England and Wales High Court (Admiralty Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT




Before:
THE HON MR JUSTICE COLMAN

		Royal Courts of Justice Strand London, WC2A 2LL
		31 May 2002

 
The Hon. Mr. Justice Colman

25 November 2002

Introduction

This action arises out of a dispute between cargo and shipowners relating to the nature of the duty of a master into whose vessel goods are loaded for carriage under a bill of lading contract as to the issue and clausing of bills of lading. In particular, it raises the question in what circumstances is a master entitled to decline to sign clean bills of lading.

The answer to that question is of considerable importance to the shipping industry. Clean bills of lading are essential documents for the purpose of triggering the right to receive payment under documentary credits issued in respect of contracts for the international sale of goods. If claused bills of lading are presented under such documentary credits they will ordinarily be rejected by the buyers' banks and sellers will be unable to obtain payment in the absence of special agreements with the buyers to permit the banks to make payment. Indeed, the inability of sellers to present clean bills of lading may operate as a repudiatory breach of the sale contract.

Conversely, if clean bills of lading are issued in respect of goods received by the vessel otherwise than in apparent good order and condition, the shipowners will be estopped as against an indorsee for value or against a person taking delivery against the bills from asserting that, at the time of loading, the goods were not in apparent good order and condition. In cases where the Hague-Visby Rules apply, and nowadays there are very few cases where they do not, a clean bill of lading is, by operation of Article III rule 4, prima facie evidence of the receipt of the cargo by the carrier in apparent good order and condition and when the bill has been transferred to a third party acting in good faith it is conclusive evidence of the apparent order and condition. Consequently, issue of a clean bill when the goods are not in truth in apparent good order and condition will in many cases expose the shipowners to a high risk of liability for defects in the order or condition of the goods which existed at the time when they were received by the vessel.

It may therefore fairly be said that the statement in bills of lading as to the apparent order and condition of the goods will in many cases be of fundamental importance to the operation of international contracts for the sale of goods carried by sea and to the operation of contracts for the carriage of goods by sea. Whereas it is common enough to encounter an allegation that a master has issued clean bills of lading notwithstanding the apparent condition of the goods when they were received on board, it is relatively uncommon to encounter an allegation, like that in the present case, that the master has claused bills of lading when he had no basis for doing so.

The issues which arise in this case can be divided into three groups as follows.

The Clausing Issue This divides into the following sub-issues.

(a) What duty, if any, does the law impose upon shipowners or other carriers in respect of the master's clausing of bills of lading?

(b) Was the actual apparent order and condition of the goods at the time of loading such as to justify the description of the goods which the master inserted in the bills of lading?

(c) Did the master's clausing of the bills of lading amount to a breach by the shipowners of the contract of carriage?

(d) If the shipowners were in breach, what loss was caused by that breach?

Title to sue The defendant shipowners contend that the claimants have no title to sue. As finally formulated, the defendant's case is that the ultimate receivers or their buyers had title to sue.

The Berthing Claim The claimants contend that the master unjustifiably declined to take the vessel into its discharging berth at Beihai, China, at the time when the Harbour Master had indicated that this should be done, in consequence of which the claimants suffered additional expenses by way of payments to the port authority.

Although title to sue is logically the first issue, I have listed and propose to determine the Clausing Issue first since that has occupied by far the greater part of this trial and because it raises an issue of the widest importance.

Outline of the Facts

On 13 January 1995 there was entered into a time charter of the Maltese vessel DAVID AGMASHENEBELI ("the Vessel") by its owners, Georgian Shipping Company of Valetta, to Meezan Shipping and Trading Inc of Toronto for minimum 9 months/maximum 11 months in charterers' option. The charter was subject to the Harter Act, 1893, and the USA Clause Paramount. Clause 8 of the time charter which was on the amended NYPE form provided that the Master would prosecute the voyages with the utmost despatch and further that the charterers were "to load, stow and trim and discharge the cargo at their expense under the supervision and responsibility of the Captain, who is to sign, if required to do by charterers, Bills of Lading for cargo as presented, in conformity with Mate's or Tally Clark's receipts".

On 4 April 1995 Transmarine Ltd of Columbus, Ohio sold to Agrosin Pte Ltd of Singapore 35,000 metric tons of urea in bulk at $180 per metric ton FOB Kotka, Finland. The goods specification was "white colour, free flowing, free from contamination, prilled form, treated against caking, free from harmful substances, production of Novgorod Acron, Russia who is supplier". Buyers were to insure the cargo. The goods were to be paid for by:

1. prepayment of a partial (but as yet unspecified) amount of the FOB value before shipment;

2. the balance on a bill of collection basis payable in 5 days from the date of receipt of a telex or fax from the supplier that the shipping documents specified had been sent from Murmansk, Novgorod or Moscow to Agrosin by courier at a stated date. The specified documents included a bill of lading or mate's receipt issued to the order of the buyers (Agrosin) and a certificate of quality issued by Independent Inspection at the port of loading.

The goods were to be shipped 20 April - 5 May 1995, the date of the bill of lading or mate's receipt to be considered the date of shipment.

On 10 April 1995 the sale contract was amended to provide that the prepayment was to be made by 13 April to Acron directly. The invoice was stated to have been sent on 6 April 1995.

Also on 10 April 1995 Agrosin sold to Grand Prestige Enterprises of Hong Kong 35,000 metric tons urea in bulk at a price of US$238.75 per metric ton C&F Free Out CQD one safe berth, one safe port South China for delivery during May 1995. Payment was to be by letter of credit 90 days at sight. Amongst the documents to be presented under the letter of credit were a full set of clean on board bills of lading and a certificate of quality to be issued by Independent Inspection or their agents.

On 13 April 1995 Agrosin instructed its bank, the Hong Kong and Shanghai Banking Corporation Ltd, Beach Road, Singapore branch to pay Moscow Narodny Bank, London US$3.15 million for AD Acron, Novgorod. This was the contractual prepayment under its amended contract with Transmarine.

Agrosin, consistently with its obligations as FOB purchaser, commenced negotiations for the charter of the Vessel from Baff Shipping, Riga. The latter company on 19 April 1995 entered into a voyage charter under which it chartered the vessel from Meezan who in turn had time-chartered it from Georgian Shipping as already described. Under that charter the vessel was to load 35,000 metric tons 10% more or less in Owners' option of bulk prilled urea at 1/2 safe berths Kotka, and to discharge at 1/2 safe berths, 1 safe port China, charterers guaranteeing 11.5 metric tons draft summer and winter. Clause 45 provided:

"Under supervision of independent surveyor together with Master's/Officers' assistance no damaged cargo to be loaded into the holds. If such fact will take place Master has the right to stop loading but Charterers and Shippers to be immediately informed to arrange removing of any contaminations for Charterers' expenses/time.

Quantity/quality of cargo as determined by an International Independent Surveyor (SGS or another neutral international organisation) together with Master to be final and binding for both parties. Owners to be responsible for quantity of cargo taken on board."

By clause 49 Meezan was engaged to authorise their Singapore agents or representatives to sign and release "clean on board" bills of lading upon confirmation that charter freight had been paid to Meezan.

On the same day Agrosin appear to have sub-chartered the vessel from Baff on substantially the same terms as those of the Meezan - Baff charter. One document which evidences this sub-charter describes Georgian Shipping as the "owners", Baff as "charterers" and Agrosin as "Re-charterers". It included clauses worded similarly to clauses 45 to 49 of the Meezan-Baff voyage charter. The document which is unsigned and apparently incomplete cannot be an accurate record of any such sub-charter in as much as it introduces Georgian as owners and Baff as charterers as distinct from disponent or sub-chartered owners or head charterers. However, it is clear from Baff's telex of 20 April that Baff were indeed head voyage charterers from Meezan and Agrosin sub-charterers from Baff.

The vessel's chain of charters was therefore Georgian to Meezan (time charter), Meezan to Baff (voyage charter), Baff to Agrosin (sub-charter).

On the following day, 20 April 1995, Meezan instructed the vessel's master that the vessel was to load bulk urea under a voyage charter between Meezan and Baff for carriage from Kotka to China. Meezan stated that as soon as the charterparty or a working copy became available they would send it to the master.

The vessel arrived at Kotka and gave notice of readiness to load at 09.30 on 24 April 1995. It berthed at 12.05. It had 6 holds and had previously carried a coal cargo and a grain cargo before that. An inspection of the holds was conducted on behalf of Inspectorate Suisse SA, who had been appointed by Agrosin, by Mr Marius Kamper of Euroservice. He boarded the vessel with another surveyor, Mr Smirnov of Oy Finmor Services, instructed by Acron, the original suppliers of the urea. They were accompanied by the Chief Officer. Both surveyors formed the view that, although the holds had previously been washed, significant traces of the previous coal cargo remained, together with traces of rust and more washing was needed. They therefore rejected the holds as unfit for loading. A further inspection was made later that day. It was observed that the crew were indeed washing the holds but because they were not using detergent, the washing turned the coal remains into an oily residue on the walls of the holds.

Meezan appointed SGS Inspection Services to inspect the holds under clause 41 of the time charter and at 1430 on 25 April their inspector, Mr Karlsson, investigated the No. 1,2,3,5 and 6 holds and, although he found a "small amount" of coal dust and some rust on the walls of the holds, he considered that these were "minor defects easily mended" and concluded that the hold were "in reasonable good condition" and could "rather easily be made suitable for loading the intended cargo". Later that day Mr Karlsson accepted the holds as fit for loading. However, both Mr Kamper and Mr Smirnov were of the opposite view. Both of them issued letters of protest in view of the fact that the vessel proposed to start loading the next day. Discussions took place between representatives of the suppliers of the cargo, Meezan, and the receivers (Agrosin) the effect of which appears to have been that loading could commence on condition that the master would issue clean mate's receipts and bills of lading and sign a letter of indemnity in favour of Agrosin in respect of loss or damage which they might suffer due to the loading of cargo into holds which had not been further cleaned. However, the master did not sign any such letter of indemnity, although on 26 April 1995 Captain Hussain of Meezan sent a message to Agrosin and Baff confirming that a clean mate's receipt and bill of lading would be issued. On the same day Acron informed its local agents that with the assent of Agrosin it permitted the commencement of loading.

Loading commenced at 06.30 on 27 April 1995.

Within three hours of the commencement of loading the master sent messages to all parties stating that loading had commenced and that the cargo contained rust, plastics and other contaminants and was of a dirty colour. He held the charterers, suppliers and Agrosin fully responsible for the condition of the cargo, should there be claims by the receivers upon discharge. There then developed a running dispute between the master and Mr Kamper as to the state of the cargo as it was loaded. Mr Kamper asserted that its condition was "generally acceptable" although there were minor "single impurities from the wagons", small impermanent agglomerates, amounting to about 0.1 per cent and discolouration of about 0.1 to 0.2 per cent of the prills. It will be necessary to investigate the precise nature, extent and cause of the contamination and discolouration of the cargo later in this judgment. There is, however no doubt from the observations of the surveyors that there were at least some minor contaminants present, that some coal dust fell on to the surface of the cargo from the internal hold members and hatches and that the cargo loaded on 28 April was off-white and in holds No. 1, 3 and 4 the cargo was contaminated with red and yellow. Cargo waiting to be loaded in quayside stores was also heavily contaminated with "various fragments and dirty water which was dripping down on to the surface. Stripes of light pink urea (up to 300 metric tons) were also visible although not discernible in the cargo after loading".

The master drew up a letter of protest in respect of delay in commencement of loading and of the state of the cargo as loaded. It stated:

"Hereby we would like to draw your attention on following facts:- some part of cargo in all holds is moistured, discoloured. Some part of cargo yellow, some rose colour, some part of cargo nearest to grey colour. Also cargo contaminated with plastics, glasses, stones and other materials."

The document is dated 28 April 1995. It is addressed to Baff c/o FIMAG who were agents at Kotka appointed by Agrosin. Agrosin deny ever having received this protest. The defendants say that the letter was sent to FIMAG/Baff on 28 April. I am satisfied that by 29 April Agrosin had either received the letter of protest or knew what its contents were from information given to them by Baff.

On 3 May 1995 the surveyor, Mr Kamper, reported that about 26,500 metric tons had been loaded. He stated that about 0.1 per cent to 0.2 per cent of the prills were "somewhat discoloured yellow or beige of various shades", and further that "the loaded commodity is somewhat dirty in the surfaces in the ship's holds due to the using of dirty trimming equipment in the ship's holds".

On the same day a meeting took place on board between the master, Capt Hussain, of Meezan, Mr Kamper and Mr Karlsson (acting on Meezan's instructions). According to Captain Hussain, all present agreed that the following words accurately described the cargo:

"Cargo discoloured also foreign materials eg. plastic, rust, rubber, stone, black particles found in cargo".

Mr Kamper, who gave evidence before me, denied that he ever agreed that this wording accurately reflected what he regarded as trivial contamination and unimportant minor discolouration.

Loading was completed at 1820 on 4 May 1995. The master signed the statement of facts with the above wording set out in an appendix. Because Acron and Agrosin disputed that wording as appropriate for the mate's receipt, the master gave authority to FIMAG, Agrosin's agents, to sign a mate's receipt for 33,319.98 metric tons, but claused with the above wording. He did not sign it himself so that negotiations could take place after the vessel had sailed. However, when FIMAG declined to accept those instructions the master issued similar instructions to Oy Saimaa Lines (the ship owners' protecting agents) and they duly issued the mate's receipt with that wording.

The mate's receipt identified the shippers as Acron and the consignees as "to the order of Agrosin".

There then began a dispute involving the shipowners, Meezan, Baff and Agrosin as to whether similar clausing should appear in the bills of lading which had not yet been issued.

In the meantime, on 20 April 1995 Grand Prestige Enterprise, buyers of the cargo from Agrosin, had sold on the urea to Guangxi Publications Import and Export Co Ltd, payment to be by documentary credit. It was subsequently agreed between Agrosin, Grand Prestige and Guangxi that the documentary credit, which of course required the presentation of clean onboard bills of lading, should be utilised by Grand Prestige for payment of Agrosin. For that purpose, on 4 May 1995, Agrosin invoiced Guangxi direct as if Agrosin were seller under the sub-sale contract with Guangxi.

On 8 May Meezan made it clear to Baff that the shippers were not going to be given a clean mate's receipt or clean bills of lading because, as the master had made clear all along, the cargo was discoloured and contaminated and that had been substantiated by SGS and Agrosin's surveyor. The master had refused to issue a clean mate's receipt even in exchange for an indemnity undertaking from the shippers.

