What does “clean on board” mean?

Standard Senior Claims Executive Elisabeth Birch and Divisional Claims Director Revecca Vasiliou have reported on the case of Priminds Shipping (HK) Co Ltd v Noble Chartering Inc (The Tai Prize), a case that addressed the question of what ‘clean on board’ meant and what a master should be aware of when presented with a bill of lading.

The Tai Prize case concerned a matter where the defendant head time charterer entered a voyage charter with the claimant voyage charterer for the carriage of heavy grains, soyabeans in bulk from Brazil to China.

After the cargo was loaded onto the ship, the shipper presented a draft bill of lading to the master which, under the heading “Shipper’s description of Goods”, described the cargo as being:

‘63,366.150 metric tons Brazilian Soyabeans

Clean on Board

Freight pre-paid.’

The master executed the bill of lading as presented without any reservations, and this included the following confirmation on the face of the bill of lading that the cargo had been:

‘SHIPPED at the Port of Loading in apparent good order and condition on board the Vessel for carriage to the Port of Discharge…’

‘Weight, measure, quality, quantity, condition, contents and value unknown …’

The bill of lading incorporated the Hague Rules (HR) and stipulated that the cargo was loaded in ‘apparent good order and condition.’ 

However, upon discharging the cargo in Quanzhou, the receivers alleged that the cargo had suffered heat and mould damage; they requested security for their claim.

The ship owner’s P&I Club had issued security in the form of a club LOU that was subject to Chinese law and the exclusive jurisdiction of the Chinese Courts.

The ship owner contested the cargo claim up to the Court of Appeal but lost in both instances and was eventually ordered to pay the receiver a sum equivalent to $1,086,564.70.

Thereafter, the ship owner recovered a 50% contribution of the judgment sum, by way of settlement, from the defendant head time charterer. The head time charterer in turn sought to recover this settlement from the claimant voyage charterer. The voyage charterparty incorporated the Hague Rules, which did not contain an express provision under which the defendant was entitled to an indemnity.

The Arbitrator held that the voyage charterer had to indemnify the head time charterer for their 50% contribution to the settlement with the ship owner because:

  1. the shipper was the voyage charterer’s agent and had impliedly warranted the accuracy of any statement as to condition contained in the draft bill of lading or had impliedly agreed to indemnify the head time charterer against the consequences of the inaccuracy of any such statement
  2. the voyage charterer, through the shipper as their agent, had warranted that the cargo was ‘SHIPPED at the Port of Loading in apparent good order and condition’
  3. the cargo was not in fact shipped: ‘… in apparent good order and condition’.

The voyage charterer appealed and was granted permission to appeal the award. On appeal, the issues at law which had to be considered were:

  • Did the words ‘Clean on Board’ and  ‘…SHIPPED at the Port of Loading in apparent good order and condition’ in the draft bill of lading when presented to the  master amount to a representation or warranty by the shippers and / or voyage charterer as to the apparent condition of the goods observed prior to loading?
  • Was the invitation to the master to make a statement of fact in accordance with his own assessment of the apparent condition of the goods?
  • Further, if the Hague Rules had been incorporated into the voyage charterparty or the bill of lading , would an indemnity be implied into the charterparty or bill of lading against the consequences of the statement at (1) above regarding the condition of the goods?

Hague Rules position

In this case, the HR were incorporated into both the voyage charterparty and bill of lading and they made a clear distinction between the position in relation to:

  • information that appeared in the bill of lading that was provided by the shipper on the voyage charterer’s behalf, which the carrier or its master was obliged to accept at face value
  • representations as to the apparent condition of cargo at shipment.

Art. III rule 3 of the HR provides that the ‘leading marks necessary for identification of the goods’ and ‘the number of packages or pieces or the quantity or weight’ of the goods described on the bill of lading constituting the cargo  will be information ‘furnished in writing by the shipper’. Hence, such information from to the shipper to a carrier, ship owner or its master is to be accepted at face value.

In the present case this applied to the information that the shipper provided as described in the bill of lading that the cargo consisted of ‘63,366.150 metric tons Brazilian Soyabeans’.

