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Bills Of Lading - Liability For Incorrect Clausing

SSM Roundel

Steamship Mutual

Published: August 09, 2010

April 2004


The "David Agmashenebeli"* was unusual. Although to do with incorrect clausing of a bill of lading, it was not the familiar case involving a master or agent prevailed upon by shippers or charterers to sign "clean" bills when the condition of the cargo was anything but. The master of the David Agmashenebeli had if anything been too cautious - excessively cautious - insisting upon the endorsement of mates receipts, and then bills of lading, which indicated much more serious levels of contamination and discolouration (in a cargo of urea) than he could reasonably have observed. The master had insisted upon an "over clausing" directly contrary to the wishes of shippers and various intermediate buyers interested in the cargo, and the bills of lading were rejected by the buyer's bank.

The case raised a number of other issues, amongst them what if any loss was sustained as a result of "over clausing". Mr Justice Colman concluded that the cargo was slightly discoloured and contaminated, and that an endorsement indicating such minor flaws would have been justified. He also held that even a limited endorsement to this effect would have caused the bank to reject the bills of lading. The fact that the master had exaggerated the degree of contamination and discolouration would not, therefore, have led to a different result; the sale would not have gone through in any event, and the sellers would have been left with the cargo, in the condition it was actually in, regardless of the extent of clausing on the bill of lading.

The debate concerning the duties imposed upon a master in relation to the clausing of bills of lading was thus, in the event, moot; whether in breach of those duties, or not, no loss or damages had been suffered by the cargo claimants.

However, the owners, or master, were indeed held to have been in breach of those duties and the case is of importance because of the way in which they were defined.

The claimant cargo interests argued that under Article 3 Rule (iii) of the Hague Rules (which reads as set out below) the master was under an absolute obligation to accurately describe the actual apparent condition of the goods. That obligation was contractual in nature, and thus not qualified by notions such as reasonableness or honest belief.

Hague-Visby Rules, Art III r 3: "After receiving the goods into his charge the carrier or the master ... shall on demand of the shipper issue to the shipper a bill of lading showing amongst other things (c) the apparent order or condition of the goods."

For the shipowners it was argued that as long as the master was acting honestly in signing a bill of lading with a certain description of the cargo, he could not be liable or place his owners in breach if, despite his honest belief in the description, it was nevertheless wrong.

Mr Justice Colman accepted neither of these arguments. He rejected the shippers' contention that the description of the cargo was itself a contractual term; what was required under Article 3 Rule (iii) of the Hague-Visby Rules was that, upon request of the shippers, a bill of lading should be issued containing a description of the apparent order or condition of the cargo. This did not make the description itself a contractual term, nor did it impose upon the master an absolute obligation to give an accurate description.

"In my judgment, the general effect of the authorities is that the duty requires that the master should make up his mind whether in all the circumstances the cargo, in so far as he can see it in the course and circumstances of loading, appears to satisfy the description of its apparent order and condition in the bills of lading tendered for signature. If in doubt, a master may well consider it appropriate to ask his owners to provide him with expert advice, but that is a matter for his judgment. In the normal case, however, he will be entitled to form his own opinion from his own observations and the failure to ask for expert advice is unlikely to be a matter of criticism. For this purpose, the law does not cast upon the master the role of an expert surveyor. He need not possess any greater knowledge or experience of the cargo in question than any other reasonably careful master.

What he is required to do is to exercise his own judgment on the appearance of the cargo being loaded. If he honestly takes the view that it is not or not all in apparent good order and condition and that is a view that could properly be held by a reasonably observant master, then even if not all or even most such masters would necessarily agree with him, he is entitled to qualify to that effect the statement in the bill of lading.

This imposes on the master a duty of a relatively low order, but capable of objective evaluation. However, the defendant's submission that he need do no more than honestly state his view is, in my judgment, to put it too low, although no doubt in most cases the result would be the same. Nevertheless, the master who honestly takes an eccentric view of the apparent condition of the cargo which would not be shared by any other reasonably observant master would not be justified in issuing bills of lading which were qualified to reflect his view."

In the "David Agmashenebeli" the master went too far, and it is interesting to note that he may have done so by using an accurate description to convey an inaccurate impression. To say, for example, that cargo is "discoloured, and contaminated by foreign substances" may be true whether the discolouration and contamination is extensive or minor. To use such a general description, however, in the case of minor discolouration gives a false impression, implying a more serious problem than actually exists. The master is not, therefore, permitted to use general words which, whilst technically accurate, create a materially misleading impression.

"Likewise, the extent to which and the terms in which the master considers it appropriate to qualify the bills of lading statement as to the order and condition of the cargo is a matter for his judgment … The approach which in my judgment properly reflects the master's duty is that the words used should have a range of meaning which reflects reasonably closely the apparent order and condition of the cargo and the extent of any defective condition which he as a reasonably observant master considers it to have. Against this background, the shipowner's duty is to issue a bill of lading which records the apparent order and condition of the goods according to the reasonable assessment of the master. That is not, as I have indicated, any contractual guarantee of absolute accuracy as to the order and condition of the cargo or its apparent order and condition."

In the "David Agmashenebeli" he insisted upon an endorsement which read, "cargo discoloured also foreign materials eg plastic, rust, rubber, stone, black particles found in cargo".

In fact, the Court held, based upon extensive expert evidence, that the amount of discolouration was no more than about 1%, and that of contamination by foreign substances, no more than 0.01%. What the master had insisted upon was true in one sense, in the same way that it is true that a new car delivered with a small crack in the rear quarter light is "delivered in damaged condition". Nevertheless, the words used were clearly misleading; they should have been qualified to show how limited was the apparent extent of the contamination and discolouration.

*[2003] 2 Lloyd's Rep. 92

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