On 10 May 1995 Meezan again told Baff that a clean mate's receipt could not be issued because the cargo was contaminated. On the following day Agrosin presented two draft clean bills of lading to Baff for shipowners' approval. The description of the goods included "Bulk Urea", "colour white" and "Prilled Free Flowing at Loading Free from Harmful substances". The shipper was identified as Agrosin.

On 12 May 1995 the Shipowners informed their agents at Kotka, Oy Saimaa Lines, that their authority from the master to sign mate's receipts was subject to the inclusion of clausing similar to that in the master's letter of protest of 28 April except that it described "part of the cargo in all holds" as "wet and discoloured".

On 15 May 1995 Oy Saimaa Lines issued the mate's receipt to Steveco, the operators of the cargo store and stevedoring services at Kotka who were acting as agents for Acron. It was claused: "cargo discoloured also foreign materials eg. Plastic, Rust, Rubber, Stone, Black particles found in cargo". The shipper was stated to be Acron.

On the following day Agrosin informed Baff, Meezan and the Shipowners that a clean mate's receipt must be issued and that, the master having failed to exercise Owners' rights to stop the loading of contaminated cargo under clause 46 of the sub-charter, and in view of the loading port surveyor's report, if a clean mate's receipt and clean bills of lading were not issued, no freight would be paid.

On 18 May 1995 FIMAG sent on the original mate's receipt to Agrosin, naming Acron as shipper and the consignees as "to the order of Agrosin".

On 20 May 1995 Agrosin paid to Acron US$1 million the balance of the purchase price due under the purchase contract between Agrosin and Transmarine.

The vessel anchored off Singapore on about 5 June 1995.

The master had on 3 June informed all parties that the vessel's arrival draft in China would be 11.1 metres. Agrosin became concerned on account of information obtained by them that the maximum draft at Beihai was 10.5 metres. On 7 June 1995 Grand Prestige informed Agrosin that according to the Beihai Port Authority the high tide from 10 June would be 4 metres above the normal 8 metres draft. On 7 June 1995 the master asked for the nomination of Zanijang as the discharge port, instead of Beihai, because of the uncertainty as to the safe draft at Beihai.

On 16 June 1995 the Vessel arrived at Beihai and gave notice of readiness.

On the same day bills of lading were signed by Anglo-Georgian Shipping Company Ltd on behalf of the master. They were claused with the same words as the mate's receipt. They identified Agrosin as the shipper and described the urea in the same manner as the mate's receipt. The defendant shipowners instructed the master to discharge the cargo in accordance with the instructions of Agrosin's representatives at Beihai.

The circumstances in which the bills of lading came to be issued and the cargo discharged can be summarised as follows.

By reason of the refusal of the master to sign clean bills of lading there had developed by early June the usual shipping industry deadlock: Agrosin declined to pay the freight due under the sub-voyage charter with Baff; the latter withheld voyage charter freight from Meezan and the latter withheld time charter hire due to the shipowners under the head charter and the shipowners threatened to lien the cargo to secure their hire. Agrosin having paid Acron direct under its purchase contract, could not obtain payment under the documentary credit opened by Guangxi Publications. As the vessel approached the discharge port a solution to this problem had to be found. The vessel could not enter Beihai without bills of lading or deliver its cargo when it was there. By 10 June the vessel was hove to off the port. In the meantime, a further dispute broke out as to whether the available draft at Beihai rendered it an unsafe port and that was a further reason for the vessel's entry to the port being delayed.

Happily the expertise, ingenuity and good sense of the three London solicitors then involved, Clyde & Co (Agrosin), More Fisher Brown (Meezan) and Richards Butler (shipowners) encouraged the creation of a documentary and contractual structure which permitted discharge of the cargo. It can be summarised as follows.

On about 14 June 1995, pursuant to an award in a speedy arbitration conducted in London, Baff remitted the outstanding charter freight to Meezan and Meezan remitted the outstanding charter hire to the shipowners. Agrosin in turn remitted the sub-charter freight to Baff. Agrosin also presented the original (claused) mate's receipt to Meezan's Port Captain in Beihai. In return, the Port Captain, acting, I infer, on behalf of both Meezan and the shipowners released to Agrosin's representative at Beihai, Mr Jeremy Low, three original bills of lading out of three which had originally been issued in London. They were signed on behalf of the master, claused with the same words as the mate's receipt, but, as already indicated, they showed the shipper as Agrosin and were consigned to order. No reference was made to Acron. In the box headed "Place and date of issue" appear the words "London UK" and "as at Kotka Finland Port 4/5/95". Agrosin wished the bills to be presented to the Bank of China against Guangxi Publications' letter of credit, even though it required clean bills to be presented. According to the evidence of Mr Loukianov of Agrosin, they wanted to give Guangxi Publications the opportunity to waive the discrepancies. The ingenious device agreed upon by all relevant parties therefore involved both the presentation of the claused bills of lading to the ship and subsequently to the bank. The normal routeing of the bills of lading, involving indorsement by presentation of "live" bills to the bank, against payment, followed by release by the bank to the purchaser, followed by presentation by the purchaser to ship, was thus changed so that the vessel could start discharging into the possession of Agrosin, the beneficiary, with as little delay as possible. Agrosin presented the mate's receipt and accepted the claused bills of lading under protest and without prejudice to its rights under the bills of lading to challenge the entitlement of the master to clause the mate's receipt or the bills. In accordance with the parties' agreement, Agrosin then presented the three bills back to the shipowners' representative in London who then marked two out of three "Accomplished" and returned those two bills to Agrosin' representatives, while retaining the third and issuing to Agrosin an acknowledgement of receipt by the ship of that bill. The obvious purpose of marking the two bills "Accomplished" was to indicate that their function as negotiable documents of title whereby the holder was entitled to obtain delivery from the ship was thereupon exhausted. Following completion of this exercise, the discharge of the cargo commenced.

On 21 June 1995 Agrosin's bank (HSBC) sent the claused bills of lading together with the relevant shipping documents to the Bank of China who received them on 26 June. They were not accepted against the letter of credit.

I shall consider in detail the events relating to the delay in berthing of the vessel when I come to consider the Berthing Claim.

On 25 June 1995 the vessel went alongside at 1600 and started discharge at 0100 on 26 June.

Following the discharge of the first 600 metric tons the SGS inspector appointed by Agrosin informed his office that a small part of the cargo surface was slightly wet and that a "very few quantity of small coal pieces" were in the cargo. The Inspectorate surveyor observed "seldom amount of rust and coal dust on the surface of the cargo"; both coal dust and rust appeared to have dropped from the hatch covers. On 27 June SGS reported to Agrosin that hatch no.s 1, 2, 4 and 5 having been opened, the cargo surface was found very slightly wet mostly due to condensation which was stated to be normal. Surface cargo was also found very slightly contaminated by coal dust and rust which was considered to have dropped from the hatch covers and not to be serious.

On 28 June 1995 SGS-CSTC reported to Agrosin that on the previous day in hatch no. 4 the inspector found rain water together with coal dust dropping down on the cargo and contaminating a small part of the surface and further:

"most of the cargo was found in white colour, only a very small part was in yellowish colour".

Agrosin by their fax of the same day asked about the quantity of yellowish cargo and, later that day, SGS replied that while that was very difficult to estimate as they only saw the surface they could say that less than 0.1 per cent of the total surface area was yellowish. That might be caused by rust water.

On 4 July 1995 the Inspectorate surveyor reported that he had found on the opening of hatches no. 3 and 5 coal dust and rust on the surface of the cargo "conspicuously".

In the event Guangxi Publications' bank having declined to accept the claused bills of lading, the market price of urea had fallen since their purchase contract had been entered into and Guangxi would only agree to take delivery if the price were reduced. It was therefore considered desirable by Agrosin to negotiate a settlement with its buyers and Guangxi. In the course of negotiations with Grand Prestige a reduced price of US$230.00 per metric ton was agreed.

On 8 July 1995 Grand Prestige sent a fax to Agrosin confirming settlement discussions to the effect that the price of the urea shown in the invoice to be issued by Agrosin to Guangxi Publications in accordance with the agreement made about 4 May 1995 was to be reduced from $250.80 to $230.00 C&F FO, CQD Beihai, the letter of credit to be amended accordingly. Taking into account $2 per metric ton commission to Grand Prestige, bank interest and refund of the cost of an import permit, the net payment to Agrosin was reduced to $223.45 per metric ton. There were to be no more claims on Agrosin as to the quality of the cargo. These amended terms were accepted by Agrosin on 8 July 1995.

Eventually, on 26 July 1995 Agrosin discounted the letter of credit with its bankers, HSBC, presumably with the consent of Guangxi Publications pursuant to their agreement with Grand Prestige. That paid it more than the reduced price of the Urea less the other agreed deductions (US$ 223.45 per metric ton) and Agrosin then reimbursed Grand Prestige the amount of the excess ($218,245.87). The process of discounting the letter of credit involved the transference of the bills by Agrosin to HSBC and by HSBC to Bank of China who had acknowledged receipt of them on 21 July 1995. It is, however, to be observed that the negotiation of the letter of credit was no ordinary transaction whereby the bills of lading were utilised as negotiable instruments and documents of title to the cargo. What ordinarily would have happened would be that "live" bills of lading would be indorsed to the bank against payment to the beneficiary and the bank would then release the bills to its customer who then present them as negotiable documents of title by reason of which delivery by the vessel could be procured. Following discounting of the letter of credit by its bank, Agrosin released the cargo to its buyers.

On 19 July 1995 the Inspectorate surveyor reported in respect of cargo in hatches 3 and 4 as observed before and during discharge. He noted that in Hatch 3 a "seldom" amount of coal dust and rust which had dropped from the hatch cover were found on the surface. In hatch no. 4 the cargo was similarly affected. The surveyor also noted that the master had first complained that the whole cargo in hatch no. 3 was dark yellow. The surveyor said that from his own visual inspection, it was white.

On the same day SGS reported to Agrosin that the cargo in hatches 1 to 6 was found white and "in apparent good condition". However, a very small area of the surface cargo was "slightly" discoloured (grey or yellowish) caused by rust dust with rain water dropping down on the cargo surface during opening and closing of the hatch covers. Also an extremely small and negligible quantity of the cargo was affected by shore grab and shore crane paint and dirt.

On 26 July 1995 SGS-CSTC further reported in respect of holds 1 to 6 inclusive that coal dust and rust were mixed with a small part of the cargo due to the stevedores' conduct. They were said to be collecting dirty sweepings on deck and then throwing them back into the holds.

On 7 August 1995 Inspectorate reported to Agrosin that in No.2 hold, in addition to coal dust and rust on the cargo surface, a few parts of the cargo were found to be hardened, holed and with conspicuous "greyish and yellowish lines" on the cargo surface. He attributed this to leaking rainwater during discharge which had become mixed with coal dust and rust. The cargo in No. 4 hold was dirty on the surface having been stained in the course of sweeping by the excavator. It was also slightly wet from rainwater. The cargo in hold 6 was similarly affected to that in hold 2, but it also had one small part which was coloured brown (as in holds 1, 2, 3 and 4) and which was thought to be stained by wheat from a previous cargo and which was mixed with rust during trimming.

On 17 August 1995 - SGS-CSTC reported to Agrosin having found in the course of discharge discoloured, mostly grey, cargo in "horizontal thin layers". The surveyors thought that this was due to rain water mixed with coal dust from the internal hold structure during loading.

The receivers complained to the master on 21 August 1995 that many parts of the cargo were contaminated by coal dust and rust caused by the vessel and that there was also water damage which made the cargo very dirty and hard and difficult to discharge.

Discharge was completed on 23 August 1995.

By an Inspection Report dated 31 August 1995 SGS-CSTC reported that, on arrival at the discharge port, cargo in all hatches was visually found "in apparent normal condition and in white colour, excepted rust scales and dust and coal dust stains appeared laid in lines over the cargo surface athwart .... at the hatch way area". It attributed this to the dropping of rust scale or dust and coal dust from the hatches. There were also concavities in the cargo and part of the cargo was slightly caked neared those concavities. This was said to be most likely due to water leaking from the hatch covers. Also rain falling during discharge led to the frequent opening and closing of hatches which in turn caused rainwater mixed with coal dust and rust scale to drop onto the cargo surface forming conspicuous black, yellowish brown lines. In all holds cargo attached to shell plating, frame spaces and bulkheads was found to be contaminated by rust from the ship, dust and coal dust. Wheat or corn was found from previous cargoes and in some holds there was free water. The Report concluded that according to their random inspection and analysis results "the cargo itself was found in normal condition, free flowing and white in colour". All the stains, contamination, discolouration and wet damage were caused by the unclean condition of the cargo holds and various parts of the ship's structure and/or rainwater (due to hatch covers leaking) mixed with coal/rust dust from the ship and/or dirty shore grabs and/or oil leaking from the bulldozer at discharge. The total quantity of damaged or contaminated cargo was estimated at 279.2 metric tons, ie. 0.8 per cent. Their inspection found "no evidence of foreign materials such as plastic, rubber and stone as mentioned in the master's remarks on the bill of lading".

A report by Inspectorate Beihai, also on behalf of Agrosin, dated 5 September 1995 was to substantially similar effect - the cargo being in normal condition and white in colour when the hatches were first opened "with the exception of loose rust scales in places and stains of coal dust apparently laid in lines over the cargo below the hatches. The several concavities and hollows were noted and said to be due to hatch leakage during the voyage.

The Clausing Issue: the Duty of the Shipowners

The claimants' submissions may be summarised as follows:

(i) Article III rule 3 of the Hague-Visby Rules, which both sides accept were incorporated into the bill of lading contract, provides as follows:

"After receiving the goods into his charge, the carrier, or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing, among other things -

(c) The apparent order and condition of the goods..."

The effect of that provision is to impose a duty on the carrier that the bill of lading issued to the shipper shall accurately show the apparent order and condition of the goods.

In particular, it is not sufficient for the bills of lading to show the apparent order and condition which the master or other agent of the carrier honestly believed them to be in if the description does not accurately describe the actual apparent order and condition.

(ii) The claimants argue that, as a matter of principle, the commercial function of a bill of lading demands that it should objectively accurately describe the apparent order and condition of the goods. To limit the duty to one of honesty would greatly decrease the utility of a bill of lading as a key document in particular as a negotiable instrument under the sale contract and as evidence of the condition.

