DMC Category Rating: Developed

Facts
Sea Success Maritime, as Owners of the vessel "Sea Success", chartered her, on a NYPE 1981 Form timecharter dated 9 June 2003, to Charterers, African Maritime Carriers Limited, for a period of two years, with a further year in Charterers’ option. The vessel was then sublet under three back-to-back timecharters. The last timecharterer in the chain, Key Maritime GmbH then voyage chartered the vessel to Ferrostaal AG, Essen. to carry a cargo of steel from Novorossiysk to New Orleans/Houston.

In September 2004, the vessel presented for loading at Novorossiysk but the cargo of hot rolled steel coils was found to be in damaged condition. Surveyors appointed by the vessel’s P&I Club found the cargo to be "rusty, with a percentage suffering from dents and buckles". In consequence, the Master refused to load the cargo, in reliance on cl.52 of the timecharter between Sea Success and African Maritime. That clause read:

"The vessel to use Charterers’ Bills of Lading or Bills of Lading approved by Charterers and/or sub-Charterers…which to include… Clause Paramount General, either USA or Canadian, as applicable…during the period of this charter. Master to authorise, time by time, in writing Charterers or their appointed agents to sign Bills of Lading on behalf of Master in accordance with Mate’s Receipts. Master has the right and must reject any cargo that are [sic] subject to clausing of the Bs/L." [Emphasis added]

On a practical level, the problem was solved by the parties entering into a "without prejudice" agreement as to their respective rights, after which cargo was loaded and duly carried to destination. The disputes arising out of the events at Novorossisyk were then submitted to arbitration in London by arbitrators from the London Maritime Arbitration Association.

The Owners’ position was that, under cl.52, only "good" cargo could be loaded and any cargo that would be "subject to remarks" in the bill of lading had to be rejected. The condition of the cargo tendered for loading at Novorossiysk rendered it subject to remarks in the bill of lading and it had, therefore, to be rejected. Charterers, on the other hand, had insisted, through their solicitors, that the bills of lading that would be presented to the Master for signature would set out, in the "Shippers’ Description of Goods" box in the CONGEN Bill 1994 Form, a complete and accurate description of the cargo as per the P&I Club survey report. Provided this description was accurate, the Charterers maintained, there would be no need for Master to "clause" the bills of lading and, accordingly, the Master had no good reason to refuse to load the cargo under the last sentence of cl.52 of c/p.

The arbitrators found that, under cl.52, the Master was entitled and obliged to reject cargo presented for shipment if the cargo, once loaded, would be properly described in the bill of lading in a way which would qualify the statement of the apparent order and condition of the cargo ultimately proposed to be stated in the bill of lading by the Shipper [Emphasis added]

The arbitrators’ decision was based on the following. In the first place, they found that the word "clausing" had no ordinary settled meaning and no settled commercial usage. Therefore, the meaning of the word, in the context of the charterparty, had to be ascertained by identifying the objective intention of the parties. The commercial purpose of cl.52 was to resolve arguments at load ports which, if not resolved, would lead to disputes as the whether the vessel was off-hire and also to loss of time and expense. Secondly, the final sentence of cl.52 was designed to avoid disputes between the Shipper and the Master as to the appropriate description of the cargo being loaded, or about to be loaded, to be inserted in the bills of lading.

Thirdly, the authorities showed that the question whether goods are "in apparent good order and condition" depends primarily on the nature of the goods and the way in which they are described in the bill of lading that are tendered for signature by the Master. The question of the "apparent order and condition" of the cargo to be loaded cannot be divorced from the description of the goods. [Emphasis added]

Fourthly, the common sense construction of the last sentence of cl.52 in the context of the scheme of the charterparty was that "If Master wants to add accurate words to the proposed description of goods (which would be the act of clausing the bill) with which Shipper disagrees, then cl.52 applies and the Master is entitled and indeed obliged to reject the cargo in respect of which he considers the addition is necessary." The clause was not intended to operate in circumstances where there is no disagreement between the Master and the Shipper as to the proposed description of the cargo in the bills of lading.

Were it otherwise, damaged, worn or used goods could never be shipped under this charterparty.

Accordingly, the arbitrators concluded as follows:
"If the proper description of the cargo would qualify the description of the apparent order and condition of the cargo that the shippers proposed to put in the bills of lading, then the Master would be entitled and obliged to reject the cargo at the time that the cargo was presented for loading. There will probably always have to be a discussion as to the proper description of the condition of the cargo (in the context of a cargo of steel, that will be done once the pre-loading steel survey is available). In the absence of agreement, the Master will reject the cargo until the condition of the goods is accurately described. It is to be noted that, at Novorossiysk, the Charterers proposed to incorporate the apparent order and description as found by the Club surveyors".

In consequence, the arbitrators ruled in favour of the Chartereres. The Owners obtained leave to appeal to the High Court on a point of law, under s.69 of the Arbitration Act, 1996.

In the Judge’s view, the arbitrators "undoubtedly came to the correct conclusion".

His decision was based on the following reasons. Firstly, commercial documents must not be considered in a vacuum, divorced from the context in which they are intended to be used. Here the context was a timecharterparty by which the Owners agreed that their vessel should be employed by the Charterers in the carriage of different sorts of cargo, as defined in the charterparty itself. The arbitrators, all of whom are experienced in the shipping world, were aware of the general and particular factual background against which the wording of cl.52 had to be construed. Thus, when the arbitrators stated their view that the word "clausing" had ‘no ordinary settled meaning and no settled commercial usage’, that had to refer to shipping and international trade in general and to the factual matrix of this case in particular at the time the charterparty was concluded. "That conclusion cannot be challenged".

