Jamila Khan Partner
Cargo in “apparent good order and condition”: an invitation or representation?
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Noble Chartering Inc v. Priminds Shipping Hong Kong Co Ltd (Tai Prize)  EWCA Civ 87
At loadport, the shippers (as Charterers’ agents) presented a draft bill of lading to the Master recording the cargo as “clean on board” and “SHIPPED in apparent good order and condition” and the Master signed the bill on those terms. Portions of the cargo were in fact loaded damaged, which the shippers could have discovered by a reasonable inspection but which the Master was not able to discover from his reasonable examination of the cargo during loading. At the discharge port, the cargo receivers successfully claimed against the Owners for the cargo damage and the Owners sought to recover those losses from the Charterers, claiming that by presenting the draft bill in those terms, the shippers had represented that the cargo was loaded in good order and condition.
The Court of Appeal, upholding the decision of the Commercial Court, held that the wording “clean on board” and “SHIPPED in apparent good order and condition” did not amount to a representation or warranty by the shippers/Charterers as to the apparent condition of the cargo observable prior to loading. Instead, the words 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.
The background facts
Pursuant to a voyage charterparty, the vessel was ordered to carry a cargo of soyabeans from Brazil to China. At loadport, the shippers (acting as the Charterers’ agents) presented the Master with a draft bill of lading stating that the cargo was “clean on board” and “SHIPPED in apparent good order and condition”. The Master signed the bill on those terms. At the discharge port, although the surface of the cargo in all of the holds looked sound, as discharge proceeded portions of the cargo were discovered to be damaged. This led to a claim by the cargo receivers against the Owners in China, in which the Owners were ultimately held liable for just over US$1 million and paid receivers US$500,000 in settlement.
The Owners brought a claim in arbitration against the Charterers under the charterparty to recover this sum. They argued that the wording in the draft bill of lading that the cargo was shipped clean on board and in apparent good order and condition amounted to a representation or warranty by the shippers/Charterers that the cargo was loaded in this condition.
The Tribunal held that the damage had existed pre-shipment, that the Master was not able to ascertain the presence of damaged cargo during loading and that the shippers could, by reasonable means, have discovered the damage to the cargo (although there was no finding that the shippers were actually aware of the damage). The Tribunal concluded that the Owners were entitled to an indemnity.
The Charterers succeeded in having this finding overturned on appeal to the Commercial Court. The Owners appealed to the Court of Appeal, which dismissed the appeal.
The Court of Appeal decision
The Court of Appeal considered whether the draft bill of lading provided by the shippers constituted a representation by the shippers (and so by the Charterers) that the cargo was in good order and condition or whether the wording in the draft bill was only an invitation to the Master to perform his own assessment of the condition of the cargo.
The Court stated that “apparent good order and condition” in a bill of lading referred only to the cargo’s external condition at the time of shipment (i.e. the time when it was loaded on board the vessel) as was apparent on reasonable examination by or on behalf of the Master. What amounted to a ‘reasonable examination’ depended on the actual circumstances prevailing at the loadport. The Master’s responsibility was to take reasonable steps to examine the cargo, but he was not required to disrupt normal loading procedures. Where a cargo was loaded at night, he had to do the best he could in the prevailing conditions, but was not required to wait until daylight when visibility might be better. For example, where a bulk grain cargo was being loaded continuously, he was not required to pause loading to let dust settle, so that he could examine the partly loaded cargo in the holds. This could be distinguished from cargoes like steel, where the Master might have the opportunity to observe the condition of the cargo as it was brought alongside and before it was loaded.
If the Owners were correct that a draft bill of lading contained a representation by the shipper as to the cargo condition, based on an examination which the shippers were deemed to have undertaken at some unspecified time prior to shipment, then that representation would be materially different from the representation in the bill once issued by the Master. Once signed, the bill recorded the condition of the cargo apparent to the Master based on the Master's reasonable examination at the time of shipment and was a representation by the Owners. It was inherently unlikely that the draft bill should be understood as saying something quite different from what the bill was well understood to say once it was signed by the Master.
The Court of Appeal, therefore, upheld the Commercial Court’s finding that the shippers’ presentation of the draft bill of lading to the Master constituted an invitation to the Master to perform his own reasonable examination of the condition of the cargo at the point of shipment. Accordingly, in this case, the shippers’ tender of the draft bill which stated that the cargo was shipped in “good order and condition” was not a representation by the shippers/Charterers and no indemnity arose.
This decision confirms the general understanding of industry practitioners and commentators that a draft bill of lading is not a representation by the shippers as to the condition of the cargo.
In this case, there was no finding that the shippers were actually aware that portions of the cargo were loaded in a damaged condition, only that the shippers could have, by reasonable means, discovered the damage before it was loaded. However, the Court of Appeal expressly left open the possibility for a draft bill of lading to amount to a representation of some kind by the shippers in circumstances where the shippers were actually aware of hidden defects or damage which, if known to the Master, would mean he could not properly sign the bill as tendered.
Leave to appeal to the Supreme Court has been granted.