(iii) The claimants rely in particular on the judgment of the Court of Appeal in The Arctic Trader [1996] 2 Lloyd's Report 449 at pages 456 to 459 and in particular the passage at page 458R in which Evans LJ. described as an "unqualified" or 'absolute' contractual undertaking" (emphasis added) the duty of the owners to the shipper under Article III rule 3(3) to issue on demand a bill of lading which stated the apparent order and condition of the goods.

(iv) The claimants further rely on a passage from the judgment of Channell J. in Compania Naviera Vasconzada v. Churchill & Sim [1906] 1 KB 237 at page 245 which refers to the "duty" imposed on the master under the Harter Act, section 4, to insert in the bill of lading a "true statement" as to the condition of the goods.

(v) Alternatively, apart from the Hague Visby Rules, there was an implied term of the contract of carriage under which the owners were under a duty to the shippers that the master would only sign bills of lading which accurately stated the apparent order and condition of the goods, the specific duty of the master being to exercise the judgment of a responsible and reasonable ship's officer when assessing the apparent order and condition of the goods and when deciding whether or not to clause the bills of lading. In this connection the claimants rely on The Arctic Trader, supra, at p 456L, The Hawk, [1999] 1 Lloyd's Rep 176 at page 185R and the earlier decision of the Court of Appeal in The Nogar Marin [1988] 1 Lloyd's Rep 412 at page 422.

(vi) If the master is unsure whether to clause the bills of lading, the claimants submit that he should take advice, if necessary, from a source independent of the shippers.

(vii) Apart from the terms of the contract of carriage, the owners, through their master were under a duty of care in tort owed to the shipper to exercise reasonable care not to misrepresent in the bills of lading the apparent order and condition of the goods. The claimants rely on the developing law with regard to liability for negligent misstatements following Hedley Byrne v. Heller & Partners [1964] AC 465 and Caparo v. Dickman [1990] 2 AC 605, culminating in Spring v. Guardian Assurance [1995] 2 AC 296. It is submitted that the three tests in Caparo are satisfied. In particular (a) loss to the shipper/holder caused by inaccurate clausing is reasonably foreseeable; (b) a relationship of proximity exists between the shipper/holder and the carrier arising out of their direct relationship as parties to the bill of lading contract and (c) it is fair, just and reasonable to impose a duty of care for otherwise the shipper/holder cannot use the bill of lading for one of its most important purposes, namely as a negotiable instrument and cannot recover damages from the shipowner whose negligence has caused the loss.

(viii) The claimants further support their submission on duty of care by reference to the considerations identified by Neill LJ. in James McNaughton Paper Group v. Hicks Anderson [1991] 2 QB 113 at page 125. In particular they submit that:

(a) the master's statement as to the apparent order and condition of the goods is made for the purpose of the indorsement of the bill as a key document in the transfer of title to the goods conformably with a sale contract;

(b) that statement is communicated for the purpose of sending it to the shipper who is an immediate party to the bill of lading contract and not a remote party;

(c) the relationship between the shipowner, shipper and any subsequent holder is a direct contractual relationship and the imposition of a duty of care would not conflict with any pre-existing or relevant contractual matrix, there being hypothetically, no alternative remedy for the shipper.

(d) the fact that the Hague-Visby Rules do not, on the relevant hypothesis, provide a remedy for the failure of a master to exercise reasonable care in respect of the issue of clean or claused bills of lading does not lead to the conclusion that there is no room for the co-existence of a duty in tort, for the function of the Rules is to identify an irreducible minimum obligation regime which cannot be diminished by contract. For example, there is the parallel duty of the carrier as bailee at Common Law;

(e) the class of those to whom any such duty of care would be owed is very small, namely the shipper and holders of the bill;

(f) the master as representor must know that the shipper and holders will rely on the accuracy of his statement for the purposes of transference of the bill as evidence of the apparent condition of the goods and as a document of title;

(g) it was reasonable for the shipper, as representee, to rely on the exercise of reasonable skill and care by the master in describing the apparent order and condition of the goods because the shipper is entirely in the masters' hands in relation to clausing.

(ix) Finally, the claimants submit that there was a duty of care arising from the relationship of bailment between the shipper as bailor and the master as bailee.

The defendants' submissions are as follows:

(i) For the purposes of the representation as to the apparent order and condition of the goods to be stated in the bill of lading by reason of Article III rule 3 what matters is not the actual apparent order and condition but what the representor as an ordinary and reasonably skilled master reasonably and honestly believes to be the apparent order and condition. For this purpose the master is not required to be a cargo surveyor or expert or to conduct tests or even a detailed examination or to engage cargo experts to advise him.

(ii) In any event, the representation in a bill of lading as to the apparent order and condition of the cargo does not give rise to a contractual undertaking either as to its accuracy or as to the skill and care employed by the master in reaching the conclusion expressed in the representation.

(iii) In support of proposition (i) the defendants rely on C. N. Vasconzada v. Churchill & Sim, supra, at page 245, and the observation of Channell J. in relation to the Harter Act, section 4, as an unskilled person the master is expected "to notice the apparent condition of the goods but not their quality" and to qualify the standard words of the bill, "shipped in good order and condition" ... "according to the truth", which, the defendants say, means conforming with the sincere and honest belief of the master. They also rely on the judgment of Scrutton LJ. in Silver v. Ocean Steamship Co Ltd [1930] 1 KB 416 at pages 425 - 426 approving the judgment of Sir Robert Phillimore in The Peter de Grosse (1875) 1 PD 414 at page 420 that "shipped in apparent good order and condition" means that "apparently and so far as met the eye, and externally they were placed in good order on board, and further on the observations of Greer LJ. at p434 - "such reasonable examination as can be expected when goods of this kind are delivered for shipment under the conditions necessarily prevailing, that is to say, delivery by night" and of Slesser LJ. at p 439 - "what was apparent to anyone". They also rely on the judgment of Branson J. in National Petroleum Co v. Athelviscount (1934) 48 Ll L Rep 164 at page 170.

(iv) In support of proposition (i) the defendants also relied on a number of Continental and American authorities. The decision of the High Court at Brussels in The SS Rosario (3 Nov 1967) is summarised as concluding:

"In order to satisfy his legal obligation to describe the apparent order and condition of the goods in the bill of lading, the Master is not held to be a surveyor or to proceed to research and exhaustive examination.

When there is nothing to stop the conclusion that a superficial thawing of frozen meat would not but escape a normal examination by a competent and conscientious Master, the latter cannot be held liable for having omitted to insert exceptions in the bill of lading."

In The Korle Lagoon (24 June 1971) the same court held that in relation to statements in the bill of lading in respect of a timber cargo:

"The captain is not held to be a timber expert but a minimum experience is expected from him so that he will not be confused between 150 tons of fine quality timber and 68 tons of mediocre quality timber."

(v) Mr Hofmeyr QC on behalf of the defendants also unearthed the decision of the US District Court for the Southern District of New York in Sidney J. Groban and Union Tractor Ltd v. SS Pegu and Elder Dempster Lines Ltd (1971) 331 F Supp 883 in which the issue was whether the master had claused the bills so as to indicate adequately the apparent order and condition of a cargo of tractor parts by the words "cargo loaded in secondhand condition". I shall have to return to this decision in this judgment. However, it was observed that the carrier was under no obligation to detail the specific reasons for that description. The ship's officers "could scarcely be expected to be expert in describing the condition of a shipment of tractor parts such as this. The bill ..... was claused to indicate the condition of the goods as it reasonably appeared to them".

(vi) It is submitted these cases support the proposition that all that a master is required to do is honestly to state the external condition of the cargo as it meets the eye of a master who is not an expert in the cargo in question.

(vii) As to proposition (ii) that the statement as to the apparent order and condition of the goods are not words of contract, the Defendants rely on the judgment of Channell J in C.N. Vasconzada v. Churchill and Sim, supra, in relation to section 4 of the Harter Act and in particular the following passage at pages 246 – 247:

" It seems to me that the contract is to deliver the goods in the same condition as that in which they are shipped, coupled with an acknowledgment that the condition at the time of shipment, was good. The words "shipped in good order and condition" are not words of contract in the sense of a promise or undertaking. The words are an affirmation of fact, or perhaps rather in the nature of an assent by the captain to an affirmation of fact which the shipper may be supposed to make as to his own goods. So far, therefore, as the words of the bill of lading, apart from the incorporation of the Harter Act, are concerned, I see no contract that the condition of the goods is correctly described. The 4^th section of the Harter Act makes it the duty of the captain to insert in the bill of lading a statement as to the condition of the goods, and I agree that this means that he is to make a true statement; but I have difficulty in seeing that the clause that the bill of lading is to be "subject to all the terms and provisions and to the exemptions from liability contained in" the Harter Act imports a contract that the statement as to the condition of the goods is true. I think, therefore, though not without some doubt so far as the effect of the incorporation of the Harter Act is concerned, that the cause of action must be based on estoppel, and not on breach of contract".

(viii) The Defendants also rely on observations of Devlin J. in Heskel v. Continental Express [1950] 83 Ll L . Rep. 438 at page 455 and of Mocatta J. in V/O Rasnoimport v. Guthrie & Co. Ltd. [1966] 1 Lloyd's Rep 1 at page 7R to the effect that "words in a bill of lading as to the quantity of goods shipped, like those as to their apparent order and condition are not…….words of contract in the sense of a promise or undertaking. They are at most an affirmation of fact or a representation."

(ix) In The River Gurara [1998] QB 610 at 625 Phillips L.J. held that as a matter of construction of Article III of the Hague 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." The Defendants rely strongly on Article III rule 3 which they submit contains no requirement of accuracy in such statements and rule 4 which explicitly defines the function of the statement in the bill of lading as "prima facie evidence of the receipt by the carrier of the goods as therein described....."

(x) The Defendants criticise the judgment of Evans L.J. in the Court of Appeal in The Arctic Trader [1996] 2 Lloyd's Rep. 449 at page 458 in as much as it referred to an absolute contractual duty under Article III rule 3 (3) to issue a bill of lading which stated the apparent order and condition of the goods. Such a duty was inconsistent with the wording of Rule 3(3) and (4). The latter expressly confined the consequences of the bill of lading stating the order and condition to be prima facie evidence of the facts stated and did not extend to any promissory effect. Further Rule 3(5) made it clear that, at least as regards marks, number, quantity and weight, the shipper having been deemed to guarantee the accuracy of what he informed the carrier, there could be no countervailing obligation of accuracy on the part of the carrier.

(xi) In The Boukadoura [1989] 1 Lloyd's Rep. 393 at page 399L Evans L.J. had held that there was an implied term of a charterparty that the bills presented by the charterer for signature should not contain a description of the goods which was known to be incorrect. By parity of reasoning the shipper must be under a similar duty to the owner in respect of the apparent order and condition of the goods as described in the bill.

The Clausing Issue: Discussion.

It is necessary to keep in mind two areas of distinction which underlie the analysis of this issue.

Firstly, a bill of lading has two distinct functions: (i) as evidence of the contract of carriage and (ii) as a receipt and document of title to the goods laden on board.

Secondly, whether the carrier's duty in respect of the statement in the bill of lading as to the apparent order and condition is of a contractual nature is a distinct issue from the question what scope that duty has and in particular whether it is duty of care or analogous to a duty of care or whether it is merely a duty honestly to state the apparent order and condition of the goods.

The starting point in this analysis is to identify the function of the statement of the order and condition of the goods in a bill of lading. For this purpose it is necessary to go back to the issue of the bill. It is the shipper or the shipper's agent who in the ordinary way tenders the bill to the carrier or the carrier's agent, usually the master, for signature. In so doing, the shipper invites the carrier to acknowledge the truth of the statement in the tendered bill as to the order and condition of the goods which the shipper has delivered into the possession of the carrier pursuant to the contract of affreightment. In determining whether the carrier by the master's or other agent's signature accepts contractual responsibility for the accuracy of the statement as to the condition of the goods it is relevant to take account of the fact that it is the shipper or his agent who is delivering the goods and that accordingly any such statement would be as to facts of which he must already have actual or imputed knowledge. Further, because the shipper already has that knowledge he cannot be said to rely on the accuracy of the statement. His requirement goes no further than the need to obtain from the carrier a receipt for the goods in appropriate form. The tender for signature of a bill which states the order and condition of the goods is thus an invitation to the carrier to express his acknowledgment of the truth of the statements in the bill. As such it is an invitation to make a representation of fact as distinct from a binding promise as to the accuracy of the represented facts. The purpose of making that representation is to record the carrier's evidence as to his receipt of the goods and as to their apparent condition when he did receive them for carriage. Given that bills of lading are negotiable instruments, the specific function of recording that evidence is to inform subsequent holders of the facts represented, for those facts are likely to be relevant to their exercise of contractual rights against sellers of the goods or, indeed, the carriers themselves.

Against this background, it is not difficult to see why it has been said in many of the authorities on the Harter Act, the Hague Rules and the Hague-Visby Rules that those codes stop short of imposing on the carrier any contractual obligation as to the accuracy of that which is stated in the bill as to the order and condition of the goods.

Moreover, the wording of Article 3 Rules 3,4 and 5 of the Hague Rulges and their successor, the Hague-Visby Rules, is clearly consistent with this analysis. It imposes a contractual duty to issue a bill of lading containing the information specified but by Rule 4 provides only that such statements are to be prima facie evidence of the facts stated. That is to say, it is always open to the carrier to adduce evidence displacing what would otherwise be concluded from the statements in the bill of lading. Where, however, the bill has been transferred to a third party acting in good faith there is an estoppel as to the accuracy of the statements: the carrier is precluded from proving the contrary. Whereas at Common Law the rules of estoppel may in certain circumstances preclude the carrier as against the lawful holder of the bill from the opportunity to displace such conclusion: cf CN Vasconzada v. Churchill [1906] 1 KB 237, and see generally Scrutton on Charterparties, 20th Edition, pages 111-112, there is no decision in any authority before The Arctic Trader which suggests that the carrier contractually warrants either the accuracy or the exercise of reasonable care in relation to the accuracy of such statements in the bill of lading.

