Eyes on the Tai Prize

Update 21 March 2022

The Court of Appeal has upheld the decision of the High Court that the voyage charterer owed no responsibility for presenting an inaccurate bill of lading for signature.  An application for permission to appeal is pending before the Supreme Court.

Update 20 May 2020

Judgment finds shipper not responsible for damage to cargo

The UK High Court has rejected a novel argument put forward by a shipowner to hold the voyage charterer responsible for loading a damaged soya bean cargo.

The facts

In the Tai Prize, the ship was chartered to carry soya beans from Brazil to China. A clean bill of lading was issued. During discharge “charred” cargo was found and the head owner settled the resulting cargo claim by paying receivers. Noble, as disponent owner, reimbursed the head owner 50% of that sum under the Inter-Club Agreement (ICA). Noble then sought an indemnity from the voyage charterer/shipper.

Arbitration

The arbitrator determined as a fact that the cargo had been loaded in a defective condition in that it was already heat damaged.

She also found that this damage was not visible to the Master, the crew or the stevedores during the loading operations, whereas she determined that the shipper/ charterer could have observed the problem at or during the loading process due to discolouration.

The arbitrator rejected Noble’s argument that they could rely on a general implied right of indemnity of the type typically arising under a time charter.

However, the arbitrator did find the voyage charterer liable to indemnify Noble based on an implied warranty. The arbitrator said that it was “very well established” that, as a matter of “entirely orthodox and correct” law, an owner who incurs a liability as a result of an inaccurate statement in a draft bill of lading presented for signature to the Master of a ship by a charterer or a shipper is entitled to recover an indemnity from that charterer so long as the Master did not have reasonable means of discovering the statement was inaccurate.

High Court judgment

The voyage charterer appealed the arbitrator’s decision to the High Court. The court reviewed a number of well-known legal authorities and leading textbooks, which all say that the obligation to record the apparent good order and condition of cargo in a bill of lading is owed by the carrier to the shipper and not the other way around.

A representation that goods have been loaded in apparent good order and condition is not a warranty, a term of the contract of carriage or a contractual guarantee, but it is merely a statement which a subsequent holder of a bill of lading may rely upon in a claim against a carrier as reflecting the reasonable judgment of a competent and observant Master as to the external appearance and condition of cargo upon loading.

The only warranty given by a shipper under the Hague and Hague Visby Rules is that any information it provides for inclusion in a bill of lading as to the “… leading marks necessary for identification of the goods [and] the number of packages or pieces or the quantity or weight” of goods is accurate. The shipper has no obligation under the Hague and Hague Visby Rules to state the apparent good order and condition of the goods.

Therefore, the arbitrator was wrong to suggest a shipper warrants or guarantees that cargo is loaded in apparent good order and condition.

The Judge hearing the appeal did observe that putting the words “clean on board” in the box headed “shipper’s description” in the CONGENBILL form might arguably represent an express representation by the shippers that the goods were in apparent good order and condition prior to loading. However, that point was not argued before the arbitrator.

Implied indemnity

The second question considered by the Judge was whether there was an implied indemnity given by the voyage charterer in favour of Noble. But again, after reviewing a number of leading authorities, the Judge concluded that it would be wrong in principle to attempt to imply into a voyage charter contract a provision which makes the voyage charterer liable to indemnify a disponent owner when such rights are not found in the Hague and Hague Visby Rules.

Commentary on the judgment

Some reports have suggested that this decision reinforces the need for the Master to carefully check cargo during loading.

In fact, the arbitrator determined that the Master in this case could not have reasonably observed the pre-existing heat damage during loading operations.

What the case shows is that, in the absence of an express indemnity in the voyage charterparty, a voyage charterer or shipper bears no responsibility for inaccurately inserting the words “apparent good order and condition” into a draft Bill of Lading tendered for signature.

Owners continue to face hurdles in holding shippers or voyage charterers responsible for loading a cargo which is not fit to withstand the voyage due to inherent vice.

Permission to appeal has been granted so this is an area of law which will be reviewed by the Court of Appeal.