This case note is based on an Article in the July 2002 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website.

Background
On 4 April 1995, 35,000 metric tonnes of urea was sold by Transmarine Limited to Agrosin Pte Limited. The goods specification was "white colour, free flowing, free from contamination, prilled form, treated against caking, free from harmful substances…" On 10 April, Agrosin sold the urea to Grand Prestige Enterprises of Hong Kong and arranged to sub-charter the David Agmashenebeli from Baff Shipping. Baff had entered into a voyage charter with Meezan Shipping and Trading Inc, who, in turn, had time-chartered the vessel from its owners, Georgian Shipping Company.

The Georgian/Meezan time charter was on the amended NYPE form and subject to the Harter Act 1893 and the USA Clause Paramount. Clause 8 provided that the charterers were "to load, stow and trim and discharge the cargo at their expense under the supervision and responsibility of the Captain, who is to sign, if required to do so by charterers, bills of lading for cargo as presented, in conformity with Mates' or Tally Clarks' receipts".

Under the Meezan/Baff voyage charter, clause 45 provided:
"Under supervision of independent surveyor together with Master's/Officers' assistance no damaged cargo to be loaded into the hold. If such fact will take place Master has the right to stop loading but Charterers and Shippers to be immediately informed to arrange removing of any contaminations for Charterers' expenses/time.
Quantity/quality of cargo as determined by an International Independent Surveyor… together with Master and to be final and binding for both parties. Owners to be responsible for quantity of cargo taken on board".

By clause 49, Meezan was engaged to authorise their Singapore agents to sign and release "clean on board" bills of lading upon confirmation that charter freight had been paid to Meezan. The Baff/Agrosin sub-charter included clauses similarly worded to clauses 45 and 49.

Three hours after loading began, the Master notified all parties that the cargo contained contaminants and was of a dirty colour. Despite protests by Agrosin's surveyor, the Mate's receipt was signed with the following wording: "Cargo discoloured also foreign materials e.g. plastic, rust, rubber, stone, black particles found in cargo. The Master refused to sign bills of lading without the same wording.

In the meantime, Grand Prestige, (the buyers of the cargo from Agrosin), had sold it to Guangxi Publications Import and Export Co Limited, payment to be by documentary credit. It was subsequently agreed that this documentary credit should be used to pay Agrosin direct. Documentary credit, of course, requires the presentation of clean bills of lading.

The Master's refusal to sign clean bills of lading resulted in deadlock: Agrosin declined to pay the freight due under the sub-voyage charter with Baff; Baff withheld voyage charter freight from Meezan; Meezan withheld time charter hire due to the shipowners; the shipowners threatened to lien the cargo to secure their hire; and Agrosin could not obtain payment under the documentary credit opened by Guangxi.

On 16 June 1995 the vessel arrived at Beihai in China and gave notice of readiness, but it could not enter port or deliver its cargo without bills of lading. A solution was reached to enable discharge of the cargo to begin. The terms included Agrosin agreeing to present the Mate's receipt and accepting (under protest) bills of lading claused with the same wording.

But when Agrosin presented the claused bills to Guangxi's bank they were not accepted against the letter of credit. Eventually, Guangxi agreed to take delivery of the cargo for a reduced price (the market having fallen in the meantime).

Usually, disputes arise over allegations that the Master issued a clean bill of lading when the goods were not, in fact, in apparent good order when they were received. Here, however, the allegation was that the Master had claused bills of lading when he had no basis for doing so.

The bills of lading in this case incorporated the Hague-Visby Rules. Article III rule 3 provides:
"After receiving the goods into his charge, the carrier, or the master or agent of the carrier shall, on demand of the shipper issue to the shipper a bill of lading showing, amongst other things-
…(c) The apparent order and condition of the goods".

A clean bill acts as prima facie evidence of the receipt by the carrier of the goods in apparent good order and condition (Article III rule 4).

Agrosin argued that this imposed a duty on the carrier to ensure that the bills of lading issued accurately recorded the apparent order and condition of the goods. It was not sufficient that they showed what the Master honestly believed; they had to contain an objectively accurate description. In this, they relied on comments made by Evans LJ in The Arctic Trader [1996] 2 Lloyd's Rep 449, which described the duty of the owners to the shipper to issue on demand a bill of lading - including the statement as to the apparent order and condition of the goods - as an "unqualified" or "absolute" contractual undertaking as to the apparent order and condition of the goods.

