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The case of "The David Agmashenebeli" raised important questions concerning bills of lading. In particular, what duty did the law impose on carriers in issuing bills of lading showing the actual apparent order and condition of the goods? Was there an additional duty of care in tort on the carriers not to misrepresent the apparent order and condition of the goods? And what were the consequences of a Master clausing bills of lading?
The facts
The Claimants were the owners of a cargo of bulk urea (“the cargo”). In April 1995, they sold the cargo to Grand Prestige Enterprises of Hong Kong ("Grand Prestige") who, in turn, sold it on to Guangxi Publications of China ("Guangxi"). It was agreed that payment for the cargo was to be made to the Claimants by Guangxi by documentary credit against presentation of clean bills of lading. The Claimants sub-chartered the Defendants' vessel "David Agmashenebeli" ("the vessel") to carry the cargo from Finland to China. During loading the Master protested about the state of the cargo although the Claimants' appointed surveyor asserted that the condition of the cargo was generally acceptable despite a few minor impurities. However, the Master claused the bills of lading stating that the cargo was both discoloured and contaminated. The consequence was that Guangxi’s bank refused to accept the claused bills of lading and the Claimants had to negotiate a settlement with both Grand Prestige Enterprises and Guangxi in which a reduced price for the cargo was agreed. After discharge of the cargo in August 1995, inspection reports were carried out which found that the cargo was in normal condition. The Claimants then sought damages from the Defendants for the difference between the original sale price and the reduced sale price of the cargo.
The clausing of the bills of lading
The case was heard before Mr Justice Colman in the Admiralty Court. Both sides accepted that the Hague-Visby Rules (“the Rules”) were incorporated into the bill of lading contract between the Claimants as shippers and the Defendants. Art.III, r.3 of the Rules imposes a duty on the carrier to show the apparent order and condition of the goods. The Claimants submitted that based on the observations of Evans LJ in “The Arctic Trader” (1996) 2 LLR 449, this duty was an “unqualified” or “absolute contractual undertaking", not one which the Master merely had to take reasonable care to perform. Further, there was an implied term in the contract of carriage and/or a duty of care in tort to exercise reasonable care not to misrepresent in the bills of lading the apparent order and condition of the cargo. The Claimants also submitted that if the Master was unsure whether to clause the bills of lading, he should have taken independent advice.
The Defendants argued that under Art.III r.3 of the Rules, all that a Master was required to do was honestly and reasonably state the external condition of the cargo as it appeared to a Master who was not an expert on the cargo in question. They referred to "The River Guarara" (1998) QB 610, where Phillips L.J. held that under Art.III of the Rules "an unqualified description of the goods in the bill of lading does not constitute a binding agreement between the shipper and the carrier that the goods have been shipped as stated, but merely prima facie evidence of that fact." 
Looking at Art.III r.3 of the Rules, the judge found that it did impose a contractual duty on the carrier to issue a bill of lading showing the apparent order and condition of the goods. If the Master was in any doubt, he could seek expert advice, but that was a matter for his own judgment. In the judge’s view, the correct approach was that the carrier's duty was to issue bills of lading that recorded the apparent order and condition of the goods according to the reasonable assessment of the Master. There was no contractual guarantee of absolute accuracy as to the order and condition of the cargo or its apparent order and condition. Regarding “The Arctic Trader”, the observations of Evans LJ were obiter and assuming they suggested a higher duty on the Master, the judge was not persuaded that they accurately expressed the effect of Art.III, r.3 of the Rules.
There was no reason why there should be superadded to that a duty of care in tort or an implied term in the contract of carriage imposing a stricter obligation. If the Master failed to exercise his judgment properly, the shipper would have a remedy against the carrier for breach of contract. Imposing a higher standard of care would mean a real danger that the Master would conduct detailed investigations of the cargo and to seek expert advice as to whether and how he should clause the bills of lading. This would very probably add little or nothing to the Master exercising his own judgment. Further, this would involve objectionable interference with the rapid movement of cargo and vessels and would be likely to offer only marginal advantages in the accurate observation and recording of the order and condition of the goods.
 

The judge then considered the evidence. The Master had died before trial but had prepared a statement in 1998 in which he stated that at commencement of loading he observed about 30% of the cargo to be discoloured. The Claimants' appointed surveyor found the discolouring to be up to 0.2% but stated that this did not affect the good condition of the cargo. The Claimants’ written expert evidence said that unless a cargo of urea was loaded directly from the producing plant, a tiny amount of discolouration was inevitable if any transportation or handling was involved.

The judge concluded that the pre-shipment contaminants amounted to about 0.01% and that the discolouration of the cargo at loading was about 1%. Accordingly, the Master was not entitled to clause the bills of lading in relation to contaminants but was entitled to clause the bills of lading to show that a very small proportion of the cargo was discoloured. Clausing the bills of lading to show that a substantial part of the cargo was discoloured was not a statement as to the apparent order and condition of the cargo which a reasonably observant Master could properly have made. The Defendants were in breach of their contractual duty under Art.III, rule 3 of the Rules.

Title to sue

The question then arose as to whether the Claimants had title to sue under the bills of lading. The Defendants argued that the effect of the agreement in July 1995 under which Guangxi agreed to accept the claused bills of lading from the Claimants for payment of a reduced price, was that title to sue passed to Guangxi under s.2(2)(a) of the Carriage of Goods Act 1992 ("COGSA 92") prior to discharge in August 1995.

The Claimants submitted that title to sue had not passed to Guangxi because the agreement in July 1995 was made at a time when the right to possession of the cargo had already ceased to attach to the bills of lading.

On the facts, the judge found firstly, that when the Claimants presented back the claused bills of lading to the Defendants in June 1995 to obtain possession of the cargo and the Defendants endorsed them "Accomplished", this effectively meant that the Claimants could not transfer the bills of lading as negotiable documents of title as against the Defendants to any third party.
However, for the operation of s.2(2)(a) COGSA 95, the Defendants had to show that it was the April 95 agreement, not the July 1995 agreement which transferred the bills of lading from the Claimants to Guangxi. In the judge's view, the later agreement replaced the earlier one and its terms were different in important respects. The Claimants were now selling directly to Guangxi at a reduced price and with different documents. Delivery of the cargo was to be taken from the Claimants, not the vessel. Accordingly, Guangxi acquired the bills of lading which had a different effect from those which they had originally been entitled to receive. S.2(2)(a) COGSA 92 did not apply and the Claimants remained the only party entitled to sue.
Loss and damages
Having found that the Defendants were in breach of Art.III, r.3 of the Rules and that the Claimants had title to sue, the judge considered loss and damage. He said that even if the Master had complied with his duties under Art.III, r.3 of the Rules, he would have claused the bills of lading in relation to partial discolouration but not in relation to contaminants. However, the Claimants would still not have obtained clean bills of lading to present to Guangxi to obtain payment for the cargo. Therefore, the Claimants had not established that the Defendants' failure to comply with Art.III, r.3 of the Rules had caused them any loss.
Conclusion
The decision shows that under Art.III, r.3 of the Rules, carriers have to issue bills of lading that record the apparent order and condition of the cargo according to the reasonable assessment of the Master. There is no implied duty in the contract of carriage or duty of care in tort stricter than this reasonable assessment standard in Art.III, r.3. To impose such a duty would be likely to force the Master to conduct detailed investigations of the cargo and to seek expert advice as to whether to clause the bills of which, in turn, would be likely to lead to severe delays in the movement of cargo and vessels.

 

The Owners of the cargo lately laden on board the ship "DAVID AGMASHENEBELI" v The Owners of the ship ship "DAVID AGMASHENEBELI"

 
 

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