The Court of Appeal has upheld the Commercial Court decision in the case of The Tai Prize. It has confirmed that when a shipper presents a draft bill of lading with the words “shipped in apparent good order and condition”, the shipper is inviting the master to make a representation of fact in accordance with the master’s own assessment of the apparent condition of the cargo on shipment. William Stansfield provides the details.
The dispute in the case of The Tai Prize concerned a cargo indemnity claim brought by a time charterer against a sub-voyage charterer, which was initially successful in London arbitration but on somewhat novel grounds.
The voyage charterer appealed, and the decision was set-aside by the Commercial Court and well-established case law on the meaning of the phrase “Shipped…in apparent good order and condition” in the standard Congenbill of lading re-applied. The time charterers then sought permission to appeal to the Court of Appeal.
Most people involved in the carriage of goods by sea will probably be unsurprised to learn that the Time Charterers’ appeal has been dismissed by the Court of Appeal.
The effect is that the well-established law remains good law (absent any further appeals).
The facts are not untypical. The vessel was time chartered to Noble Chartering (“Time Charterers”), who in turn chartered the vessel to Priminds Shipping (“Voyage Charterers”) pursuant to a voyage charter to carry a cargo of soyabeans from Brazil to China. The cargo was shipped pursuant to bills of lading on the Congenbill 1994 form, which stated that the cargo was:
“SHIPPED at the Port of Loading in apparent good order and condition on board the Vessel for carriage to the Port of Discharge…
Weight, measure, quality, quantity, condition, contents and value unknown…”
On arrival, the cargo was found to have suffered heat and mould damage. To avoid an arrest, the head owners and their P&I insurers put up security and submitted to the jurisdiction of the Chinese courts. The head owners defended the receivers’ claim, but they were unsuccessful, and judgment was given against the Head Owners.
The Head Owners claimed an indemnity from the Time Charterers for the amount that they had paid to the Chinese cargo receivers. That claim was settled by the Time Charterers agreeing to indemnify the Head Owners approximately 50% of the amount paid to the receivers.
The Time Charterers then sought an indemnity from their Voyage Charterers.
The voyage charter contained no express indemnity provisions. Whilst it is usually an express or an implied term of a time charterparty that a time charterer will indemnify their owners for the consequences of complying with the time charterers’ employment instructions, such an indemnity is rarely (if ever) implied into a voyage charter.
The Time Charterers argued they were entitled to an indemnity from the Voyage Charterers because when the shippers (who were acting as the Voyage Charterers’ agents for these purposes) presented draft bills of lading with the words “SHIPPED…in apparent good order and condition…”, the shippers gave a warranty or made a representation that the cargo was in good order on shipment (when it was not).
Court of Appeal’s decision
The Court of Appeal rejected the Time Charterers’ appeal. The reasons for doing so were essentially the same reasons that were given by the Commercial Court last year.
The main point to take away from the Court of Appeal’s decision is the correct meaning to be given to the phrase “Shipped…in apparent good order in condition”. The Court of Appeal has confirmed (again) that when a shipper (on behalf of a voyage charter) presents a draft bill of lading with these words included, the shipper is inviting the master to make a representation of fact in accordance with the master’s own assessment of the apparent condition of the cargo on shipment.
The reasons for the Court of Appeal’s decision were (in summary):
- A statement in a bill of lading as to apparent order and condition is a statement made by the master based on his own examination of the cargo at the time of shipment, not the other way around;
- The tender of a draft bill of lading is a request by the shipper that the master should satisfy himself as to the apparent order and condition of the cargo;
- It is not necessary as a matter of English law to imply any term that the shipper is warranting the accuracy of the statement “Shipped…in apparent good order and condition”;
- Furthermore, to imply such a warranty would be contrary to the scheme in the Hague Rules, which draws a distinction between information which is provided by the shipper (which the shipper is deemed to have guaranteed its accuracy) and the apparent order and condition of the cargo;
- There is no previous case where such an argument has succeeded before.
That all said, the Court of Appeal left open the question of whether a shipper gives an implied warranty when tendering a draft bill of lading that they are not actually aware of any hidden defects or damage which, if known to the master, would mean that the master could not sign a bill of lading containing the words “Shipped…in apparent good order and condition”. The issue did not arise on the facts of this case, so the point will remain unresolved until it arises in a future case.
The Court of Appeal has also provided some helpful commentary on what a Master should do when presented with a draft bill of lading containing the words “Shipped…in apparent good order and condition”.
The master’s duty is to record the apparent order and condition of the goods according to the reasonable assessment of the master. This means the external condition, as is apparent on a reasonable examination which will depend on the actual circumstances at the load port.
For grain cargoes which are typically loaded in bulk, the Court of Appeal said that the master was not required to “to pause the loading from time to time in order to let the dust settle and examine the cargo in the vessel's holds… he may only be able to observe the surface condition of the cargo after it has been loaded in each hold.” The position may be different for other types of cargoes, for example steel cargoes, where the master will be able to inspect the cargoes as they are loaded, and damage will be more easily apparent.
The Court of Appeal also confirmed that the master’s statement as to apparent order and condition relates to the apparent order and condition of the cargo at the time of shipment and the statement is based upon a reasonable examination that the master has (or should have) undertaken. Neither of these last points are new or controversial, but it is helpful to be reminded of them again.