Bill of Lading Cargo Condition

Second type of statement traditionally included in a bill of lading is a representation by the shipowner as to the condition in which the goods were shipped. This refers merely to their apparent condition in so far as the carrier or his agent is able to judge by a reasonable outward inspection. At a time when an increasing proportion of cargo is containerised, such statements are only of limited value since, in the majority of cases, they will refer merely to the outward appearance of the container or other packaging, and not to the condition of the goods inside. The shipowner’s agent will naturally catalogue on the bill of lading any damage which is observed during such examination and will be under an obligation to deliver the goods at their destination in the same condition as that received, subject to the contractual exceptions. In many cases the shipper will be anxious to avoid any such indorsements on the bill since the shipment is being financed by a documentary credit from a bank under which he is required to produce a ‘clean bill of lading’, i.e. a bill containing an unqualified statement that the goods were shipped ‘in good order and condition’. Shipowners may not, however, be entitled to clause a bill of lading, even where an inspection reveals the cargo to be damaged, if its condition is adequately described in the bill. In Sea Success Maritime v African Maritime Carriers a pre-loading survey conducted by the shipowners’ P and I Club found that a cargo of hot rolled steel coils was rusty and had suffered other superficial damage. Nevertheless the trial judge, Aikens J, held that the shipowners were not entitled to clause the bill of lading if the charterers intended to incorporate into the bill the description of the goods as appeared in the pre-loading survey report. In his opinion, the word ‘good’ in the phrase ‘apparent good order and condition’ meant ‘proper’ in the sense that the cargo was properly described in the bill. Consequently if cargo is accurately described in the bill as damaged or imperfect in some way, it can still justifiably be stated to be in ‘apparent good order and condition’. While on the surface this may appear a somewhat surprising conclusion, from a practical point of view any transferee of the bill should be as well aware of the condition of the goods as if the bill had been claused. It is unlikely that such a bill would qualify as a ‘clean’ bill. (a) Effect at common law: As with representations as to quantity, statements as to the condition in which goods are shipped are prima facie evidence in favour of the shipper, but conclusive evidence once the bill comes into the hands of a bona fide purchaser for value. Thus in Compania Naviera Vascongada v Churchill42 where timber became badly stained with petroleum while awaiting shipment, the master nevertheless issued a bill acknowledging that the timber had been shipped in good order and condition. Channell J held that, in these circumstances, the shipowners were estopped as against an assignee of the bill from denying the truth of the statement. The justification for the estoppel was detrimental reliance by the assignee. ‘In order to make the statement in the bill of lading binding as an estoppel it is of course necessary that it would have been acted on to the prejudice of the person so acting. The defendants here allege that they are prejudiced because, on the faith of the statement that the timber was in good condition when shipped, they accepted the bills of lading as a good tender under a con- tract for clean timber, and paid their vendors the full contract price.’ Such detrimental reliance will invariably be present either because the shipment formed part of an international sale and the purchaser was induced to pay the contract price by the presentation of the clean bill of lading, or because the consignee of the bill obtained delivery of the goods by presenting the bill and paying the required freight. The estoppel has even been held effective in favour of a party who had advanced money to the shipper on the security of the bill and subsequently obtained delivery of the goods from the carrier on presentation of the bill and payment of the freight even though technically he was not a party to the contract of carriage. It must be remembered, however, that the estoppel will only be effective in respect of defects which would be apparent on a reasonable inspection by the carrier or his agents. Thus in Silver v Ocean Steamship Co the shipowners had issued clean bills of lading covering a cargo of Chinese eggs shipped in 42-lb square tins which were not covered with any cloth or packing. When the goods arrived at their destination in a damaged condition, the Court of Appeal held that, while the shipowners were estopped from contending either that the cargo was insufficiently packed or that the tins were gashed on shipment, they were not estopped from alleging that pin-hole perforations in the tins were present on shipment, since the latter would not necessarily be apparent on a reasonable inspection.
It is, of course, possible at common law for the shipowner to exclude responsibility for the truth of such statements or to indorse the bill with a clause to the effect ‘condition unknown’. On the other hand, representations as to condition purport to be statements made by theshipowner after a reasonable inspection of the goods, and differ basically from representations as to quantity or leading marks, which are merely acknowledgments by the shipowner of information supplied by the shipper. Consequently, the courts tend to construe any attempts by the shipowner to negate the effectiveness of such representations fairly strictly. Thus in the case of The Peter der Grosse a marginal indorsement to the effect that ‘weight, contents and value unknown’ did not displace a positive statement in the bill that the goods were shipped in good order and condition. There would also appear to be an established con- vention that a clear statement by the shipowner that the goods were shipped in good order and condition will override any standard printed clause in the body of the bill indicating that the state of goods on shipment was unknown. If the goods are damaged on shipment, the shipowner can, of course, qualify his repre- sentation by listing the observed damage on the bill in the form of a marginal indorsement. Such indorsements normally specify the precise damage but can be so worded as to render the representation as to condition too ambiguous to found an estoppel. A good example is provided by the case of Canada & Dominion Sugar Co Ltd v Canadian National Steamships Ltd which involved the shipment of a cargo of sugar. The shipper was anxious to obtain a clean bill of lading and, in order to facilitate his business arrangements, the carrier agreed to issue a bill of lading before the completion of loading on receiving an assurance that there was nothing wrong with the cargo. Against the statement in the bill that the goods had been ‘shipped in apparent good order and condition’, the shipowners entered a marginal indorsement ‘signed under guarantee to produce ship’s clean receipt’. In fact, the sugar had been damaged while lying on the wharf awaiting shipment, and the mate’s receipt eventually recorded ‘many bags stained, torn and resewn’. When assignees of the bill subsequently brought an action, the Privy Council held that they could not rely on an estoppel unless the statement as to condition in the bill was unambiguous and unqualified. In the opinion of the court, ‘the bill did in fact on its face contain the qualifying words “Signed under guarantee to produce ship’s clean receipt”; that was a stamped clause clear and obvious on the face of the document and reasonably conveying to any business man that, if the ship’s receipt was not clean, the statement in the bill of lading as to apparent order and condition could not be taken to be unqualified’. In view of this qualification, and the fact that the mate’s receipt was available to a prospective buyer, the court held that the assignee could not rely on the estoppel. (b) Position under the Hague/Visby Rules:
