steel pipes” they will be in good order and condition given that description, and the Master cannot clause the Bills presented [link to Sea Success article: Bills of Lading - What Constitutes Clausing? A Master's Dilemma]
If the Master has any concerns about the condition of the cargo at loading, he can obtain assistance from his P&I Club or local P&I correspondent.
It is understood that in April 2022 The Supreme Court refused permission to appeal, so affirming the decision of the Court of Appeal.