The Arctic Trader, supra, raised the question whether there was to be implied into a time charter a term which imposed on the shipowners through their master a duty of care to clause mate's receipts if the cargo was not in apparent good order and condition. The arbitrator concluded that there was such a term and that the shipowners through their master were in breach of it. The Court of Appeal dismissed an appeal from Tuckey J. who allowed an appeal against the arbitrator's conclusion. He did so on the ground that there was no such contractual duty owed to the charterer or person who presented the bill of lading. The Court of Appeal concluded that the existence of such a duty was not relevant on the facts because the shipowners could not have been in breach of it. The shippers and charterers' agent had persuaded the master to issue mate's receipts which inaccurately stated that the goods were in apparent good order and condition. In any event, since the charterers knew that the condition of the goods was such that bills of lading ought to have been claused, they could not have suffered any loss by reason of the issue of clean mate's receipts. At pages 458 –459 Evans L.J. referred to the objections to implying such a term into a time charter in respect of statements in a bill of lading by reference to the observations of Mustill L.J. in The Nogar Marin [1998] 1 Lloyd's Rep 412 at page 421 in respect of what was described as the "unanswerable argument on causation". Against this background Evans L.J. left open the question whether there was any such implied term in the time charter (page 459L).

The claimants rely heavily on a passage in the Court of Appeal judgment at page 458L.

"The duty owed to shippers under art.III, r. 3(3) of the Hague Rules is to issue, on demand, a bill of lading which states "(c) the apparent order and conditon of the goods". This requires an accurate statement of fact. (We would reject Mr. Hamblen's somewhat extreme submission that the duty can be discharged by making any such statements, whether accurate or not.) It is moreover, in our judgment, an unqualified or "absolute" contractual undertaking, not merely one which the shipowner, or the master, must take reasonable care to perform. However, since making an accurate statement as to the apparent order and condition of goods may involve some degree of skill and expertise, though it does not necessarily do so, then in such cases the distinction between a duty to exercise reasonable skills and care in making an accurate statement, on the one hand, and a contractual duty to base the statement on the exercise of reasonable skill and care, is of no practical relevance. But one should not, in our judgment, lose sight of the fact that the duty is to make an accurate statement in the circumstances of the case."

It is common ground that this observation was obiter. That the effect of Article III Rule 3 is to impose some contractual duty on the carrier is beyond argument. The master or carrier's agent must at least issue to the shipper on demand a bill of lading showing the specified information. Refusal to issue any bill of lading accurate or not in respect of the goods received on board would thus be a breach of the contract of carriage in respect of which the shipowner would be liable to the shipper. But that duty is more specifically defined in as much as Rule 3 (a), (b) and (c) specify those matters which the bill of lading is required to show, including "the apparent order and condition of the goods".

A refusal to issue a bill which made any statement as to the apparent order and condition of the goods would thus be a failure to comply with the contractual obligation imposed by the rule.

If there is a contractual obligation to the shipper that the bill of lading should state the apparent order and condition of the goods, how is that duty to be performed? In my judgment, the general effect of the authorities is that the duty requires that the master should make up his mind whether in all the circumstances the cargo, in so far as he can see it in the course and circumstances of loading, appears to satisfy the description of its apparent order and condition in the bills of lading tendered for signature. If in doubt, a master may well consider it appropriate to ask his owners to provide him with expert advice, but that is a matter for his judgment. In the normal case, however, he will be entitled to form his own opinion from his own observations and the failure to ask for expert advice is unlikely to be a matter of criticism. For this purpose the law does not cast upon the master the role of an expert surveyor. He need not possess any greater knowledge or experience of the cargo in question than any other reasonably careful master. What he is required to do is to exercise his own judgment on the appearance of the cargo being loaded. If he honestly takes the view that it is not or not all in apparent good order and condition and that is a view that could properly be held by a reasonably observant master, then, even if not all or even most such masters would necessarily agree with him, he is entitled to qualify to that effect the statement in the bill of lading. This imposes on the master a duty of a relatively low order but capable of objective evaluation. However, the Defendant's submission that he need do no more than honestly state his view is, in my judgment, to put it too low, although no doubt in most cases the result will be the same. Nevertheless, the master who honestly takes an eccentric view of the apparent condition of the cargo which would not be shared by any other reasonably observant master would not be justified in issuing bills of lading which were qualified to reflect his view. In so far as the observations of the Court of Appeal in The Arctic Trader, supra, which were strictly obiter, suggest any higher duty on the master, I am not persuaded that they accurately express the effect of Article III rule 3.

Likewise, the extent to which and the terms in which the master considers it appropriate to qualify the bills of lading statement as to the order and condition of the cargo is again a matter for his judgment. Reasonably careful masters might use different words to describe the reason why and the extent to which the cargo was not in their view in apparent good order and condition. In many cases they may only have a limited command of English and little knowledge of the nature of the cargo. The approach which, in my judgment, properly reflects the master's duty is that the words used should have a range of meaning which reflects reasonably closely the actual apparent order and condition of the cargo and the extent of any defective condition which he, as a reasonable observant master, considers it to have.

Against this background, the shipowners' duty is to issue a bill of lading which records the apparent order and condition of the goods according to the reasonable assessment of the master. That is not, as I have indicated, any contractual guarantee of absolute accuracy as to the order and condition of the cargo or its apparent order and condition. There is no basis, in my judgment, for the implication of any such term either on the proper construction of Article III rule 3 or at Common Law. The shipper is taken to know the actual apparent order and condition of his own cargo. What the Hague-Visby Rules require is no more that that the bill of lading in its capacity of a receipt expresses that which is apparent to the master or other agent of the carrier, according to his own reasonable assessment.

In the present case the mate's receipt was necessarily the basis of the statement as to the order and condition of the goods in the bill of lading and there is therefore no practical reason to distinguish between the duty owed by the shipowners in respect of what the master wrote on the mate's receipt and that which in consequence was stated in the bills of lading.

No doubt where a master proposes to qualify the statement as to the good order and condition of the cargo in a mate's receipt or bill of lading it would be sensible for him to warn the shipper's representative that he proposes to do so. That is a matter of common sense so as to give the opportunity to avoid disputes which may involve delays to the vessel, but in the last resort it is the master's own judgment which is to be recorded and it is open to him to record it by words which reasonably reflect that judgment.

As to the Claimant's submission that there is a duty of care upon the carrier through the master or other agent accurately to state the apparent order and condition of the cargo, I am not persuaded that the application of now well-established considerations relevant to the existence of such a duty lead to that conclusion. The starting point is that the relationship between the shipper and the carrier is such that the knowledge of the actual apparent condition of the cargo is possessed by both parties. The purpose of the requirement that the carrier should record in the bill of lading the order and condition as it appears to the master is to enable the shipper to transmit that information by means of the bill to subsequent holders of the bill to enable them to facilitate its functions as a document of title to the goods and as a mode

of assignment of the contract of affreightment. That function is reflected in the requirements of the Code set out in Article III Rule 3. That is an international code which has created an internationally known duty regime to the effect that all holders of bills of lading subject to the Hage Rules or Hague-Visby Rules can be expected to know that, when bills of lading are presented to them, the statements as to the apparent order and condition of the cargo can be relied upon to reflect the reasonable judgment of a reasonably competent and observant master in all the circumstances. There is no reason why, if the master consciously exercises his judgment in the manner which I have desribed, there should be superadded to that obligation a duty of care which would impose upon him any stricter obligation that that. If the master fails to comply with the contractual duty of properly exercising his judgment, the shipper will have his remedy against the carrier for breach of contract. If a stricter duty were to be imposed, there would be a real danger that the master would inevitably be driven to conduct detailed investigations of the cargo as it was loaded and to consult expert advice as to whether and how he should clause the bills of lading and that carriers would often be subjected to a time-consuming exercise which would in any case add little or nothing to what could be expected from the master using his own judgment. This prospect would involve objectionable interference with the speedy movement of cargo and vessels and would at best be likely to offer only marginal advantages in the accurate observation and recording of the order and condition of the cargo.

For these reasons, I consider that, at least where the Hague Rules or Hague Visby Rules govern the bills of lading, the third "test" in Caparo v. Dickman, supra, - that it is fair, just and reasonable to impose a duty of care in all the circumstances is not satisfied.

Nor do I consider that where the Hague Rules or Hague-Visby Rules apply there is any room for a term to be implied in the contract of carriage imposing on the carrier any higher duty than that required under Article III Rule 3. The implication is not necessary for the proper working of the contract of carriage or for the use of the bill of lading as a document of title or as a means of assigning the contract. Similarly, the relationship of bailment being on the terms contained in Article 3, there is no conceptual justification for introducing any higher duty. The issue of a bill of lading recording the apparent order and condition of the goods is purely ancillary to the bailment: it has no bearing on the care of the goods and I see no reason why it should attract the duty of care which rests upon a bailee in consequence of the bailment relationship.

The Actual Apparent Order and Condition of the Cargo

The Master had died before the trial and the Defendants relied on a statement which he signed on 30^th January 1998, over two and a half years after the relevant events. He stated that he had obtained a Russian master's licence in 1968. He had been First Captain of the vessel since 1989 and had previously carried urea cargoes on about three occasions. He described how during the approach voyage from Antwerp to Kotka the crew had spent one day sweeping the holds to clean up after the previous cargo load. They then spent three days pressure hosing followed by washing to remove residues. He described how the SGS surveyor (Mr. Karlsson) on behalf of Meezan and the Euroservice surveyor (Mr. Kamper) on behalf of Agrosin rejected the holds on account of "a very small quantity of coal dust" which they said could be easily removed. He stated that they both told him that the urea to be loaded should be "snow white" in colour. After two days of further washing SGS passed the holds as fit for loading, although both the SGS surveyor and Mr Kamper told him that they were not yet fully clean. He said that he considered that to all intents and purposes the holds were clean and fit to receive the cargo. Any heavy coal residues would be likely to be insignificant.

The master stated that, on 27^th April 1995, before loading commenced, he went ashore with the Chief Officer and Captain Hussain of Meezan to inspect the intended cargo in the two warehouses in which it was stored. He said that they could see that it was partially discoloured and contaminated with foreign bodies. He stated that he so informed FIMAG (Agrosin's agents). All the cargo had been brought from Russia by rail. He inspected about 25 rail wagons which were in the sidings. He could see "various foreign objects" present in the urea in those wagons. He claimed that Captain Hussain and Mr. Kamper agreed that the bills of lading would have to be claused with his assessment of the condition of the cargo.

When it rained at Kotka, as sometimes it did, according to the Master the hatches were immediately closed but sometimes the cargo in the skips alongside was left uncovered as was that on the conveyor used for loading into hold No.6.

On 27^th April 1995, at the commencement of loading, the Master said that the Chief Officer informed him that the cargo loaded was "very dirty". The Master ordered loading to cease, whereupon there were discussions with Captain Hussain, Mr. Smirnov and Mr. Kamper. The loading restarted after two or three hours. The master stated that the cargo was discoloured sporadically by a variety of colours, partly grey, which appeared to be due to dirt, and partly a yellowish colour which the master assumed was due to an impurity in the course of manufacturing. About 30 per cent of the cargo was discoloured to varying degrees.

The Master further stated that he observed various contaminants in the cargo in the warehouses and in the holds, including plastic sheeting, rust from the loading skips or the bulldozer, pieces of rubber hose, small stones which he thought had been scooped up from the warehouse floor by the bulldozers and small black particles which they were unable to identify. The total contaminants were about 0.2 per cent.

The Master stated that although Captain Hussain, Mr. Smirnov and Mr. Kamper knew that he intended to clause the mate's receipt nobody tried to dissuade him from doing so. However, about three hours before completion of loading Mr. Lugovsky of Acron telephoned him from Novgorod and asked him not to make "a mistake about the cargo condition" and offered to come to Kotka the next day with a "present" for the master if he authorised the issue of clean bills of lading. The master refused this offer.

As to various allegations advanced by Agrosin, the master denied that dry rust scale from the holds contaminated the cargo for prior to loading no loose rust was present. There was only minimal fine coal dust adhering to the side shell and bulkheads which could not have materially affected the cargo. The only residues from previous cargoes which he observed were in No.3 hold and amounted to no more than about 2 kilos. If any pieces of ramneck sealing tape fell into the cargo, there could only have been very small quantities. The contaminants in the cargo originated before loading. They also found a Russian rubber boot and lengths of steel pipe. The discolouration became visible in strata as the cargo was discharged in Beihai.

The Shipowners' P&I Club instructed Captain Wood, a surveyor, to board the vessel while it was anchored for bunkering off Singapore to inspect the cargo and further to inspect the cargo on the vessel's arrival and during discharge at Beihai. He gave evidence before me. His investigations off Singapore were necessarily brief and superficial. He was only on board for two to three hours. He looked down into the holds and observed that the surface of the urea appeared to be white. He could see no foreign materials apart from in No.5 hold where he saw the odd black speck due to coal dust and the odd stone. He took composite samples from each hold. He also took some photographs.

At Beihai Captain Wood was present from the day before the commencement of discharge.

In the early stages of discharge he observed, according to his statement, that in the Nos 2, 4 and 5 holds there were small quantities of extraneous materials, such as two portions of damaged polythene bags and a short length of cord. However, the top stow cargo appeared "mainly sound" with "some isolated areas of slightly discoloured urea". As discharge reached deeper levels of cargo he observed more discolouration. That varied "from tinges of pink, yellow, brown, grey and off-white" and was frequently found in strata in the lower parts of the stow. Variations in the intensity of light led to apparent variations in colour between white and off-white. Layers of apparently sound cargo close to the tank tops became subject to contamination from cargo already contaminated and rainwater which had gathered on the tank tops. There was also contamination in No.6 hold from oil which leaked out of a payloader.

Captain Wood ended his first visit to the vessel on 15^th July 1995. He returned during the evening of 24^th July. The vessel's discharge had been interrupted while she was off the berth from 8^th to 13^th July. When he returned he was shown photographs taken during discharge of No.2, 3, 4 and 6 holds during his absence. They showed discolouration, particularly No.4, of a "yellowish" colour, but not, as the master claimed, dark yellow. There were also shown a small number of "foreign particles", also visible in samples that had been taken.

Captain Wood found a certain quantity of off-white cargo and in No.5 hold he noted "greyish" cargo intermixed with apparently sound cargo at or near the tank top. There were also isolated areas of brown stained cargo in No.3 and No.4 holds which he considered to be due to remnants of a previous cargo of oats that had dropped from the upper structure of the holds. Although the master suspended discharge of No.2 hold on 25^th July alleging that the cargo was "dark yellow, Captain Wood, who arrived on board later that day, saw nothing answering that description. What he saw was off-white.