As we have already noted, under Art III rule 3 of the Rules, the shipper is entitled to demand the issue of a bill of lading incorporating a statement as to the apparent order and condition of the goods when received by the carrier. Such a bill is prima facie evidence of receipt by the carrier of the goods as therein described, but conclusive evidence when the bill has been transferred to a third party acting in good faith. In the latter respect there is once more no requirement for detrimental reliance, as at common law. The master will, of course, enter marginal indorsements on the bill to indicate the actual condition of the goods, but otherwise he is not entitled to introduce clauses relieving him of obligations imposed by Art III of the Rules. It is therefore somewhat surprising to find that the courts are prepared to countenance such qualifications of liability on the part of the shipowner on what appear to be purely technical grounds. Thus in the case of Canada & Dominion Sugar Co Ltd v Canadian National Steamships Ltd it was argued that the provisions of the Hague Rules rendered void the shipowner’s qualification that the bill had been ‘signed under guarantee to produce ship’s clean receipt’. Lord Wright responded by pointing out that Art III rule 3 of the Hague Rules ‘expressly applies only if the shipper demands a bill of lading showing the apparent order and condition of the goods. There is no evidence that the shipper here made such a demand: indeed, no demand of this nature is alleged. The condition of the rule is thus not fulfilled.’ The US Court of Appeals adopted a similar line in Tokio Marine & Fire Ins Co v Retla Steamship Co, a case which involved the shipment of a cargo of galvanised and ungalvanised pipes from Yokohama to Los Angeles. Despite the fact that rust and wetness was noted on the tallysheets and the mate’s receipt, a clean bill of lading was issued. The bill, however, incorporated a qualifying clause to the effect that, ‘apparent good order and condition when used in this bill of lading . . . does not mean that the goods, when received, were free of visible rust or moisture. If the shipper so requests, a substitute bill of lading will be issued omitting the above definition and setting forth any notations as to rust or moisture which may appear on the Mate’s or Tally Clerks’ receipts.’ As the shipper had not requested the issue of a substitute bill, the court held that the consignee was caught by the qualification which, in its view, was not invalid under the Hague Rules. It would seem unreasonable that consignees or assignees should be deprived of their protection by the device of a clause of this type. The carrier will often be under considerable pressure from the shipper to issue a clean bill of lading, since otherwise the shipper may be unable to complete a sale or draw on a documentary credit. In these circumstances the carrier may be induced to ignore defects in the condition of the cargo tendered in return for the express promise of an indemnity from the shipper to cover losses resulting to the shipowner from any action subsequently brought by a receiver of the goods. Such an indemnity will provide illusory protection for the shipowner since it will be ineffective as a defence to any claim brought by a third party on the clean bill, and may even be unenforceable against the shipper on the ground that its object is to defraud the consignee or his bank. This situation arose in the case of Brown, Jenkinson & Co Ltd v Percy Dalton where the claimant shipping agents had arranged for the carriage of 100 barrels of orange juice from London to Hamburg. On delivery to the dock, many of the barrels were found to be old and leaking but the defendant shippers were anxious to obtain clean bills of lading and accordingly undertook to indemnify the claimants for any resulting loss if they would refrain from indorsing the bills. Clearly the claimants had no defence when sued for damages by the consignees at Hamburg, but they then sought to recover this loss from the defendants by enforcing the indemnity. The Court of Appeal (Evershed LJ dissenting) held the indemnity to be illegal and void on the grounds of fraud. Even though there was no intention that anyone should be out of pocket as a result of the transaction, nevertheless ‘at the request of the defendants the claimants made a representation which they knew to be false and which they intended should be relied on by persons who received the bill of lading, including any banker who might be concerned. In these circumstances, all the elements of the tort of deceit were present.’ Such indemnities are not uncommon in international trade and, providing no fraud is involved, there would appear to be no legal bar to their enforcement. Thus, even in the case itself, it was suggested that such indemnities might be useful where there was a bona fide dispute as to the condition or packing of the goods in order to avoid the necessity of rearranging a letter of credit which might cause difficulty where time was short. Similarly under the Hague/Visby Rules the carrier is entitled to refuse to acknowledge the condition in which the goods are received in circumstances where there is no reasonable opportunity to inspect them. This would provide another occasion for the use of an indemnity where the shipper was anxious to obtain a clean bill. Only in the case where the carrier was actually aware of the falsity of the declaration would the indemnity be ineffective. While dealing with indemnities, it might be relevant to recall that under Art III rule 5 of the Hague/Visby Rules the carrier is provided with a statutory implied indemnity to cover losses resulting from being required to acknowledge the quantity or leading marks of the goods received on the basis of information supplied by the shipper, which later turns out to be false. This rule is not applicable to statements as to the condition of the goods shipped. There is no mention in this Article of the validity of such an indemnity in a situation where the carrier knows that the information supplied is false, nor does any obligation appear to be imposed on the carrier to inspect the cargo before acknowledging such a statement in the bill. In such circumstances, if the carrier is in any doubt, it would clearly be in his interest not to enquire, provided of course that the shipper is solvent and the carrier can rely on his ability to meet the indemnity.