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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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- Savvy Resources Ltd - HongKong
- Bhushan Steel Limited - India
- Deloitte Consulting - India
- Kartika Selabumi Mining - Indonesia
- Maheswari Brothers Coal Limited - India
- TeaM Sual Corporation - Philippines
- Price Waterhouse Coopers - Russia
- GMR Energy Limited - India
- Posco Energy - South Korea
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Tamil Nadu electricity Board
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- Global Green Power PLC Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Romanian Commodities Exchange
- Grasim Industreis Ltd - India
- New Zealand Coal & Carbon
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- ICICI Bank Limited - India
- Commonwealth Bank - Australia
- Thiess Contractors Indonesia
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- Port Waratah Coal Services - Australia
- Videocon Industries ltd - India
- Semirara Mining Corp, Philippines
- Aditya Birla Group - India
- Eastern Energy - Thailand
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Economic Council, Georgia
- Singapore Mercantile Exchange
- Meenaskhi Energy Private Limited - India
- Kumho Petrochemical, South Korea
- Billiton Holdings Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- London Commodity Brokers - England
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Petrochimia International Co. Ltd.- Taiwan
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- Siam City Cement - Thailand
- Metalloyd Limited - United Kingdom
- Power Finance Corporation Ltd., India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Africa Commodities Group - South Africa
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Chamber of Mines of South Africa
- Simpson Spence & Young - Indonesia
- Binh Thuan Hamico - Vietnam
- Merrill Lynch Commodities Europe
- Indo Tambangraya Megah - Indonesia
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
- Holcim Trading Pte Ltd - Singapore
- Meralco Power Generation, Philippines
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- Intertek Mineral Services - Indonesia
- Mercuria Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- The State Trading Corporation of India Ltd
- Central Electricity Authority - India
- Madhucon Powers Ltd - India
- Planning Commission, India
- Petron Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Wood Mackenzie - Singapore
- Renaissance Capital - South Africa
- Pendopo Energi Batubara - Indonesia
- Goldman Sachs - Singapore
- Sinarmas Energy and Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bhatia International Limited - India
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Borneo Indobara - Indonesia
- Riau Bara Harum - Indonesia
- Essar Steel Hazira Ltd - India
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Edison Trading Spa - Italy
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Alfred C Toepfer International GmbH - Germany
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- Indian Energy Exchange, India
- Makarim & Taira - Indonesia
- VISA Power Limited - India
- White Energy Company Limited
- Trasteel International SA, Italy
- IEA Clean Coal Centre - UK
- Energy Link Ltd, New Zealand
- Cement Manufacturers Association - India
- Bangladesh Power Developement Board
- Manunggal Multi Energi - Indonesia
- The University of Queensland
- Pipit Mutiara Jaya. PT, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Ceylon Electricity Board - Sri Lanka
- Global Business Power Corporation, Philippines
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Ministry of Mines - Canada
- South Luzon Thermal Energy Corporation
- Bahari Cakrawala Sebuku - Indonesia
- Miang Besar Coal Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- Aboitiz Power Corporation - Philippines
- Orica Mining Services - Indonesia
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- Star Paper Mills Limited - India
- Samtan Co., Ltd - South Korea
- Interocean Group of Companies - India
- Kobexindo Tractors - Indoneisa
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- GAC Shipping (India) Pvt Ltd
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- India Bulls Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Ambuja Cements Ltd - India
- Heidelberg Cement - Germany
- AsiaOL BioFuels Corp., Philippines
- Therma Luzon, Inc, Philippines
- Ministry of Transport, Egypt
- Vedanta Resources Plc - India
- Kideco Jaya Agung - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Indogreen Group - Indonesia
- Electricity Generating Authority of Thailand
- GVK Power & Infra Limited - India
- Eastern Coal Council - USA
- TNB Fuel Sdn Bhd - Malaysia
- Mjunction Services Limited - India
- Coastal Gujarat Power Limited - India
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Minerals Council of Australia
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Jindal Steel & Power Ltd - India
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Cigading International Bulk Terminal - Indonesia
- Georgia Ports Authority, United States
- International Coal Ventures Pvt Ltd - India
- Marubeni Corporation - India
- Agrawal Coal Company - India
- MS Steel International - UAE
- Parliament of New Zealand
- Coalindo Energy - Indonesia
- Australian Coal Association
- Sakthi Sugars Limited - India
- ASAPP Information Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Wilmar Investment Holdings
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