His view of the extent of the contamination and extraneous materials was considerably less than the estimate of "not more than 5%" put forward by the Master and Chief Officer. He considered that they probably originated from sweeping remainings in the Russian railway wagons. In cross-examination he said that the foreign matter amounted to "a few kilos". He accepted that there had been cross-contamination of sound cargo by coal or rain-contaminated cargo. In his statement he expressed the view that the majority of the cargo was white in colour and that no more than 40% could be described as "discoloured", of which the vast majority was "off-white" and the greyish or yellowish discolouration affected less than 7% of the total cargo. In cross-examination he accepted that this was a broad estimate which was difficult to quantify. It was difficult to say how much was yellowish and how much greyish. He thought the overall discolouration might be as low as 5% or about 6%. Most of the discoloured cargo was in the lower part of the stow where most of the rain and coal dust would be found.

I interpose that I am not able to put great weight on Captain Wood's overall estimate of the extent of discolouration. He was not present throughout discharge. He had to rely on the master's photographs for the days when he was not present. He made no attempt to do a daily estimate of the discoloured proportion of the cargo discharged that day. Indeed, discolouration could only be observed by viewing the stow as it was progressively exposed by excavation in the course of discharge. There must be great doubt as to any overall percentage estimate. Nevertheless, although Captain Wood had experience of only one previous urea cargo, his experience as a surveyor of bulk cargoes would give him some basis, if only somewhat tenuous, for getting via the stowage factor from his visual observation to a broad brush quantitive assessment. Further, Captain Wood first saw the cargo off Singapore. His observations were therefore not of the appearance of the cargo as it was loaded, but as it appeared after it had been on board for over 4 weeks and eventually as it appeared when the stow was excavated at Beihai.

The Chief Officer gave evidence. His evidence was remarkable, to say the least. He gave two statements: one to the defendant's solicitors based on an interview conducted on board the vessel at Le Havre by Mr. Jonathan Green, a solicitor in Richards Butler, on 30^th January 1998, over two and a half years after the loading of the vessel at Kotka, but not signed until 30^th August 2000, and a second statement given to Mr. Shepherd of Ince & Co, the claimant's solicitors, on 3^rd and 4^th May 2001 in Istanbul and signed on 16^th May 2001. In the second statement the Chief Officer repudiated much of his first statement, particularly those parts relevant to the appearance of the cargo at the time of loading.

In his first statement the Chief Officer stated inter alia as follows:

(i) The holds were thoroughly cleaned before loading, removing all the rust scale that they found.

(ii) Mr. Smirnov told him before loading commenced that the cargo should be "as white as Arctic snow". The books they had on board containing information as to the carriage of urea contained no information as to the pre-shipment condition of the cargo. Mr. Smirnov also told him that the urea had been at Kotka for over a year.

(iii) The Russian railway wagons in which the urea had been carried to Finland were very dirty. There were lots of foreign bodies in the cargo, such as glass, wood, overalls, rubber winter shoes and plastic bottles. He and other members of the crew helped the harbour master pick out some of this material. In the warehouse where cargo was stored the light was not good but it could be seen that the cargo was not white.

(iv) When it rained the currently loading hatch covers were closed but the cargo alongside the vessel was left uncovered. The skips were very dirty.

(v) It was difficult to say how much of the cargo was contaminated. However, he estimated that between 20% and 40% was discoloured, either yellow or red, some of the urea having black particles which he believed came from the skips. All the holds contained discoloured cargo which was found in layers of, for example, one metre of sound cargo then 20 centimetric tons of cargo discoloured yellow, red or brown.

(vi) After the vessel had arrived at Beihai someone whom he had never seen before approached him while he was ashore and offered him money in return for making a statement that the cargo had been damaged during the voyage.

In his second statement the Chief Officer said as follows

(i) It was impossible to clean the holds sufficiently to deal with oily coal residues using just seawater. They needed detergent and they had none on board. The master rejected his suggestion that they hire shore labour at Kotka to wash the holds with detergent, saying that this would cost money and anger the owners.

(ii) Between the time when Mr. Karlsson of SGS first inspected the holds at 14.30 on 25^th April, reporting that No.s 1,2,3,5 and 6 holds had a small amount of dust and some rust, "minor defects easily mended" and the time when, later that day at 18.00 when he accepted the holds as fit for loading no further cleaning was carried out and he did not believe that Mr. Karlsson had carried out any further inspection.

(iii) During the evening of 26^th April he was instructed by the Master that loading was to commence at 0600 the next day and that he, the Chief Officer, was "to find some reason (he didn't say what reason) to stop the loading as soon as it had started". Therefore, soon after loading commenced, when nobody was looking, the Chief Officer threw various items of ship's garbage into the holds, such as plastic bottles and pieces of rubber, and then ordered the loading to stop. The Master then looked at the cargo and said it was discoloured. This was untrue. The Master was clearly angry that the holds had been rejected by the other surveyor. He instructed the Chief Officer to ask Mr. Kamper, who was staying on board, to look at the cargo. He was then shown the rubbish on the surface of the stow.

(iv) Later that day the Chief Officer helped to remove the rubbish, but a few hours later he put more garbage into the cargo. Later that night, after loading had ceased for the day, he put yet more rubbish into the holds, including some oily overalls.

(v) After loading had commenced he visited one of the warehouses in which the urea to be loaded was stored. He found the urea without contamination of the kind described in his first statement. He saw no discolouration apart from a few black spots on top of the stow due to small pieces of rust and some coal dust which had fallen from the underside of the hatch covers.

(vi) The skips were perfectly clean. If there was urea in a skip alongside when it started to rain and the urea got wet, which happened on about two occasions, it was taken away to a different area and not loaded on board.

(vii) Mr. Smirnov had never said to him that the urea had been at Kotka for over a year.

(viii) In the course of the voyage, rainwater, but not seawater, got into all the holds because the tape with which they had sealed the hatch covers had worked loose. The rain water caused "vertical channels" in the stow. The master ordered him to instruct the crew to spread urea so as to cover up the channels so as to hide the fact that the hatches had been leaking.

The Chief Officer's second statement contains a detailed account of how he came to sign his first statement. He confirmed that account before me. In outline, he was persuaded by the master to be interviewed at Le Havre in 1998 and coached as to what he should tell Mr. Green. He was told that both he and the Master would lose their jobs if he did not tell the solicitor what the Master required him to. He reluctantly agreed to obey the Master and, as far as possible, gave Green yes or no answers. He said in cross-examination that because of his limited understanding of English, he had only been able to understand 15% - 20% of what Mr. Green had asked him. No interpreter was present.

Three or four months later the Master asked him to attend another meeting with Mr Green in Istanbul, but he refused to. By that time he did not yet have a Georgian passport. In 1999 he lost his job with the defendants and by March 2000 was working for Acromarit as Chief Officer of one of their vessels. In August 2000 he was asked by a Mr. Zalenski, manager of Acromarit's Tibelisi office to call in to collect a message. When he arrived he was asked by Mr. Zalenski to sign a statement. It was in English. He had never previously been shown it. He only had a limited knowledge of written English and when he looked through it he could not fully understand it. Mr. Zalenski told him that, if he did not sign it, it might cause him problems with others in the shipping industry and he might be black-listed. He also told the Chief Officer that the matter involving the vessel was "all over" and that he would be signing the statement just for the record. He then signed the statement. He was given a copy. He took it home and showed it to his mother who was a teacher of English Literature and who translated it for him. He stated that the translation made him very angry but, although he knew it was untrue, he took no action because he thought it was just for the record or, as he said in evidence, for "the protocol". He had not been told that there was an on-going claim in London. When in February 2001 he received another call from Mr. Zalenski saying that there were some further papers for him to sign in Tibilisi, he refused to do so and when the papers were received, he ignored them.

In March 2001 there was a telephone call to his home from Mr. Green. The Chief Officer told his mother to say he was out.

He then decided he wanted to "put right the untruths" in his first statement and he then telephoned the Moscow office of Agrosin and offered to provide a statement to their lawyers. He explained in cross-examination that he wanted the truth to come out. He was very upset that he had been deceived into signing the first statement. It was "the first sin (he) had committed". In the event, he explained his position to a Mr. Yamachenka of Agrosin. In all he telephoned Agrosin three times and insisted that he should speak to someone about his statement. Eventually a meeting was arranged in Istanbul with Mr. Shepherd of Ince & Co. It lasted a whole day. He travelled to Istanbul from Georgia by bus. He made his own travel arrangements and paid the fare and the cost of food in Istanbul out of his own pocket. He did not stay in a hotel, but with a woman friend. His second statement was translated into Russian the following day and he read and signed it. The whole exercise was his own idea and until after he had signed the second statement nobody had suggested that he would receive any payment for his statement or for the journey. Some time afterwards he was informed by Mr. Yamachenka by telephone that US$3000 had been transferred to a credit in his name at Western Union, where he did not have an account, but where he could withdraw the money.

In the course of his cross-examination it became clear that what had caused him to go to such exceptional lengths to give a second statement was that paragraph 25 of his first statement which gave an account of his having been accosted in Beihai and offered a bribe was totally untrue and had particularly angered him because he felt he had been deceived into signing the statement containing that passage.

A witness statement from Mr. Green, the solicitor who took the first statement was put in evidence. He produced an interview note which includes in its body the words : "In town someone wanted him to say that cargo had been damaged during voyage. Said he would offer money. Refused. Invited man on board: didn't come on board. Never seen him before. Was not on board at all. Spoke English well. May be from Singapore."

Having heard and seen the Chief Officer subjected to a very searching cross-examination by Mr. Hofmeyr for over a day, I have reached the following conclusions about his evidence

(i) His account of the circumstances in which he gave his first statement is substantially true. The master did indeed coach him.

(ii) His account of the circumstances in which he gave the second statement is also substantially true. I find that it was his own idea to contact Agrosin and that he did not receive any inducement to make that statement. However, I am left in some doubt as to his real motive, particularly having regard to the fact that he need never have given oral evidence at the trial had he refused to do so. Indeed, I do not accept that he did not tell Mr. Green that he had been offered money by someone in Beihai. However, I do not believe that such an event ever occurred. It is likely to have been a further invention, perhaps of the Master.

(iii) I accept his evidence of how he threw rubbish into the cargo.

(iv) I accept his evidence that at the master's request he exaggerated the extent of discolouration of the cargo.

(v) Given the unsatisfactory nature of his evidence about what he told Mr Green about being offered money in Beihai and the considerable amount of time which had passed between the time of the voyage and the time of his second statement, only a limited amount of weight should be given to his recollection of the precise appearance of the cargo on board and in the warehouse at Kotka.

Apart from the Chief Officer, the only witness to give evidence before me who inspected the cargo at Kotka was Mr. Kamper of Euroservice on behalf of Agrosin. He was on board the vessel throughout the loading operation. His evidence may be summarised as follows

(i) He was a very experienced surveyor of urea cargoes, having previously inspected about 20 such cargoes.

(ii) At no time prior to commencement of loading were the holds in a fit state to receive the cargo. Even after repeated washing there were still oily residues from the previous coal cargo which could not be entirely removed without detergent and which would be likely to stain the urea.

(iii) The cargo was slightly agglomerated – to the extent of 0.5% to 1% but very little of the cargo was permanently caked.

(iv) He visited the warehouse prior to loading. The cargo looked to be in proper condition. About 0.1% appeared to be discoloured, being slightly yellowish or beige in appearance. However, the surface of the urea stored in the warehouse was very heavily contaminated with various fragments and dirty water which was condensing on the scaffolding above the cargo.

(v) As the cargo was loaded, the visible extent of discolouring varied up to 0.2%.

(vi) There was some visible contamination of the cargo as loaded. There were black fragments, from the trucks, rust, oily lumps caused by motor vehicles, small stones or lumps of earth, pieces of paper, foil and rubber, but these were "of a very minor nature" amounting to just a few pieces in the whole cargo, probably originating in the warehouses.

(vii) In holds 1, 3 and 4 the surface of the cargo was somewhat dirty due to the use of trimming vehicles in the holds, but this was "of no practical significance."

(viii) During the opening and closing of hatches in the course of loading small quantities of coal dust fell on to the surface of the stow.

(ix) He did consider that the observed discolouration affected the quality of the cargo. The cargo was in good condition overall. He did not get involved in the dispute between the Master and Acron as to what should be written on the mate's receipt. He was not made aware of the final form of the documents. He denied the statement in the report of Captain Hussain that on 3^rd May 1995, at a meeting attended by Mr. Karlsson of SGS on behalf of the ship, the Master and Captain Hussain, that he agreed to the description of the cargo which was inserted in the mate's receipt. He explained that these words gave the misleading impression that the whole cargo was discoloured. He considered that the cargo did not deserve any such remarks as it was in good condition overall.

(x) He considered that the small amount of discoloration that he observed was quite normal for urea cargoes.

(xi) He expressed the view based on his daily conversations with the Master that

"he was always going to issue some form of protest as soon as loading commenced because of the difficulties he had experienced in persuading Mr Smirnov and I that the holds were fit for the commencement of loading."

Having observed Mr. Kamper under cross-examination for several hours, I am satisfied that he was a witness of truth, doing his best to help the court. Indeed, I am confident that his recollection of the appearance of the cargo, as he perceived it, was reasonably accurate.

Mr. Smirnov, the surveyor from Oy Finmorservices appointed on behalf of Acron, signed a brief witness statement on 4^th July 2000. He was present during the loading operation until 30^th April. He was then replaced by Mr. Bogaevskiy who signed a short statement on the same date.

Mr. Smirnov had attended five shipments of urea prior to that on this vessel and by the time he gave his statement he had attended the loading of about 30 such cargoes. He stated that the cargo was in no different condition from any other urea cargo he had seen. He saw no plastic, rubber or stones. There was some loose rust and remnants of the previous coal cargo. A very small proportion (about 0.1%) of the cargo had at slight shading. Such shading was quite normal. Although urea could pick up discoloration by contact with dirty surfaces, for example railway wagons, small quantities of urea could be coloured yellow, beige, grey or rose due to the different density of application of anti-caking compound applied during the production process.

Mr. Bogaevskiy also stated that the cargo was in apparent good order and condition and in his experience completely normal.

Both Mr. Smirnov and Mr. Bogaevskiy expressly denied that either of them had received complaints from the master during loading that the cargo was discoloured. They particularly challenged log book entries for 1200 on 27^th April, 1200 on 28^th and 29^th April and 2000 on 29^th April: at no time did the master present a letter of protest. This reflects the contents of a letter of protest which Smirnov and Bogaevskiy signed on 4^th July 1995 in which they described as "fantasy" the Master's declaration that he requested them to provide him with a certificate of quality of the cargo. This letter of protest also states:

"During the time of inspection neither the master nor the ship's agent claimed on bad quality of the cargo. Such behaviour of the master can be considered as insincere and shows his desire to distort the facts and to turn this situation to his benefit.

