Reviewing the English Court judgment: The DAVID AGMASHENEBELI [2002] EWHC 104 (Admlty).
It is a general rule that the carrier on demand of the shipper must issue a B/L showing the "apparent order and condition" of the cargo at the time of loading. When a clean B/L (i.e. with no clausing as to damaged cargo etc.) has been issued, the carrier will usually be prevented from arguing later that damage had occurred to the cargo before it was received into the carrier’s custody. Where the Hague-Visby Rules apply, the issue of a clean B/L is the so-called prima facie evidence of the cargo being received in apparent good order and condition and, when the bill has been transferred to a third party acting in good faith, it becomes conclusive evidence of the apparent good order and condition of the cargo at the time of loading.
It is often the case that letter of credit arrangements require clean bills to be issued and the carrier is under significant pressure to issue clean bills even when, in his reasonable opinion, the bills should be claused. This is in many cases resolved by the carrier accepting an LOI for the issue of clean bills, but this will put the carrier at risk as the carrier thereby loses his P&I cover and in some jurisdictions e.g. England such LOI's have been held unenforceable: Brown Jenkinson v. Percy Dalton [1957] 2 Q.B. 621.
In cases where the cargo is not in apparent good order and condition, the carrier may demand that replacement (undamaged) cargo is provided or he is entitled to insist that Bs/L are claused. The master is entitled to insist on clausing the Bs/L even where the C/P requires a B/L to be signed "as presented" or requires that "clean Bs/L are to be issued" (a so-called conclusive evidence clause). The master has no obligation to sign a B/L which inaccurately describes a cargo, and if a letter of credit arrangement requires clean bills to be issued this is first and foremost (and ought solely to be) a problem for the shipper.
Recently, the English courts decided a case which was effectively caused by the master clausing Bs/L incorrectly: The "DAVID AGMASHENEBELI" [2002] EWHC 104 (Admlty): Queen's Bench Division (Admiralty Court) May 31, 2002.
This case concerned a shipment in May 1995 of urea in bulk loaded on board the DAVID AGMASHENBELI at Kotka for carriage to Beihai in China.
Initially, a dispute arose over the fitness of the vessel’s holds, and this particular dispute was initially meant to be resolved by an agreement to the effect that loading would commence on condition that the master would sign clean Mate’s Receipts, clean Bs/L and an LOI being issued. A dispute then arose about the condition of the cargo as the master protested about its moisture, its colour and contamination.
According to the cargo interests’ surveyors (who carried out a random inspection plus analysis), the cargo’s condition was normal and had the correct colour.
The dispute was not resolved before the vessel sailed, and the master endorsed the Statement of Fact: "Cargo discoloured, also foreign materials (e.g.) plastic, rust, rubber, stone, black particles found in cargo", and the Mate’s Receipt was similarly claused.
In other words, the clausing was worded in very broad terms without saying anything about the extent of the contamination or discolouration.
When the vessel arrived at Beihai in China the Bs/L had still not been issued, but on the day of arrival the Bs/L were signed claused with the same, similar wording.
The clausing of the bills caused rejection of the Bs/L by the buyers’ bank and the market prices fell. Buyers eventually agreed to buy but at a reduced price, and cargo interests sued the carrier.
The question then was argued before the court where the basic question came to be whether it is the master’s duty to:
Either:
Objectively and accurately describe the actual apparent order and condition of the cargo (this was the argument made by cargo interests).
Or:
Describe the apparent order and condition of the goods as an ordinary and reasonably skilled master reasonably and honestly believe it to be (this was the argument made by the carrier).
The court held that it was the carrier’s duty to record the apparent order and condition of the cargo according to the reasonable assessment of the master (or other agent of the carrier). There is no absolute guarantee of accuracy.
The master is required to exercise his own judgement on the appearance of the cargo being loaded (and there is no separate obligation to call in expert help e.g. a surveyor or other "expert" with specific knowledge of the cargo in question).
The actual wording of the clausing is also a matter for the master’s judgement.
In this specific case, the court also held that, on the evidence, the cargo had in fact not been contaminated and that the master had been wrong to clause the bills with respect to contamination.
The court, however, also concluded that, on the evidence, a smaller portion of the cargo had been discoloured. The correct clausing would therefore have mentioned the extent (e.g. by percentage) of cargo being discoloured and the clausing employed in this case was likely to cause any third party to believe that a major part (or all) of the cargo was discoloured.
The decision is therefore a reminder that, when clausing a B/L, the master must not only use his reasonable judgement in deciding whether to clause, but he must also be sufficiently specific and precise in his clausing, failing which the owner may be held liable in damages.
Published with the kind permission of the Danish Defence Club.