South Africa: RETLA Clauses And When To Clause Bills In The Steel Trade - RETLA Does Not Cover All Rust

The importance of the RETLA Clause in Bills of Lading has been highlighted in the recent Breffka & Hehnke GMBH & Co KG and Others v Navire Shipping Co. Ltd and others (The SAGA EXPLORER) [2012] EWHC 3124 (Comm) decision in which the English Commercial Court did not follow the Tokio Marine & Fire Insurance Company Ltd v Retla Steamship Company [1970] 2 Lloyd's Rep 91 United States Court of Appeal (Ninth Circuit) decision.

By way of introduction, there are two conflicting interests when issuing bills of lading. On one hand, it is in shippers' interests to have clean bills of lading issued and receive payment for goods shipped pursuant to a sale contract. On the other hand, it is in receivers/consignees' interests to have bills of lading accurately describing the goods shipped and to make payment for goods purchased under the sale contract. Carriers will often be under pressure from shippers or charterers to issue clean bills of lading contrary to the mate's receipt or pre-load survey. However, the carriers' P&I cover will typically exclude claims arising from a knowing misdescription of the goods. In the steel trade, there is a real difficulty determining whether bills of lading should be claused.

Most untreated steel shipped will have some degree of rust. Surface rust, which forms in a fresh water environment, is easily removed and seldom causes damage which reduces the commercial value of the cargo. Rust that forms in a salt environment can result in rapid deterioration of the cargo with pitting of the surface and may even reduce the cargo to scrap.

What is known as the RETLA Clause was developed as a convenient way of issuing a clean bill satisfying the interests of shippers and protecting the carrier from claims for damage to cargo which can be shown to be of a pre-shipment nature. The RETLA Clause is named for the Tokio Marine & Fire Insurance Company Ltd v Retla Steamship Company [1970] 2 Lloyd's Rep 91 United States Court of Appeals (Ninth Circuit) decision. In this case the front of the Bill of Lading had the following provision:

The Court of Appeals (Ninth Circuit) found, inter alia, that the RETLA Clause was not restricted to "light atmospheric rust" but that the carrier had not stated the apparent good order and condition with respect to rust or moisture whatever the severity. This decision has not been followed in all United States Courts and all jurisdictions and as a result there has been confusion about its effect.

RECENT DEVELOPMENTS IN THE LAW

The RETLA Clause came up for review again in the recent Breffka & Hehnke GMBH & Co KG and Others v Navire Shipping Co. Ltd and others (The SAGA EXPLORER) [2012] EWHC 3124 (Comm) decision. The manager of the ship's agent gave evidence that, having seen the surveyor's report, which included 16 pages of "Damage/Exception Prior to Loading", the shippers requested clean bills against letters of indemnity. The manager asserted that, on the basis of the Retla clause included on the front of the printed form of the bill of lading, he considered there was no need to clause the bills. Accordingly, he signed and released the bills.

Contrary to the United States Court of Appeals (Ninth Circuit) the English Commercial Court found that the RETLA clause did not contradict the representation as to the cargo's good order and condition, but was a qualification that there was an appearance of rust and moisture of a type which might be expected to appear on any cargo of steel: superficial oxidation caused by atmospheric conditions. The exclusion of "visible rust or moisture" from the representation as to the good order and condition was directed to superficial appearance of a cargo which was difficult, if not impossible, to avoid. It did not extend to all rust of whatever severity. Accordingly, the judge concluded that the issuing of clean Bills of Lading amounted to a false representation by Owners.

The only safe way to avoid claims arising from preshipment damage is to ensure that the bill of lading is properly claused to reflect the apparent order and condition of the cargo. The RETLA clause can only apply to superficial appearance of cargo, which highlights the importance of the master's duty to form an honest and reasonable non-expert view of the cargo when deciding whether to clause bills of lading.

Originally published in July 2013

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