The Court of Appeal has recently dismissed the disponent owners' appeal in the Tai Prize and has held that voyage charterers are not liable towards owners for losses caused by misdescription of cargo in bills of lading.

Key facts

The dispute before the Tribunal and the Courts concerned a cargo of soya beans from Brazil which was loaded in a damaged condition. The draft bill of lading presented by the shippers to the Master for signature contained the statement that the cargo was "in apparent good order and condition." An LMAA arbitrator found as a fact that the beans were damaged before loading, that on inspection the damage would have been apparent to the shippers - and only to the shippers - and that they were imputed to have knowledge of the damage. The Tribunal also held that the master could not reasonably have discovered the damage to the cargo due to the means of loading. On discharge in China, receivers brought a successful claim against the head owners. Head owners sought to recover 50% of that liability from the disponent owners under the Inter-Club Agreement and a settlement was agreed between those parties. The disponent owners then sought to recover their liability from the voyage charterers on the basis that the cargo should not have been described by shippers as being in "apparent good order and condition" in the draft bill of lading and that the Master was not in a position to make his own assessment of its actual condition.

The Tribunal found that voyage charterers were obliged to indemnify the disponent owners in the circumstances. Voyage charterers appealed and the judge at first instance reversed the arbitrator's findings on the grounds that the words "apparent good order and condition" were a statement by the Master, not by the shippers. Disponent Owners appealed to the Court of Appeal.

The Court of Appeal's findings

Disponent Owners sought to uphold the arbitrator's decision before the Court of Appeal that they were entitled to an indemnity because the condition of the cargo was misdescribed in the draft bill of lading; the master had no means of identifying the misdescription which, on the findings of the arbitrator, had caused the loss.

The Court of Appeal upheld the decision of the first instance judge. The leading judgment was given by Lord Justice Males, with whom Bean LJ and Rose LJ agreed.

The Court of Appeal held that (1) the words "apparent good order and condition" in the draft bill of lading were only an invitation to the master to make his own reasonable assessment of the cargo, and did not amount to a representation by the shippers, (2) that so construed, the description in the draft bill of lading was not inaccurate, and (3) there was no necessity to imply an indemnity in the circumstances, applying the Nogar Marin [1988] 1 Lloyd's Rep 412.

However, the judgment left open the question of what the result would have been had charterers/shippers been shown to have actual, rather than imputed knowledge of the defective condition of the cargo, having some sympathy for Disponent Owners' submission that in such circumstances, it might be unfair for a charterer to escape liability and for the loss to be left with an intermediate time charterer.

What happens next?

Unless the decision of the Court of Appeal is overturned by the Supreme Court, the law as it now stands is that owners may have no recourse against their charterers where the cargo is loaded in a condition that leads to a claim by receivers upon discharge. This is so even in circumstances where the shippers are the only party which could have knowledge of the cargo's actual condition on loading and where the Master has no way of carrying out his own assessment.

The judgment could be seen as an encouragement to charterers/shippers to misdescribe the condition of the cargo on a draft bill of lading, describing it as in good order even if they have not carried out a detailed inspection or even if they are aware of pre-existing cargo damage.

Owners (and their Clubs) may therefore need to consider whether to take more steps to verify the condition of the cargo before signing a draft bill of lading presented by the shippers stating that the cargo is in "apparent good order and condition". Charterers (and their Clubs) may need to consider the impact of express indemnity clauses to cover similar circumstances, which owners might now feel they need to include in voyage charters.

Originally published 29 January 2021

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