Alternatively, Agrosin argued, there was an implied term of carriage under which the shipowners were under a duty to the shippers that the Master would only sign bills that accurately stated the apparent order and condition of the goods. They also raised an argument that the shipowners (through the Master) owed a duty of care in tort not to misrepresent the apparent order and condition of the goods in the bills.

The shipowners argued that the Hague-Visby rules did not require the statement to be objectively accurate. What mattered was what an ordinary and reasonably skilled Master reasonably and honestly believed to be the apparent order and condition of the goods. Numerous authorities showed that words in a bill of lading as to apparent condition are not contractual, in the sense of a promise or undertaking, but an affirmation of fact (Heskel v Continental Express [1950] 83 Ll L Rep 438, V/O Rasnoimport v Guthrie & Co Ltd [1966] 1 Lloyd's Rep 1). The bill is not a binding agreement that the goods have been shipped as stated but merely prima facie evidence of that fact (The River Gurara [1998] QB 610).

Judgment
Mr Justice Colman agreed with the shipowners. The many  authorities on the Harter Act, the Hague Rules and the Hague-Visby Rules confirmed that these codes stop short of imposing on the carrier any contractual obligation as to the accuracy of statements in the bill about the order and condition of the goods, and the wording of Article III rules 3 and 4 is consistent with this. 

There was no authority prior to the decision in The Arctic Trader to suggest that the carrier contractually warrants either the accuracy of the statement or the exercise of reasonable care.  In that case, the shippers' and charterers' agents persuaded the Master to issue Mate's receipts which inaccurately stated that the goods were in apparent good order and condition.  But, since the charterers knew the true condition of the goods, it was held they could not have suffered any loss by reason of the issue of clean Mate's receipts. 

Mr Justice Colman agreed with the decision in The Arctic Trader to the extent that there is a contractual duty to issue to the shipper on demand a bill of lading showing the specified information.  A refusal would be a failure to comply with contractual obligations.  But he was not convinced that comments made by Evans LJ that appeared to impose any higher duty on the Master accurately reflected Article III rule 3.

The general effect of the authorities is that the Master should make up his own mind whether, in all the circumstances, the cargo appears to satisfy the description of its apparent order and condition in the bills of lading tendered for signature. He is unlikely to be criticised for failing to ask for expert advice, and the law does not require him to be an expert surveyor or have any greater knowledge or experience of the cargo in question than any other reasonably careful Master. If he honestly takes the view that the goods are not in apparent good order and condition, and that is a view that could properly be held by a reasonably observant Master, he is entitled to clause the bill of lading - even if not all Masters would necessarily agree with him.

Similarly, the terms in which the Master thinks it appropriate to qualify the bill of lading are, again, a matter for his own judgment and he should use terms that reflect reasonably closely the actual apparent order and condition of the cargo and the extent of any defect which he considers it to have.

There was no basis on which to suggest a duty of care in tort. It is the shipper or the shipper's agent who tenders the bill to the carrier or the carrier's agent (usually the Master) for signature. The shipper can therefore be taken to know the actual apparent condition of his own cargo.

The real purpose of the requirement is to enable the shipper to transmit that information to subsequent holders of the bill, so that they can use it as a document of title to the goods and as a mode of assignment of the contract of carriage. Subsequent holders can rely on the statement to reflect the reasonable judgment of a reasonably competent and observant Master in all the circumstances. This is an internationally recognised regime and there is no reason to add on to it any further obligation of a duty of care.

After hearing factual and expert evidence, the judge found that there had been some contamination of the cargo, but that this was so slight that no reasonably observant Master would have seen fit to refer to it in the Mate's receipt. He also found that there had been some discolouration and that, given the extent to which the cargo was discoloured and the fact that shippers had described it as "white", a reasonable Master might well have thought it appropriate to state such discolouration in the Mate's receipt.

But the Master's description of the cargo as "discoloured" was misleading, as there was no indication that it referred to only about 1% of the whole. A reasonable Master would have added some qualification to avoid creating a false impression that a substantial part of the cargo was discoloured. Consequently, the defendants, in breach of their contractual duty under Article III, rule 3, had failed to issue to the shippers a bill of lading that contained a statement as to the apparent order and condition of the cargo which a reasonably observant Master could properly have made.

But had Agrosin suffered a loss? Since, in the judge's view, the Master would have acted reasonably if he had claused the bills of lading (so long as he made the extent of the discolouration clear), Agrosin would still not have got a clean bill to present to Guangxi's bank. And since the market price had already fallen, they would have had to reach a similar settlement with Guangxi in any event. Accordingly, Agrosin had failed to show that the Master's failure to comply with Article III rule 3 had caused them any loss.