We certify the cargo was good quality. And we dare to think that this fact made the master keep silence during loading and mention about it only on completion of loading."

Mr. Heikki Jaaskelainen was General Manager of Steveco Oy at Kotka. They were port loading agents for Acron who in the course of 1994 had shipped 69, 579.80 metric tons of urea through Kotka and who in 1995 shipped 312, 419.91 metric tons. From April 1994 to March 1995 there had been 8 shipments totalling about 167,000 metric tons. There were 6 further shipments of urea from Acron in 1995, totalling about 180,000 metric tons. He stated that, although he did not inspect the cargo in this vessel, it was not unusual for a very small proportion of a urea cargo to be discoloured. Bulk urea could be discoloured by contact with other substances or by the production process. He had explained to the master that it was not unusual for 0.1% to 0.2% to be discoloured but this had no impact on its quality. He stated:

"However, the Master was clearly in no mood to listen to what I had to say and was obviously determined that he was not going to sign the clean mate's receipt or authorise the issuing of clean bills of lading."

Significantly he also stated that no other master or owners had refused to issue clean bills of lading for Acron urea cargoes shipped at Kotka. However his evidence does not indicate whether such bills of lading also described the urea as coloured white.

In the light of Mr. Kamper's evidence I reject Captain Hussain's report to the extent that it suggests that Mr. Kamper agreed that the Master's proposed clausing of the mate's receipt was appropriate.

Both parties also relied on expert evidence.

The claimants relied on the evidence of Mr. Peeters. Unfortunately, after having prepared his report and a supplementary expert's report in response to the report of the defendant's expert, Mr. Thompson, a severe post-operative medical condition prevented him from giving oral evidence. It has therefore not been possible to test his evidence in cross-examination.

He had extensive experience of conducting surveys of bulk cargoes, including urea. In his experience it was not unusual for small proportions of the cargo to become discoloured or to have small amounts of foreign material mixed with them. Except in cases where the urea is loaded direct from the producing plant, such discoloration is "almost inevitable" if there is any amount of transportation/handling involved prior to loading. In order to avoid solid contaminants getting into the cargo it was usual to discharge through a screen. Having investigated photographs of the cargo, his view was that its condition did not correspond with the log book entries which suggested that nearly all the cargo was discoloured: no extreme discolouration was shown. He was inclined to the view that the minor discolouration shown in the photographs was likely to have been caused by contact with the warehouse floor or with one or two railway wagons.

He considered that the photographs showed a cargo in good order and condition. It showed a typical but insignificant degree of contamination. In his experience of urea cargoes where there were similar small levels of discolouration no master had ever sought to clause the bill of lading. He observed that, if all masters took the same view as the master in this case, virtually all bills of lading in respect of urea not loaded direct from the producing factory would have to be claused.

Having had a meeting with the defendant's expert, Mr. Thompson, he made the following observations.

He did not agree that contamination by foreign materials was in the order of 0.04% or that discolouration was in the order of 3% - 5%.

He criticised Mr. Thompson's methodology for calculating the percentage of foreign matter by using photographs taken at random over 6 holds with about 35,000 tons of cargo. These photographs could not be representative of the whole. The source of the black spots could be coal dust. Although photographs of the cargo after loading and certainly at the time of discharge were not a reliable indicator of the condition before loading, what the photographs showed was a normal picture of contamination by reason of unclean holds. Remnants of the previous coal cargo were shown by the video made at discharge to have intermingled with the urea. It was clearly unreliable to ascertain the percentages of the cargo consisting of dark objects.

He did not agree with Mr. Thompson's view that the relatively high proportion of dark objects found during discharge to be concentrated towards the walls of the hold could result from segregation. He considered that they were more likely due to previous coal cargo residues. Whereas Mr. Thompson calculated from what could be inferred from the contemporary letters of protest that there might realistically be a 0.1mm layer of coal dust throughout the holds which would be equivalent to 1 metric ton of coal, Mr. Peeters considered that 12 m.t. throughout the holds might well be a possibility, that is 2 mt per hold. Nor did he agree with Mr. Thompson's estimate of 0.04% as the percentage of black spots in the cargo. He said that only a surveyor on the spot could usefully estimate this. The photographs suggested the proportion of such foreign objects was negligible and not a reason for clausing the mate's receipt. In any event the unclean condition of the holds contributed substantially to the presence of foreign objects photographed in the course of discharge.

The colour of urea normally varied through various shades of white due to the position and intensity of the light.

Grey coloured bands in the stow were always seen at discharge of urea cargoes. Further discolouration could be caused by dirty rainwater falling from hatch covers during opening and closing.

Mr. Peeters criticised Mr. Thompson's attempt to calculate the proportion of discoloured cargo prior to loading from the photographs taken at discharge. It was unclear whether grey bands were due to intrinsic discolouration or differences in the light. Further he challenged Mr. Thompson's attempt to derive from the video made at the discharge port an assessment of discolouration prior to loading when the video taken at Kotka showed none. The discolouration illustrated by the photographs taken at Beihai was in his opinion mainly caused by the unclean condition of the holds.

He drew a distinction between the appearance of product which Mr. Thompson, as a producer, would regard as an unacceptable output from his plant and the typical appearance of a cargo transported to the loading port by trucks or railway wagons and not such as to justify clausing the mate's receipt or bills of lading. He considered that in clausing the mate's receipt the master did not act reasonably. If he were in doubt, he should have taken advice from the Owners' P & I Club.

Mr. D. C. Thompson was called as an expert by the defendants. He had spent the whole of his career with ICI, concerned with the manufacture of fertilizers, including prilled urea. For 12 years he had been responsible for the inspection of vessels for cleanliness prior to loading and was authorized to pass vessels as suitable for loading. ICI's exports were mainly of industrial grade urea but included some of fertilizer grade. Industrial grade required a specification for cleanliness and product quality, which was higher than that of fertilizer grade. The major use of urea was as a fertilizer. For that purpose the typical specification would in his experience not include any reference to colour, whereas, when required for industrial use, colour would be specified. There were features of the specification as expressed in the bills of lading which, in spite of the reference to "colour white" suggested that the urea in this case was nevertheless purchased for use as a fertilizer. There was no standard method of testing for compliance with the colour white requirement.

By examination of numerous photographs taken at Kotka and Beihai Mr. Thompson formed the view expressed in his report that the quantity of foreign materials in the cargo at the loading port after loading to have been of the order of magnitude of 0.04% and of coal dust to have been of a similar order of magnitude. Coal at any level of inclusion would not be harmful for fertilizer use. Larger foreign objects could, however, block irrigation system piping or spreaders.

As to discolouration, the urea could not be stained dark yellow from the production process unless an excessive amount of very dark yellow anti-caking additive had been introduced. However, he was unaware of any very dark yellow anti-caking additives in commercial use. On the basis of loading port and discharging port photographs and videos, as well as samples, 3% to 5% of the whole cargo was discoloured prior to discharge. The stratification of discoloured material in the holds suggested that discolouration originated from staining by contact with, most probably, railway wagons, or possibly trucks or ships and not from the manufacturing process. Provided that the discolourant itself was harmless, there would be no serious consequences if the urea were to be used as a fertilizer. The cargo was, however, not in apparent good order and condition when it was loaded on board.

In the course of cross-examination Mr. Thompson considered that the grey coloured strata found at Kotka would not have been due to rainwater mixed with coal dust from the vessel, particularly having regard to the uniform appearance of the stripes and further the coal dust remaining on the walls of the holds would not have caused these strata.

I am bound to say that from this very substantial body of factual and expert evidence it is not altogether easy to conclude with precision the exact appearance of the order and condition of the cargo as it was being loaded at Kotka or the extent to which it might have appeared not to be in good order and condition. However, doing the best one can with the whole of the evidence, including the videos and photographs taken both at Kotka and Beihai, and also Captain Wood's evidence of what he saw off Singapore and Mr. Low's evidence of what he observed at Beihai (which I have not set out) I have reached the following conclusions.

(i) The urea included, prior to loading, foreign matter, consisting amongst other things of soil, dirt, broken glass, rust, oil and rubbish. It also included some dark particles which had dropped in to it from the warehouse structures. The overall amount of these contaminants did not exceed "a few kilos" (Captain Wood) and was, to use Mr. Kamper's words, "of a very minor nature", but it is very difficult to quantify as a proportion of the whole cargo, even for an experienced surveyor, particularly having regard to the very small proportion involved. In this connection I attach somewhat greater weight to the evidence of Mr. Kamper and Captain Wood, both of whom actually observed the cargo (Capt Wood off Cape Town and at Beihai), than that of the experts working from photographs and video stills. At a meeting held on 27^th June 1995 the master appears to have pointed out that the cargo did not contain more than 0.2% impurities. However, about 20 mt would seem to be significantly higher than that observed by Mr. Kamper and Captain Wood. It is also substantially higher than the estimate of 0.04% (about 12 mt) put forward by Mr. Thompson. On this evidence I find that pre-shipment contaminants amounted to 0.01% (about 3 metric tons) of the cargo overall.

(ii) The cargo was discoloured yellowish, beige and pink, (as distinct from grey or off-white) prior to loading. There was also a lesser amount stained grey.

(iii) The rest of the cargo was for the most part bright white, but part of it also appeared to be shady or off-white.

(iv) It would be very difficult for Mr. Kamper to estimate the overall proportion of discoloured cargo during the course of loading. He would have to relate continuously to the stowage factor a fluctuating proportion in volumes of cargo increasing as loading progressed. It would also be difficult for those, such as Captain Wood, who observed the discoloured state as the stow was progressively excavated in the course of discharge to calculate the overall proportion of discoloured cargo attributable to pre-loading discolouration.

(v) Identification of pre-shipment discolouration or its quantification from the appearance of the cargo at the discharging port presents considerable problems due to the fact that there is a real likelihood that additional discolouration took place after the cargo had been placed on board. This further discolouration is likely to have been caused by (a) rain water finding its way into the holds because the hatch covers were not closed immediately when rain began in the course of loading and because, during the voyage and at Kotka and Beihai, when the hatch covers were closed, rain or seawater could find its way past the hatch cover seals and the rainwater so admitted would then mix with coal residues and run on to and stain the cargo grey; (b) some discolouration could have been caused by morning dew forming on the skips and then making rust or dirt stains on the stow (c) discharging operations at Beihai which involved bulldozers being driven over the stow and staining the urea with oil and dirt and (d) staining by contact with residues from a previous grain cargo. That these subsequent causes contributed to a significant extent to the appearance of the stow at Beihai is further supported by the fact that much of the discolouration was found to be located low down in the stow, close to the tank top.

(vi) Although Captain Wood estimated that 5% to 7% of the cargo overall was discoloured yellowish or grey, his basis of quantification was shown in the course of cross-examination to be extremely inexact and not to have distinguished yellowish from grey discolouration or to have distinguished grey contamination which occurred after loading from that which might already have occurred.

(vii) In as much as the expert evidence on discolouration necessarily relied exclusively on what was shown by the many photographs, there were difficult problems of interpretation which involved particularly distinguishing between parts of the cargo which were discoloured greyish and parts that were in shadows or at least in less strong light. Similar problems of identifying cargo as positively discoloured grey or merely in shadow or off white would on the evidence also arise when the cargo was observed during the course of loading or, indeed, at the port of discharge.

(viii) Given these evidential problems I conclude that Mr. Kamper's evidence presents a somewhat more reliable assessment of the nature and content of pre-loading discolouration than does that of Captain Wood. The opportunities, which probably occurred, for further discolouration on board the vessel, particularly in the course of discharge, in my judgment render excessive Captain Wood's estimate of 5% to 7% of greyish or yellowish contamination. Mr. Kamper's estimate of 0.1% to 0.2% yellow/beige discolouration did not include grey, as distinct from off-white, discolouration. There is, in my judgment no reliable evidence of the extent of greyish (as distinct from off-white) discolouration at loading. Certainly the photographs and video show little or none. I have also taken into account the difficulties of quantification which would have confronted Mr. Kamper in the course of loading. In my judgment, on the whole of the evidence, including what was observed at Beihai, to the extent to which weight can be attached to it as an indicator of the pre-loading condition of the cargo, the total overall yellow, beige, pink and grey discolouration at loading would be about 1%. In arriving at that figure I have not included cargo that was off-white as distinct from grey. I shall explain the exclusion of this part of the cargo in what follows. I have concluded that Mr. Kamper's figure is somewhat low by reason of the difficulties of assessment of quantification which he would have had and having regard to the general extent of yellow cargo shown in the photographs as interpreted by Mr. Thompson.

Did the Actual pre-loading Condition of the Cargo justify clausing the Mate's Receipt and Bills of Lading?

As to contaminants I have no hesitation in concluding that the level of contamination was so slight that no reasonably observant master would have seen fit to refer to it in the mate's receipts. In reaching this conclusion I have had regard to the evidence of all those witnesses including the Chief Officer to whom I have referred, and in particular to the evidence of Mr. Kamper, Mr. Smirnov and Mr. Bogaevskiy as to their experience with other shipments of urea to which I have already referred.

As to discolouration, the wording inserted in the mate's receipt and subsequently the bill of lading is quite unqualified as to the extent of discolouration. There is, however, on any view, no doubt that given the extent to which the cargo was discoloured yellow, beige, pink and grey, a reasonable master might well have thought it appropriate to state such discolouration in the mate's receipt. He would have been entitled to conclude that the cargo was not, or might well not be, in good order and condition. In reaching this conclusion he would also be entitled to take account of the fact that, with a bulk cargo which the shippers described as "white", if 1% of the cargo out-turned discoloured, the shipowners would be likely to be confronted by a claim by receivers under the contract of carriage for permitting the cargo to be damaged in the course of the voyage. However, I do not consider that, given that the mate's receipt description of the cargo was "white", any reasonable master would consider it appropriate to clause the mate's receipts or bills of lading merely because the cargo was not all bright white. To conclude that a cargo was not in good order and condition merely because it was partially off-white would, in my judgment, not be open to any reasonable master. With the exception of Mr Thompson whose experience of urea was confined to the output of a manufacturing plant no evidence in this trial has supported such an extreme proposition. Such a conclusion would be unreasonable. There would on the evidence simply be no reasonable basis for treating cargo that was off-white as otherwise than in apparent good order and condition whatever its ultimate use. However, it is to be observed that, although the notation on the mate's receipt refers to the cargo simply as "discoloured", there is no indication that this description relates to only about 1% of the whole. I am bound to say that the description is therefore wholly misleading and does not properly state on the basis of what observation it is said that the cargo was not in good order and condition. Where such a minute percentage of discoloured cargo was involved, any reasonable observant master would, in my judgment, have been bound to add some qualification to the description so as to avoid creating the obviously false impression that at least a substantial part of the cargo was discoloured. Words which indicated that only a small proportion of the cargo was likely to be affected would be essential. Indeed, even putting it on the basis of the defendants' analysis of the master's duty, I do not consider that any master acting in the ordinary course could honestly have believed this to be an accurate description of those characteristics of the cargo which suggested that it was or might not be in apparent good order and condition.

