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Friday, 18 December 15
WHEN IS A MASTER ENTITLED TO REFUSE DAMAGED CARGO? A REMINDER - THE STANDARD CLUB
 KNOWLEDGE TO ELEVATE
A master’s authority to clause bills of lading issued by or on his behalf can sometimes become the cause of disagreement between shippers, charterers and carriers.
Under Article III Rule 3 of the Hague/Hague Visby Rules after receiving the cargo, and on the demand of the shipper, the master is obliged to issue a bill of lading evidencing the quantity and apparent order and condition of goods to be carried.
The buyer of cargo, the consignee in an international trade, will want the subject bill of lading to be accurate and contain unambiguous remarks as to the quantity, quality and condition of the said cargo – so he knows exactly what he is purchasing. Conversely, the shipper/seller will primarily want a clean bill of lading to be issued, in order to trigger payment under the subject letter of credit.
On the other hand the master/carrier, to protect himself, may very well want to insert a clause in the subject bill of lading that better describes the condition of the cargo; otherwise he may be concerned that he will be subject to a claim by the lawful holder of the bill for ‘damaged’ goods at destination.
The master’s rights / obligations
Whilst under many time charterers there is usually a contractual provision which states the master is obliged to sign bills ‘as presented’, where the master is presented with a bill of lading, for signing, which the master has reasonable grounds for suspecting contains factual inaccuracies as to the subject cargo, such as an incorrect description as to the cargo’s condition, the master is generally under no obligation to sign it.
However, and practically speaking, he will often be under extreme commercial pressure to issue clean bills in exchange for a letter of indemnity (LOI) from his charterer. The problem the master/carrier has in these circumstances is that such a LOI may well be unenforceable, as a court could consider the indemnity to be perpetrating a fraud against the lawful bill of lading holder – certainly if the bill of lading inaccurately records the apparent order and condition of the cargo.
It should also be mentioned that there will be club cover implications where a master or member issues a bill of lading with knowledge that it contains an incorrect statement as to the quantity, quality or condition of cargo loaded on board the ship.
In these circumstances, provided the master has reasonable grounds for suspecting the quantity, quality or condition of the cargo loaded on board the ship and described in the bill is inaccurate, he may refuse to sign the bill of lading ‘as presented’. However, if the master unreasonably refuses to sign or authorise the issue of such a bill of lading he runs the risk of being in breach of Article III of the Hague/Hague-Visby Rules and possibly also liable to his charterer (under the subject charter) for any delay and consequent costs/losses down the chain.
What constitutes a reasonable refusal will, as with all things, turn on the particular facts of the case. However, the English courts handed down some useful guidance in The Boukadoura.
Here there was a difference between the shore and ship figures of about 1%. The master was prepared to put both the ship and the shore figures on the bill of lading, but the shippers refused and insisted on the shore figures being so inserted. In an attempt to resolve the dispute a second draft survey was carried out by an independent surveyor. This confirmed the ship’s figures, but the shippers nonetheless refused to accept a bill of lading showing the ship’s figures. Ultimately, and after considerable delay, a bill of lading based on the ship’s figures was issued and the cargo was carried to its destination and discharged, without any shortage claim. The charterer however subsequently claimed for the time lost due to the delay at the load port. Although the charterparty provided for bills of lading to be issued by the master ‘as presented’ the court agreed that the master was only obliged to issue a bill lading for the quantity of cargo he reasonably believed to have been so loaded.
Concluding remarks
There are no clear-cut guidelines to determine when, or if, a master can reasonably refuse to issue a bill of lading if he considers the quantity (or quality, condition) of cargo as shown on the bill to be inaccurate. Each case will turn on its own facts and also largely depend on expert evidence. Further, and somewhat irrespective of the law of the subject charterparty, the location and law of the load port will play an important role in any ‘budding’ dispute. Therefore, as soon as a master is aware of a problem in this respect, it is vital that he contacts the club and/or club’s local correspondent for advice and guidance (ideally with personal attendance of an expert surveyor on board) before any dispute escalates.
On a slightly different point, the charterparty may provide for the issuance of a clean bill of lading and/or give the master the right to reject any cargo that is subject to ‘clausing’ . This was the case in The Sea Success.
The ship here was under an amended NYPE timecharter according to which the master had the right to reject ‘any cargo that is subject to clausing of the bills of lading’.
