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No implied indemnity regarding statement of cargo’s apparent condition on loading

12.02.2020 Maritime

Jamila Khan

Jamila Khan Partner

Natalie Nielsen

Natalie Nielsen Managing Associate

Priminds Shipping (HK) Co Ltd v. Noble Chartering Inc (MV Tai Prize) [2020] EWHC 127 (Comm)

A shipper who presents a draft bill of lading containing the words “Clean on Board” and “SHIPPED at the Port of Loading in apparent good order and condition” does not make a representation or warranty that the goods are in this condition. These words in a draft bill of lading are an invitation for the Master to make his own assessment of the apparent order of the goods at the time of loading. A voyage charterer does not, therefore, owe an implied indemnity to their counterpart owners in circumstances where these words in a draft bill of lading are inaccurate.

The background facts

Noble Chartering Inc (“Disponent Owners”) time-chartered the vessel from the head owners (“Shipowners”). The Disponent Owners sub-voyage chartered the vessel to Priminds Shipping (HK) Co Ltd (“Voyage Charterers”). Under the voyage charterparty, the vessel loaded a cargo of soya beans in bulk at Santos, Argentina, for discharge at Guangzhou, China. The cargo was loaded by the cargo shippers (“Shippers”) from a silo via mechanical hoppers.

At the discharge port, the cargo receivers (“Receivers”) discovered that portions of the cargo had suffered heat and mould damage. In order to prevent the arrest of the vessel, the Shipowners secured the Receivers’ cargo claim and agreed that it would be subject to Chinese law and the jurisdiction of the Chinese courts. The Receivers’ cargo claim was litigated in the Chinese courts, who found the Shipowners liable to the Receivers for US$1,086,564.70.

The Shipowners in turn brought a claim against the Disponent Owners under the terms of the time charterparty, seeking a contribution of 50% of the sum paid to the Receivers. This claim was settled by the Disponent Owners paying US$500,000 to the Shipowners.

The Disponent Owners commenced London arbitration against the Voyage Charterers under the voyage charterparty, seeking to recover the US$500,000 paid to the Shipowners and the costs of defending that claim. The Disponent Owners claimed that they were owed an indemnity for these costs, although there was no express provision in the voyage charterparty providing for such an indemnity.

The Commercial Court decision

The dispute was first arbitrated and the Tribunal’s Award was then appealed to the High Court.

The Tribunal made findings of fact that:

  • the cargo had been damaged by heating caking and by mould;
  • both types of damage were pre-existing at the time of loading but were not reasonably visible to the Master during loading, so the Master could not have verified the condition of the cargo; and
  • the damage would have been reasonably visible to the Shippers at the time of loading.

The Disponent Owners argued that the words “Clean on Board” and “SHIPPED at the Port of Loading in apparent good order and condition” in the draft bill of lading that the Shippers provided to the Master for his signature amounted to a representation or warranty by the Shippers as to the apparent condition of the cargo at the time of loading. The Disponent Owners pointed out that the Shippers were acting as Voyage Charterers’ agents in loading the cargo and said that, by presenting the draft bill of lading in those terms, they had represented that the cargo was in good order when it was loaded (which it was not) and so the Voyage Charterers owed them an indemnity for the losses caused by the cargo damage.

The Court rejected this argument, stating that although the Hague Rules provide an indemnity in respect of information provided by the charterer which is included in the bills of lading (for example, the marks on bales of cargo or the cargo weights), this indemnity did not extend to statements concerning the apparent order and condition of the cargo. The wording relating to the condition of the cargo in the draft bill of lading was not a representation or a warranty by the Shippers (or Voyage Charterers) but was instead an invitation to the Master to make a representation of fact about the state of the cargo, in accordance with his own assessment of the cargo’s apparent condition. Accordingly, the Court held that the Voyage Charterers did not owe an implied indemnity to the Disponent Owners in relation to the cargo claim.

Comment

Industry observers are unlikely to be surprised by the Court’s ruling in this case, as it has long been understood that it is incumbent on a master to perform his own assessment of the apparent state of the cargo during loading and, if necessary, to clause the bill of lading (despite any “clean” wording in the draft provided by the shippers).

In practice, a master is often not in a position to make an accurate assessment of the condition of the cargo while it is being loaded. Under English law this gives the shipowners a defence under the Hague/Hague-Visby Rules against a claim brought by the cargo receivers. However, due to the global nature of shipping, a shipowner could face a situation where they are obliged to accept the jurisdiction of a local court that does not apply these defences in the same way. In such circumstances, the shipowner will only be able to pass this claim down to their charterers if the charterparty terms permit it, for example by incorporating the terms of the Inter-Club Agreement. This decision makes it clear that there is no implied indemnity from a charterer to their counterpart owners if their agents (the cargo shippers) present bills of lading that record the cargo as being loaded clean on board, even if the shippers could have ascertained that the cargo was in fact damaged at the time of loading.

Article authors:

Jamila Khan Natalie Nielsen