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