This rule continues to state that the bill of lading should also set out ‘the apparent order and condition of the goods’ but this is not information that is to be ‘furnished in writing by the shipper’. Given this, such an assessment is exclusively made by the carrier or a ship owner (or the master on its behalf) of the goods at the point of shipment. At law, the master should not sign a clean bill just because one is tendered; instead it is his legal obligation to verify the apparent conditions of the goods, and reflect this in the bills of lading before he signs this document.

Legal discussion

On appeal, in relation to issues (1) and (2) above, Judge Pelling QC found that when a shipper tendered a bill of lading for signature to  the master that contained a statement as to apparent condition of the goods, the shipper was doing no more than inviting the carrier or ship owner, via the master as their  agent, to make a representation of fact as to the apparent condition of the goods on shipment.

In so doing, the shipper was neither warranting the accuracy of the represented facts, nor that the statement in the bill of lading is a representation as to the actual condition of the goods shipped.

The obligation to record the apparent order and condition of the goods remained one that was owed by the carrier or ship owner to the shipper. The purpose of the representation was to record the carrier or shipowner’s evidence as to the apparent condition of the goods when placed aboard the ship. It was relied on by the consignee and all subsequent holders of the bill of lading as reflecting the apparent condition of the goods when placed on board based on the reasonable judgement of a reasonably competent and observant master.

The judge further held that the bill of lading was not inaccurate as a matter of fact, because the master did not and could not reasonably have discovered the defects, because they were not reasonably visible to him or his agent during loading.

Under Art. III rule 5 of the HR, a warranty is deemed to have been supplied by the shipper to the carrier in respect of information ‘… furnished in writing by the shipper’. This refers to Art III rule 3, regarding ‘leading marks necessary for identification of the goods…’ and ‘the number of packages or pieces or the quality or weight…’. There was however no such guarantee deemed to be given in respect of the ‘apparent condition of the goods.’ Accordingly, this information in the bill of lading was exclusively an assessment by the master. 

Implied Term

The third issue that was considered in this case was that, if the HR were incorporated into the charterparty or the bill of lading whether there was an implied indemnity from the voyage charterer / shipper to the carrier.

Terms were implied only if it was necessary to give the contract business efficacy or was so obvious that it went without saying. If there was an express term in the contract which was inconsistent with the proposed implied term, the latter could not, by definition, meet these tests, since the parties had demonstrated that it was not their agreement. Given this, no term might be implied into a contract if it would be inconsistent with an express term.

The judge held it would be wrong to imply a provision into the voyage charterparty or bill of lading that would make the claimant (the voyage charterer) liable to indemnify the defendant (the head time charterers) when the drafters of the HR could have, but decided not to, provide expressly for such a provision.

This judgement made clear that it was the master (on behalf of the carrier) who was to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo. It was also the master’s task to verify the apparent condition of the goods before signing any bill of lading presented by the charterer/shipper. There was nothing unfair, unjust, uncommercial or unconscionable about an outcome that left ultimate liability with the defendant head time charterer because there was no misrepresentation, no evidence or finding that the master had acted on the alleged misrepresentation rather than being unable to reasonably verify the condition of the goods.

It was held that the head time charterer was not entitled to an implied indemnity from the voyage charterer.

Conclusion

The writers said that this judgment reinforced that it was the master who had the sole responsibility for assessing the apparent order and condition of the goods shipped. This principle was one of the cornerstones of international trade, given the reliance placed by traders and bankers on the accuracy of statements of fact contained in the bill of lading.

As a general point, the writers noted that, in the event that the cargo was in fact loaded in a damaged condition, an indemnity might still be available if there was a genuine dispute over the condition of the cargo.

In cases where defects in the goods were not apparent on reasonable inspection at the point of shipment, the master’s signature of the bill of lading without any qualification did not prevent the owner from defending a cargo damage claim by establishing the true condition of the goods upon loading.

“Where cargo damage is not reasonably visible to the master the representation that it was ‘in apparent good order and condition’ is not inaccurate and the master should refrain from accepting this qualification if he is unsure about the condition of the cargo. The club would advise that an independent surveyor is appointed to assist.”

https://www.standard-club.com/risk-management/knowledge-centre/news-and-commentary/2020/05/article-what-means-clean-on-board-and-what-should-a-master-be-aware-of-when-presented-with-a-bill-of-lading.aspx