The shippers tendered damaged steel cargo and the master rejected the same on the basis that it was subject to clausing of the bills. The charterers argued that the bills, as presented to the master, contained a complete and accurate description of the (damaged) cargo according to the findings of a preloading steel survey report and this didn’t amount to ‘clausing’. Indeed, in this case there was no dispute between the owners, charterers and shippers as to the apparent order and condition of the subject cargo, or the appropriate description of the cargo to be included in the bill of lading by the shipper.
The English High Court in this case held that the word ‘clausing’ meant a notation on the bill of lading by the master or his agents, which qualified already existing statements on the bill of lading as to the quality, quantity and apparent condition of the goods. Therefore, only if the master had to make an additional notation on the bill, to reconcile the description of the goods with the statements already on the bill as to its apparent good order and condition, then the same cargo was subject to ‘clausing’ and the master would be entitled and obliged to reject the same – as per the terms of this subject charter.
This article intends to provide general guidance on the issues arising. It is not intended to provide legal advice in relation to any specific query. The law is also not static. If in doubt, The Standard Club is always on hand to assist.
Source: The Standard Club
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- GN Power Mariveles Coal Plant, Philippines
- India Bulls Power Limited - India
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- Kideco Jaya Agung - Indonesia
- Commonwealth Bank - Australia
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- Uttam Galva Steels Limited - India
- Bhushan Steel Limited - India
- Savvy Resources Ltd - HongKong
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- Indonesian Coal Mining Association
- The State Trading Corporation of India Ltd
- Indian Energy Exchange, India
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- New Zealand Coal & Carbon
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
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- Mjunction Services Limited - India
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- GAC Shipping (India) Pvt Ltd
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- Kobexindo Tractors - Indoneisa
- Directorate Of Revenue Intelligence - India
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- SMG Consultants - Indonesia
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Central Java Power - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
- Trasteel International SA, Italy
- Global Coal Blending Company Limited - Australia
- Bharathi Cement Corporation - India
- Edison Trading Spa - Italy
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
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- Energy Development Corp, Philippines
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- Sree Jayajothi Cements Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The University of Queensland
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Port Waratah Coal Services - Australia
- Romanian Commodities Exchange
- McConnell Dowell - Australia
- Attock Cement Pakistan Limited
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- Standard Chartered Bank - UAE
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- Vizag Seaport Private Limited - India
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- Planning Commission, India
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- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Makarim & Taira - Indonesia
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- Kohat Cement Company Ltd. - Pakistan
- CIMB Investment Bank - Malaysia
- Energy Link Ltd, New Zealand
- Oldendorff Carriers - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
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- Alfred C Toepfer International GmbH - Germany
- TNB Fuel Sdn Bhd - Malaysia
- International Coal Ventures Pvt Ltd - India
- Economic Council, Georgia
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Star Paper Mills Limited - India
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- Ministry of Mines - Canada
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Lanco Infratech Ltd - India
- Gujarat Mineral Development Corp Ltd - India
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- Petron Corporation, Philippines
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- Global Business Power Corporation, Philippines
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- GMR Energy Limited - India
- Sarangani Energy Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Renaissance Capital - South Africa
- Kumho Petrochemical, South Korea
- Coastal Gujarat Power Limited - India
- Xindia Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- Antam Resourcindo - Indonesia
- Power Finance Corporation Ltd., India
- Tata Chemicals Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- ASAPP Information Group - India
- Siam City Cement - Thailand
- Kapuas Tunggal Persada - Indonesia
- Latin American Coal - Colombia
- Medco Energi Mining Internasional
- Directorate General of MIneral and Coal - Indonesia
- Posco Energy - South Korea
- Mercator Lines Limited - India
- Australian Coal Association
- Sojitz Corporation - Japan
- Heidelberg Cement - Germany
- Larsen & Toubro Limited - India
- Independent Power Producers Association of India
- Vijayanagar Sugar Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Agrawal Coal Company - India
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- Wood Mackenzie - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coal and Oil Company - UAE
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- MS Steel International - UAE
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Thai Mozambique Logistica
- CNBM International Corporation - China
- Deloitte Consulting - India
- Tamil Nadu electricity Board
- Videocon Industries ltd - India
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- PTC India Limited - India
- AsiaOL BioFuels Corp., Philippines
- Therma Luzon, Inc, Philippines
- Eastern Energy - Thailand
- IHS Mccloskey Coal Group - USA
- Bukit Baiduri Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Thiess Contractors Indonesia
- Singapore Mercantile Exchange
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