I therefore conclude that, although the Master was entitled to clause the mate's receipt to refer to the fact that a small proportion of the cargo was discoloured, he was not entitled to use words which conveyed the meaning that the whole or a substantial part of the cargo was thus affected. Nor was he entitled to clause the mate's receipt or bills of lading to suggest that the presence of a miniscule quantity of contaminants rendered the cargo otherwise than in good order and condition. The defendants therefore failed to issue to the shippers a bill of lading which contained a statement as to the apparent order and condition of the urea which a reasonably observant master could properly have made. The defendants were thereby in breach of their contractual duty arising under Article III rule 3 of the Hague Visby Rules.

Even if the extent of the discolouration fell within the range suggested by Captain Wood's evidence, namely 5% to 7% with the highest level of confidence around 6% which included greyish as well as yellowish and beige discolouration, I should have reached the same conclusion, namely that to qualify the description of apparent good order and condition simply by describing the urea as discoloured without qualification as to the extremely small extent of apparent discolouration was to insert an untrue statement as to the apparent order and condition which no reasonably observant master would have inserted.

Title to Sue

Section 2 of the Carriage of Goods by Sea Act 1992 provides as follows:

"Rights under shipping documents

2(1) Subject to the following provisions of this section, a person who becomes -

(a) the lawful holder of a bill of lading;

(b) the person who (without being an original party to the contract of carrige) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or

(c) the person to whom delivery of the goods to which a ship's delivery order relates is to be made in accordance with the undertaking contained in the order;

shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.

(2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill -

(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right of possession ceased to attach to possession of the bill; or

(b) as a result of the rejection to that person by another person of goods or documents delivered to the other person in pursuance of any such arrangements."

It is submitted on behalf of the claimants inter alia as follows.

(i) Agrosin were described as shippers in the bills of lading whereby the shipowners acknowledged that they were the shippers.

(ii) The purchase contract under which Agrosin acquired the urea specified payment against a bill of lading or mate's receipt issued to the order of Agrosin.

(iii) The rights to sue under the bills of lading were not transferred from Agrosin to Guangxi Publications at any time, section 2(2) of the Carriage of Goods by sea Act 1992, notwithstanding, because:

(a) if Guangxi ever became lawful holders of the bills of lading, they did so at a time when possession of the bills no longer gave rise to any right of possession of the cargo as against the shipowners; and

(b) the proviso in section 2(2)(a) did not apply because Guangxi had not become the holder of the bill by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when the right of possession of the cargo ceased to attach to the possession of the bills of lading.

(iv) As to (iii), the contractual or other arrangements pursuant to which Guangxi obtained the bills (the agreement of 8 July 1995) was made at a time when the right to possession of the cargo had already ceased to attach to the bills.

(v) It was not open to the Defendants to argue that Agrosin had transferred its right of suit to Guangxi. The point was not relied upon until the trial itself and was not pleaded until service of the Re-Amended Points of Defence on 3 August 2001. Until then the only case advanced on title to sue was that Acron and not Agrosin were the only shippers. Accordingly, the Defendants had waived their right to rely on this submission.

(vi) Alternatively, if Agrosin had been divested of its rights of suit under the bills of lading due to having transferred the bills of lading to Guangxi in the course of negotiation of the Bank of China letter of credit, Guangxi was entitled to recover damages in respect of the breach of the bill of lading contract as trustee for Agrosin.

It is submitted on behalf of the defendant shipowners as follows:

(i) When the bills of lading were sent to Guangxi Publications on 21 June or (when the Bank of China received them) on 26 June or on 21 July (when they were accepted by the Bank of China pursuant to the agreement made on about 8 July for payment of a reduced price against claused bills) they were still documents of title as against the defendants and did not cease to be such until there had been complete delivery of possession of the cargo to the person entitled to receive it.

(ii) Completion of delivery was not effected until 23 August 1995 which was long after the date on which Guangxi became holders of the bills of lading.

(iii) By reason of the operation of section 2(2) of the 1992 Carriage of Goods by Sea Act, all rights of suit under the contract of carriage passed to Guangxi Publications.

(iv) Even if the bills of lading did not carry with them the right to possession when they were transferred to Guangxi Publications, rights of suit were still transferred to Guangxi under proviso (a) to section 2(2) of the 1992 Act.

(v) The contract for the sale by Agrosin and the purchase of the cargo by Guangxi was made in April 1995. In reality those were the two parties to the sale contract and Grand Prestige was simply an intermediary, as evidenced by Agrosin having named Guangxi as buyer in its invoices and Guangxi having opened the letter of credit for Agrosin as beneficiary. The 8 July 1995 agreement between those three parties did no more than vary the contract price: it did not create a new contract, rather a variation of the pre-existing contract. The Bank of China held the bills of lading throughout the period from about 26 June to 21 July when it confirmed acceptance of them. Therefore the bills were transferred to the Bank by a "transaction" which took place in June/July 1995 and the "contractual or other arrangements" which gave rise to that transaction were those agreed in April 1995.

(vi) Guangxi Publications cannot claim under section 2(4) of the 1992 because they have abandoned their claim in the action. They had put forward no basis of claim in the pleadings until the service of a Reply on 3 August 2001 in the course of the trial. In particular until then they advanced no positive case in response to the Points of Defence served on 8 March 1996 which expressly pleaded that Guangxi had abandoned its claim. In fact the entitlement of Guangxi to sue was first raised in the Claimants' Supplementary Skeleton on Title to Sue dated 4 June 2001.

(vii) Alternatively Guangxi's claim was now time-barred under Act III rule 6 of the Hague-Visby Rules.

(viii) Alternatively Guangxi had adduced no evidence to prove that they had retained the bills of lading and not transferred them to another holder, thereby divesting themselves of title to sue.

Analysis

There is, in my judgment, no doubt at all that, in spite of the numerous references in the contemporary documents, including the mate's receipt, to Acron as the shippers and to Agrosin as consignees, the effect of the agreement entered into by Agrosin, Baff, Meezan and the shipowners on about 14 June 1995 was that the contract of affreightment evidenced by the bills of lading was to be deemed to be one made between Agrosin as shipper and the shipowners as carrier. To this conclusion the terms of the sale and purchase contracts binding on Agrosin (FOB and C and F) and the extremely erudite exposition of authority as to the identity as shipper of a party to such contracts which both parties embarked upon proved to be irrelevant. I find that there was an agreement between Agrosin as shipper and the defendants as shipowners for the carriage of the cargo from Kotka to Beihai. The express terms of the bills of lading, in particular the words "Place and date of issue: London UK, as at Kotka Finland Port 4/5/95", are clear evidence that the contract was intended to have effect as from the commencement of loading at Kotka just as if the bills had been issued at completion of loading showing Agrosin as shippers. Further, although the bills were to be claused conformably with the mate's receipt, the parties to that contract were to be the Shipowners and Agrosin and not Acron, as stated in the mate's receipt.

Secondly, there was at no time before June 1995 an agreement between Agrosin, Grand Prestige and Guangxi Publications to discharge the two contracts of sale and purchase to which Grand Prestige was a party and to replace them with a single sale and purchase contract between Agrosin and Guangxi. None of the communications between the parties support that proposition. Mr Loukianov's statement states:

"In order to simplify matters, we agreed with Grand Prestige that they would arrange for Guangxi Publications to issue a letter of credit directly to us naming Agrosin as beneficiary, and that we would account to Grand Prestige for the price difference between our respective sale contracts. Accordingly, on 24 May 1995, Bank of China, Singapore branch advised to us of two letters of credit issued in our favour; one covering 15.319.98 metric tons and the other 18,000 metric tons."

This type of documentary credit cut-through arrangement is in my experience quite commonplace in cases where there is a contractual chain in respect of the same parcel of goods. It does not normally involve discharge of the intervening contracts or of the intermediate party. It is merely an arrangement to save duplication of the presentation of documents under documentary credits. Interestingly Agrosin, Transmarine and Acron had already effected a similar arrangement on 10 April 1995 under which Agrosin was to make prepayment direct to Acron, Transmarine remaining the contracting party.

The agreement entered into on about 14 June 1995 which provided for the shipowners to issue to Agrosin the claused bills of lading and for Agrosin then to present them back to the shipowners' representative was, when properly understood, a device to bring about both the issue of the bills to Agrosin and their subsequent presentation to the ship in order to obtain delivery of the cargo to Agrosin, as distinct from delivery to Guangxi, thereby avoiding the need for negotiation of the bills under the Bank of China's letter of credit before delivery could start, that being thought to be futile unless and until Guangzi could be persuaded to accept the goods and so instruct the Bank to release payment to Agrosin. There can be no serious doubt but that the writing of "Accomplished" on the bills reflected an agreement that it would not be open to Agrosin to transfer them as negotiable documents of title as against the ship to any third party. Their function in that respect was agreed to have been exhausted by Agrosin presenting them to the shipowners and taking delivery under them. Their sole function thereafter was to enable Agrosin to attempt to operate the letter of credit. If that attempt were successful, the bills of lading could not be re-presented to the ship which would at all times thereafter be entitled to refuse to deliver to any party other than Agrosin or on Agrosin's direct instructions. In other words, the bills of lading were not capable of triggering any delivery obligation on the part of the ship to any party other than Agrosin. If, after the Bank had received the bills on 21 June 1995, it had presented them to the vessel, the shipowners would have been entitled to ignore them.

It follows that, by the time the bills of lading were passed by HSBC to the Bank of China on 21 June 1995 or later in June/July, possession of those particular bills no longer gave to a transferee any right as against the carrier to possession of the goods to which those bills related. Therefore no right of suit under the contract of carriage passed to the Bank unless the proviso to section 2(2) applied.

Mr Hofmeyr QC cited Meyerstein v. Barber (1866) 2 CP 38 and (1870) LR 4 HL 317 as authority for the proposition that, in spite of the word "Accomplished", given that discharge of the cargo was not completed at the time when the Bank of China received the bills of lading or effected payment to HSBC under the letter of credit, the bills of lading were "live" when they were delivered to the Bank, therefore giving the Bank and, by transfer, Guangxi a right of suit against the ship in place of Agrosin's right of suit. However, in Meyerstein v. Barber the facts were quite different from those in the present case. The indorsee of the bills used two of the three bills to effect a pledge of the cargo to the plaintiff. At a later date the indorsee used the third bill to effect a pledge of the same cargo to the defendant. At the time of both pledges the cargo had already been discharged and was held by a wharfinger to the order of the shipowners who were exercising their lien for freight. The lien having been lifted the defendant used his bill of lading to take delivery. The essential issue was whether at the time when the indorsee attempted to create the pledges by delivery of the bills of lading, they were already spent and were no longer capable of being utilised as documents of title. It was held that they were documents of title at the relevant time because, although the cargo had been discharged, the wharfingers held it to the order of the ship which therefore had the immediate right to possession. In that sense delivery to the indorsee was "not complete".

Willes J. in the Court of Common Pleas, whose analysis was expressly adopted by Keating J. stated the position as follows:

"Goods which had been shipped at Madras under a bill of lading making them deliverable in London on payment of freight, arrived at the port of destination, and were landed and deposited at a sufferance-wharf with stop thereon for the bill of lading freight; so that in fact though delivered under such circumstances and to such extent that the shipowner would not have been answerable for an accident happening to them, they were not capable of being received and taken possession of by the consignee or holder of the bill of lading without producing it and discharging the shipowner's lien for freight. The wharfinger under these circumstnces was at the lowest the common agent for the shipowner and for the consignee or holder of the bill of lading - agent for the consignee or holder, upon his producing the bill of lading showing that he was entitled to the goods, and upon his paying the freight, to transfer the goods into his name, and to deliver them to him or give him a warrant for them, and agent for the shipowner, to retain possession of the goods, and to permit no one to exercise any control over them until the claim for freight had been satisfied. During this period, therefore, the bill of lading would not only, according to the usage, and for the satisfaction of the wharfinger that he was delivering to the right person, be a symbol of possession, and practically the key of the warehouse; but it would, so far at least as the shipowner was concerned, retain its full and complete operation as a bill of lading, there having been no complete delivery of possession of the goods. There can be no complete delivery of goods until they are placed under the dominion and control of the person who is to receive them. Here, Abraham could not have the complete dominion and control of the cotton until he had discharged the liability incurred by the shippers for the freight stipulated for in the bill of lading."

Keating J. observed:

"There can be no complete delivery of goods under a bill of lading until they have come to the hands of some person who has a right to the possession under it. Now, here, it is clear, that, on the 4th of March, the cotton in question was held by the wharfinger subject to the stop for freight. It never had been delivered to any person whatever having a right to receive it under the bill of lading."

That decision was upheld on appeal first by a very strong Court of Exchequer Chamber and then by the House of Lords at (1870) LR 4 HL 317, all the members agreeing with Lord Hatherley LC who agreed with Willes J.

There is therefore, in my judgment, nothing in that authority which suggests that where bills of lading have been presented to the ship and, as here, have been indorsed "Accomplished" by agreement between the ship and the holder and where the cargo to which the bills relate has been partly discharged into the possession of the party presenting the bills, there remains in those bills any residual attribute of negotiability as document of title as against the ship.

The question therefore arises whether, notwithstanding that, at the time when the bills came into the hands of the Bank, they were incapable of conferring a right of possession of the goods vis-a-vis the ship, rights of action under the contract of carriage passed to Guangxi by reason of the proviso to section 2(2) of the 1992 Act.

The right to possession of the cargo as against the ship ceased to attach to the bills on about 16 June when the bills were presented to the shipowners' representatives, were indorsed "Accomplished" and the shipowners had agreed to instruct the master to deliver in accordance with the instructions of Agrosin's representative. Alternatively, the bills became spent when discharge commenced on 26 June.