Secondly, the judge held that there was no legal authority that gave a definition of "clausing" that had to be adopted in the context of this charterparty. Thirdly, the arbitrators, being member of the London Maritime Arbitrators Association, came to their conclusions on construction against their background knowledge of the shipping trade generally. As such, they would well know the commercial practices involved in employing ships under timecharter, including such matters as voyage orders, the procedure at ports for loading cargo and the procedures involved in the preparation of Mate’s receipts and bills of lading.

Fourthly, the construction of cl.52 and the word "clausing" in particular must be seen against the general position, in law and practice, of the roles of Owner, Master, timecharterer and shipper when a vessel is employed under a timecharter, as in the present case.

He then noted that, under a timecharter, specific provisions may govern the form of the bill of lading that the Master is to sign. In this case, the charterparty stated that the bills had to contain certain standard terms, including a Clause Paramount, by which the Hague-Visby Rules were incorporated into the bills of lading terms. Those Rules included Art.III.3, by which the carrier is required to issue a bill of lading to the Shipper, after receipt of the goods on board showing, amongst other things, the "apparent order and condition of the goods". Also, in this case, as is usual, the bills of lading had to be presented in accordance with Mate’s receipts. He held that there is no requirement, either in law or generally, that bills of lading should describe the cargo as being in "good" or "apparent good" order or condition.

He accepted that the practical position had been accurately recorded by the arbitrators and in particular, that the shipper will prepare drafts of both the Mate’s receipts and the bills of lading for signature by respectively, the Mate and the Master. Both these documents will contain a description of the goods and that description will, in the first place, be given by the charterer or the shipper. As well as the description of the goods, those documents will include a statement as to the apparent order and condition of the goods. "It is up to the charterer /shipper how the goods are described in the Mate’s receipts and bills of lading." He noted also the arbitrators’ conclusion that there will "probably" always be a discussion between charterers/shippers and the Master (or his agent) as to the proper condition of the cargo and that in the context of a steel cargo, that would be done once the pre-loading steel survey was available.

Against that background, the judge concluded that the correct interpretation of the word "clausing" in its context in cl.52 had to be "a notation on the bill of lading by the Master or his agent, which qualifies existing statements in the bill of lading as to the description [emphasis added] and apparent condition of the goods". At this point, the judge recalled that counsel for the Owners had accepted in argument that the word "good" in the phrase "apparent good order and condition" meant "proper", as in "proper order and condition of the goods". Owners’ counsel had also accepted that cargo that is properly described as damaged or imperfect in some way can be stated to be in "good order and condition" in the sense of being in "proper" order and condition. Thus, he continued, a cargo described in a bill of lading as "scrap" or as "hot rolled steel coils with pitting and gouging" can be stated as being in "good order or condition".

Therefore, the judge continued, in the context of cl.52, if the Master can sign a bill of lading that says that those goods, as described, are in "apparent good order and condition", then the cargo will not be "subject to clausing of the bill of lading". If, on the other hand, the Master would have to make a notation on the bill of lading so as to reconcile the description of the goods with a statement that they are in "apparent good order and condition", then the cargo is "subject to clausing of the bill of lading".

It seemed to him next that the real question at issue was not the meaning of the word "clausing" but one of timing – when precisely will the cargo become "subject to clausing of the bill of lading" within the meaning of cl.52, so that the Master is obliged to reject the cargo tendered for loading? Does this obligation to reject arise when Master sees the first draft of the bill of lading or does the charterer/shipper have a chance to revise the description of the cargo and state its description and apparent order and condition in a way that the Master is willing to sign as being accurate?

In this regard, the judge relied on the finding of the arbitrators that, "in appropriate cases, there would have to be a discussion as to the condition and proposed description of the cargo prior to loading, as eventually happened here and indeed as usually happens following receipt by the Owners of their pre-loading steel survey". It was clear from the wording of cl.52 itself, that the Master would do his inspection before the cargo was loaded, as he could not otherwise "reject" (which had to mean "refuse to allow to be loaded") any cargo that would be "subject to clausing of the bill of lading".

In the light of this, the judge concluded that, when cl.52 was agreed, "the parties contemplated that there will be room for negotiation as to the description of the cargo in the bills of lading before the goods are loaded. It is only if the shippers continue to insist on their description and the Master concludes that in his view, (which must be reasonably held) the cargo would be described in the bill of lading in a way which is inconsistent with a statement as to the cargo’s apparent order and condition, that he has the right and the duty to reject the cargo. But that does not mean that he has the right finally to reject the cargo as first described in a draft bill of lading".

The judge therefore concluded that the arbitrators’ construction of the last sentence of cl.52 was correct. It was consistent with the practice, at the time of presentation of cargo and the presentation of draft bills of lading, as noted by the arbitrators. It was also consistent with the implied requirement (which "must obviously be necessary in a charterparty such as the present) that the parties will act reasonably to make the contract work".

Accordingly, the judge reformulated the arbitrators’ conclusion as follows:

"On the true construction of the final sentence of clause 52 of the Charter, the Master is entitled and obliged to reject cargo presented for shipment…if the cargo so presented…is described in the wording of the bill of lading (as ultimately proposed by the shipper) [emphasis added] in a way that would require the statement of the apparent order and condition of the cargo so described to be qualified, so that the bill of lading as signed by the Master would be accurate."

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