The article will give a summary of a recent judgement, delivered by the English Commercial Court, where the issue of “clausing bills of lading” was in focus.
Clause 52 in a NYPE time charterparty provided that “Master has the right and must reject any cargo that are [sic] subject of clausing of the BS/L”. The cargo tendered for shipment was indisputably damaged and the question arose as to whether, on the true construction of the clause, the Master was entitled and obliged to reject the cargo presented.
It was held that the Clause would only apply if the Master, upon his examination of the condition of the cargo, would have to qualify the Bill of Lading in order to ensure that the description of the cargo given is consistent with a statement as to the cargo’s “apparent order and condition”. The Master would further be entitled to reject the cargo if Charterers/Shippers would not agree to reformulate the description of the cargo so as to accurately represent the description and condition of the cargo.
As Charterers had proposed to incorporate in the Bills of Lading the apparent order and condition as found by the Club’s surveyor, the Master did not have the right to reject the cargo. The Owners’ appeal was dismissed.
The Facts
This was an appeal against a declaratory arbitration award dated 3 March 2005. The appellant, Sea Success Maritime Inc (the Owners), had time-chartered the vessel “SEA SUCCESS” to African Maritime Carriers (the Charterers) on a NYPE form with amendments. Below this head-charter, there was a further chain of three time sub-charters, all on back-to-back terms. The final time sub-charterer in the chain, Key Maritime, further sub-chartered the vessel to Ferrostal AG, pursuant to a voyage charterparty on an amended GENCON form providing for a voyage from one safe berth Novorossiysk to one safe berth New Orleans and one safe berth Houston.
In Novorossiysk, a consignment of hot rolled steel coils was presented for shipment by AMC on behalf of Key Maritime. The cargo was however in a damaged condition and the Master, relying on Clause 52 of the charter, refused to permit the cargo to be loaded. The parties resolved the immediate impasse by entering into a without prejudice agreement and the dispute was referred to arbitration. Since the issue was the same under each of the four time charters, the same tribunal was appointed and all four references were heard concurrently.
In the arbitration proceedings, the parties agreed that there were two preliminary issues that the Arbitrators should decide. The questions posed were these:
- “In what circumstances, on the true construction of clause 52 of the Charter, is the Master entitled and obliged to reject the cargo presented for shipment/tendered for loading?
- Did those circumstances exist at Novorossiysk?”
The Arguments
The legal representative of the Owners argued that the word “clausing” should be given its ordinary meaning as it was understood in the shipping and sale of goods community. The true construction of the Clause would thus imply that only “good” cargo could be loaded and any cargo that would be “subject to remarks” in the Bill of Lading had to be rejected.
Owners’ solicitor also submitted that at the stage the draft Bill of Lading was tendered for signature, the cargo would already have been loaded and so it would be too late for the Master to reject the cargo.
The Charterers argued that the Master had no good reason to reject the loading of the cargo since they were willing to accurately declare the damaged condition of the cargo in the Bill of Lading.
The Award
The Arbitrators recorded that the Charterers in fact had insisted that the description of the cargo in the Bills of Lading would reflect condition of the cargo as described in the P&I Club’s survey report. Accordingly, there was no dispute over the apparent order and condition of the cargo.
The Arbitrators found that the word “clausing” had no universally settled definition and therefore the meaning of the word had to be ascertained by identifying the objective intentions by the parties. To find out what the parties objective intentions were, the three leading maritime arbitrators used their own extensive knowledge of both the law and shipping practice and drew their inferences by construing the clause on a wider legal and practical background.
On this basis the panel found that the commercial purpose of clause 52 was to resolve arguments at load ports which could otherwise lead to lengthy disputes in respect of the proper description of the condition of the cargo in the Bills of Lading. Clause 52 was not intended “to operate in circumstances where there is no disagreement between the Master and Shipper as to the proposed description of the cargo in the Bills of Lading”.
They concluded that the Master would be entitled and obliged to reject the cargo only if he would have had to clause the Bill of Lading in a way that would qualify what the Shipper ultimately proposed to be stated in the Bill of Lading. Since the Charterers proposed to incorporate into the Bills of Lading the apparent order and description of the cargo as found by the Club’s surveyor, that requirement was not met, and accordingly, the Master had no right to reject the cargo at Novorossiysk.
The Judgement
The Owners appealed and argued that the Arbitrator’s Declaration as to the meaning of the relevant passage of Clause 52 was inconsistent with the actual wording of the sentence in the Clause.
The Judge agreed however with the Arbitrators conclusions. He affirmed that the word “clausing” has no settled meaning or usage and he agreed to the legal and factual background against which the wording in Clause 52 must be construed. There was no requirement, either in the law generally or under the terms of the applicable time charters, that the Bills of Lading should describe the cargo as being in “good” or “apparent good condition”.
He added that, in its context, the word “clausing” means “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 and apparent condition of the goods”.
Even if the relevant phrase was “apparent good order and condition”, “good” stand for “proper”, which means that cargo properly described in the Bills of Lading as damaged or imperfect in some way, can still be stated to be in “good order and condition”. In the context of Clause 52, therefore, the position is that if the description of the goods is such that 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”. But if 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”.
In respect of Owners’ argument that it would be to late for the Master to reject cargo upon presentation of the draft Bill of Lading, the Judge pointed out that according to the Hague Visby Rules, which were properly incorporated into the charterparty, the Master is under an obligation to take a reasonable non-expert view of the cargo that is about to be loaded.
Mr. Justice Aikens finally concluded that the Arbitrators’ construction of Clause 52 was correct and formulated his conclusions to Preliminary issue number One 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/tendered for loading if the cargo so presented/tendered is described in the wording of the bill of lading (as ultimately proposed by the shipper) 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.”