It therefore has to be determined whether the negotiation of the letter of credit under which the Bank of China received the bills and paid under the letter of credit on about 26 July 1995 was a transaction effected in pursuance of any contractual or other arrangement made by Guangxi Publications before 14 or 26 June 1995, in particular under the cut-through payment arrangements made in April/May 1995.

The provision in section 2(2)(a) was inserted for the purpose of permitting the transference of rights under the contract of carriage in those cases where, although the sale contract was made before the ship had made delivery, the bills of lading were not transferred to the ultimate buyer until after delivery by the ship, at which point the bills would cease to be documents of title as against the ship. The background to this provision is explained in the Law Commission Report No. 196 on Rights of Suit in respect of Carriage of Goods by Sea, 1991, paras 2.42 to 2.44. In essence, the transference of the bill of lading after it has ceased to be a document of title has to be a transference provided for by the antecedent contractual or other arrangements. If it is a transference called for by contractual or other arrangements made after the bills of lading ceased to be documents of title vis-a-vis the ship, proviso (a) has no application. The key question is therefore whether the transference of the bills of lading to Guangxi via the bank for triggering the letter of credit which occurred on about 26 July 1995 was called for by the agreement made in about April 1995 for payment under the sale contracts between Agrosin, Grand Prestige and Guangxi. In my judgment, the agreement made on about 8 July 1995 was an agreement by Agrosin to sell to Guangxi the cargo in respect of which the documents had already been properly rejected by the buyer's bank and by Guangxi and therefore by Grand Prestige. The July agreement thus replaced the earlier agreement and its terms were different in important respects from the terms originally agreed. It appears that Agrosin was now selling direct to Guangxi. The price was different and the documents were different. The underlying price had been reduced from US$250.80 to US$230.00 per metric ton. Agrosin's obligation as seller was to be satisfied by presenting to the Bank claused bills of lading and the port of discharge was no longer left to be nominated by the buyer: it was fixed at Beihai. Delivery was to be taken from Agrosin and not from the vessel. What had therefore happened was that the three parties had agreed to a new contract under which the buyers, Guangxi, acquired bills of lading which had a different effect from those which they had originally been entitled to receive and at a lower price. Even if the July agreement did not create a direct sale by Agrosin to Guangxi, but left in place the sale to Grand Prestige and sub-sale to Guangxi, it was a new contract on different terms.

I therefore conclude that proviso (a) to section 2(2) does not apply and that Guangxi acquired no rights of suit against the shipowners. That being so, Agrosin was the only party entitled to sue.

In view of this conclusion on title to sue it is unnecessary to decide whether, if title to sue had passed to Guangxi, its claim is, as the Defendants assert, now time-barred or whether its claim has been abandoned. Had those two issues needed to be resolved. I should have decided that Guangxi's claim was not time-barred under Article III rule 6 of the Hague-Visby Rules. The cause of action in respect of which Guangxi seeks to recover damages, namely breach of Article III rule 3, is essentially that relied upon from the outset by Agrosin. The fact that there had been a statutory transference of the right to sue to Guangxi which had not been pleaded at the outset would not lead to the conclusion that suit had not been brought by Guangxi within the Article III rule 6 period. I should further have decided that Guangxi had not abandoned its claim. The omission to plead or otherwise express precisely what Guangxi's case was as to title to sue did not unequivocally represent that Guangxi was not still pursuing its claim.

Causation, Loss and Damage

I have already concluded that the master was acting otherwise than in accordance with the shipowners' duty under Article III rule 3 in issuing bills of lading which misrepresented the apparent order and condition of the urea. I have also stated that it was not open to the master to conclude that the whole of the cargo was not in apparent good order and condition because a small proportion of it was discoloured or because a great proportion was off white and it was expressly stated in the mate's receipt to be "white". Since any reasonably observant master would have been bound to record that the urea was not entirely white in colour or, putting it at its lowest, would have been more likely than not to record such discolouration by clausing the bills, it is more probable than not that, even if the master had acted in accordance with his duties under Article III rule 3, he would not have issued clean bills of lading. Although, as I have already observed, evidence from Mr Smirnov, Mr Kamper and Mr Jaaskelainen was to the effect that there had been no clausing of urea cargo bills of lading shipped through Kotka, there is no evidence, and I am not able to infer, that any of these other cargoes were described as "white" in the mate's receipts. Where such a description has been formally stated in the mate's receipt a master who was reasonably observant would be more likely than not to clause the bills.

It follows that if one compares what the master actually did with what he probably would have done had he been acting consistently with Article III rule 3, the result is a claused bill of lading in both cases. Whereas it is true that the hypothetical clausing would not have referred to contaminants, it would have referred to partial discolouration. Consequently, Agrosin would not have obtained a clean bill of lading and would therefore have been unable to present all the necessary documents for the purpose of negotiating the letter of credit. Since the market price of urea had fallen by the time the vessel arrived at Beihai, it is more probable than not that Agrosin would have been just as unable to persuade Guangxi to waive the requirement for clean bills of lading except by reaching a similar agreement for the reduction of the price. Accordingly, the claimants have not, in my judgment, established that the master's failure to comply with Article III rule 3 in this case has caused them any loss.

Had I concluded that the master's failure to comply with Article III rule 3 had caused any loss to the claimants, I should have quantified that loss by reference to the amount by which Agrosin's revenue actually derived from the sale of the urea was reduced by comparison with the revenue which it would have derived from that sale if clean bills of lading had been issued by the vessel upon completion of loading. As regards interest, the position is somewhat obscure. The reduced price of US$230.00 per metric ton is said to include 90 days interest: see the letter dated 8 July 1995 from Grand Prestige to Agrosin. However, according to the statement of Mr Loukianov, paras 10-11 an additional amount of interest in the sum of US$67,973.44 is claimed. I have not been able to ascertain the relationship between these two figures nor to reach any conclusion as to whether this claim involves an element of double recovery. If the parties are unable to agree on quantum should it ever become necessary to do so, further submissions can be made.

The Claim for Shifting Expenses

This claim arises out of the master's failure on 19 June 1995 to proceed from the anchorage to the berth designated by the harbour authority at Beihai.

Clause 1 of the 19 April 1995 sub-charter between Agrosin and Baff provided that the vessel being loaded should proceed to the discharge port indicated and there deliver the cargo on being paid freight. Clause 18 provided:

"(a) Vessel shall to go the ... discharging berth(s) as ordered by charterers/shippers/receivers or so near thereunto as she may safely get and lie always afloat, unless one or more specifically named berths have been mutually agreed."

The claimants submit that the terms was incorporated into the bill of lading contract.

In summary, the claimant's case is as follows. It is based upon the evidence of Mr Low Kay Hock, an employee of Agrosin who was representing it at Beihai. At about 12.30 on 19 June 1995 while the vessel was at the anchorage, the master was advised by Penavico, on behalf of China Ocean Shipping Agency, that the vessel was to berth at No. 3 berth during that night's tide. The master expressed concern as to the sufficiency of water in the channel and at No. 3 berth. There was a discussion on board between representatives of Meezan, Barwil, the vessel's Beihai agency, Mr Low and the master. In the result the master agreed to berth the vessel on that night's high tide. Later that day (about 1600) the Harbour Master contacted the master by VHF to confirm berthing arrangements. The master enquired how many pilots and tugs would be provided and was told by the Harbour Master that there would be three pilots and two tugs. The master said that he could proceed slowly into berth. At about 1700 the Harbour Master again called the Master and informed him that the pilots would go aboard at 2100.

At about 2100 the pilots duly boarded the vessel, but the master told them that it was unsafe to berth the vessel. The master spoke to Mr Low on the VHF and told him that it was not safe to berth. He stated that the pilot had refused to give him a letter of guarantee and expressed the view that the pilots were inexperienced and the tugs too old. The Director of the Port Authority, Mr Li, spoke to the Master and told him that it was safe to berth. However, he still refused to take the vessel in. According to the Harbour Authority's letter of 21 June 1995, the master had been informed that the draft in the fairway to the berth was 7.8 metres tons plus the tide and in berth No. 3 was 10.6 metres plus the tide. The highest tide on 19 June was 3.95 metres at 23.17 and from 2110 to 2230 the tide was 3.55 metres to 3.89 metres. The vessel's draft was 11.1 metres. A southerly wind could be expected to add a further 0.2 to 0.25 metres to the draft. In refusing to follow the instructions of the Harbour Authority the master was in breach of the Chinese port regulations which require vessels to comply with the instructions of a port authority.

The Harbour Authority (Mr Li) discussed the situation with Mr Low. It was made clear to him that the vessel would have to wait its turn to berth which might involve a 20 days' delay unless Agrosin paid compensation for the wasted operation on 19/20 June 1995 in the sum of US$12,000 - US$13,000 together with "something extra" for the Harbour Authority team and pilots to ensure future co-operation. It was agreed that Mr Low should pay a total of US$20,000 to the Harbour Authority to reinstate the quick berthing priority exercise for the vessel as originally arranged, but now on 25 June.

The claimants submit that the master was in breach of his duty under the contract in failing to obey the Harbour Authority and that they are therefore entitled to recover as damages the cost of procuring a substitute quick berthing arrangement, namely the additional payment of US$20,000.

The claimants further rely on observations made in the House of Lords in James Reney v. Kirkudbright Magistrates [1892] AC 264, in particular the passage in the speech of Lord Herschell at page 275:

"....when a vessel is within the jurisdiction of the harbour master, and he is giving his orders as to the place of anchorage, it is only in the last resort and when the danger is fully obvious that any rational man would think that the harbour master's orders should not be strictly attended to."

The Earl of Halsbury LC expanded on these observations six years later in Taylor v. Burger (1898) 8 Asp MLC 364 at page 365R:

"I regard it and I think the master of the Tyne regarded it, as an order to come on, and a remonstrance for having stopped at all. Assuming it to be an order, you must also remember this, that a man is not blindly to run into danger or encounter wilfully what would result in a collision if he could see that it must take place. I suppose that no one would contend that obedience to an order should be carried to the extent of leading to an inevitable disaster. The broad proposition must be admitted that you must not knowingly run into danger by the order of a harbour master or anyone else. That assumes the fact that it was absolutely certain a disaster would happen. I adhere to what I said in the case of Reney v. Magistrates of Kirkudbright (7 Asp Mar Law Cas 221: 67 LT Rep 474; (1892) AC 264), that if it were once supposed that a person acting under the orders of a harbour master is to exercise his own judgment whether or not the harbour master's orders are most consistent with prudence and then refuse to obey the order given, that would lead to very serious consequences indeed. It would be a grevous burden thrown upon the person obeying the order if it was supposed that he was to sit in judgment and consider whether a thing ought to be done. The primary duty is obedience to an order. It would be fatal to a harbour-master and his usefulness, if latitude was to be given and every one allowed to sit in judgment upon his directions. If an order was given, and the circumstances were such as to render it doubtful whether or not the order ought to be obeyed, it was obviously the duty of the master of the Tyne to obey the order as he did."

The Defendants submit that clause 18 of the charterparty was not incorporated into the contract of carriage because it is not germane to the obligations under that contract - namely the shipment, carriage and delivery of the cargo, because incorporation requires unacceptable verbal manipulation and because the express terms of the bill of lading requires the shipowners only to carry the cargo to the port of discharge "or so near thereto as she may safely get the goods specified ....."

Whether or not one treats the contract of carriage as having incorporated clause 18 of the charter, there can be no doubt that the shipowners were under a duty not merely to carry the cargo to and discharge it at the port of discharge, but effect discharge at the safe berth or other safe place required by the receivers or their agents for that purpose. In many cases the Harbour Authority will designate the berth and the receivers and the shipowners will be bound to effect discharge there. The shipowner cannot choose his own discharging berth: he is necessarily in the hands of the receivers who in turn are obliged to follow the directions of the Harbour Authority.

As to the facts, the Defendants submit that on the evidence the information available to the Master was contradictory. They rely on the following. On 6 June 1995 Barwil, the Beihai agents appointed by Agrosin to oversee discharge, reported to Meezan and Agrosin that the draft restriction was 10.5 metric tons but indicated that it was informed that 11.1 metres arrival draft would be acceptable to the harbour authority. The master having asked whether Beihai was a safe port for a 11.1 metres draft, on 7 June Agrosin told the master that in view of Beihai's official maximum draft being only 10.5 metres, he should make sure that he did not have to lighten. On the previous day, in response to the shipowners' question, Van Ommeren, the owners' chartering agents, reported that the local port authority at Beihai allowed a maximum saltwater draft of 11 metres. However, by its 7 June 1995 fax Grand Prestige reported to Agrosin that Beihai Port Authority had confirmed that "no lightening is required as the high tide of the day starting June 10 will be +4 metres over the formal draft of 8 metres". On 8 June the local agents, Penavico informed the master that the fairway depth was 7.8 metres + tide and that there were four deep water berths with depths ranging from 9.5 metres + tide to 11 metres + tide.

The master had on board the vessel up-to-date navigation literature, including a British Admiralty Chart correct to 1993 which showed the minimum depth of the approach channel as 5.9 metres, net of the tide and the China Sea Pilot with the 1995-6 Guide to Port Entry which gave the maximum permitted draft as 10.5 metres. In his witness statement the master said that on 19 June, according to the information available to him, the tide was 2.9 metres which gave insufficient depth (9.4 metres). He does not identify his source. He also stated that the Chinese Pilot who boarded the vessel on 19 June at 21.00 agreed that it was unsafe to berth. The master also stated that he regarded the two tugs provided as "very elderly" and too weak. Only two pilots were sent on board. The master told the shipowners that the depth was only 9.4 metres at high water.

I reject the master's assertion that the available depth on the evening of 19 June was only 9.4 metres and I accept as intrinsically more reliable the evidence of the Port Authority that the available draft between 2110 and 23.17 on 19 June varied between 11.55 metres and 11.95 metres, taking into account the tide and the southerly wind. That compared with the vessel's draft of 11.12 metres. The Harbour Authority was therefore correct in proposing to berth the vessel. I find that it could have been safely berthed.

Making appropriate allowance for the master's fears that the available draft was insufficient for his vessel, I am not able to conclude that the Harbour Authority's request to berth was so obviously wrong that it was virtually certain to the master that the vessel would ground. In these circumstances, his duty under the contract of carriage was to proceed in accordance with the Harbour Master's orders to the designated berth. He could not have concluded on the materials available to him that the instructions he received would inevitably lead to the vessel grounding. Although he might justifiably have entertained real doubts his failure so to proceed was therefore a breach of that duty for which the shipowners are liable. The damages are proved to be US$20,000.