The Necessity Of A Charter Party Indemnity With Regard To The Soya Beans` Moisture Content
The carrier`s obligation to ascertain the apparent condition of a soya bean cargo would require the vessel`s crew only to visually inspect the cargo at the time of loading, take pictures of the cargo and notice if there are any portions of the cargo that visibly differ from the cream colour of the sound soya beans. However, the colour of the soya beans will change only when they are already in an advanced stage of deterioration. If the soya beans are in the initial stage of deterioration, there will not be a visible change in colour.
In a cargo of 60,000 MT of soya beans which consists of parcels loaded by different shippers, a parcel of soya beans with 11% moisture content will look the same as a parcel of soya beans with 14% moisture content, and thus, even if the average moisture level for a full cargo stated by the cargo surveyors in the Analysis Certificate is within the safe transportable limit, that figure may not necessary be accurate if the moisture content of one or more parcels is higher than the average moisture content of the entire cargo, because a parcel with 14% moisture content, whilst it is within the specification of ANEC Contract form No. 41 for moisture content, it could affect the rest of the cargo in a vessel`s hold.
Over the last twenty years, the cargoes of Brazilian soya beans have been the subject of numerous claims for mould and/or heat damage caused by parcels with high moisture content. The Chinese receivers made these claims against the shipowners for the alleged failure to properly describe the condition of soya bean cargoes in the Bills of Lading.
The Chinese maritime courts do not distinguish between the actual condition and the apparent condition of the goods in the case of soya bean cargoes and blame the shipowners for the cargo damage. The shipowners and, if the vessel was in a chain of charters, time charterers, as disponent owners, will ask the voyage charterers to indemnify them for the amounts paid to the Chinese receivers. An example of such case was the English case Priminds Shipping (HK) Co Ltd v. Noble Chartering Inc.1.
In that case the vessel "Tai Prize" loaded a cargo of 63,366.150 MT of soya beans at the port of Santos in Brazil for delivery at the port of Guangzhou in China.
Upon the vessel`s arrival at the port of Guangzhou, the cargo was inspected in all the holds of the vessel and no visible damage was noticed on the top of the cargo stows. The local stevedores commenced discharging the cargo. When the stevedores reached towards the lower layers of the cargo stows, the surveyors discovered that in two of the vessel`s holds part of the cargo was affected by mould and heat damage. The fact that the deterioration damage was found within the lower layers of the cargo stows and not on the top of the cargo stows was an indication that the respective part of the cargo had a high moisture content at the time of loading on board the vessel.
Based on the evidence provided by the local surveyors, the Chinese receivers asked a local maritime court to order the arrest of the vessel "Tai Prize" until the shipowners provided a security for their cargo claim. In order to obtain the release of the vessel, the vessel`s P&I Club provided a Letter of Undertaking stating that the claim would be subject to Chinese law and the exclusive jurisdiction of the Chinese courts.
Unsurprisingly, the receivers` claim against the shipowners was upheld by the Chinese maritime courts on the grounds that the cargo damage was of pre-shipment origin and the shipowner`s agents had failed to properly describe the soya bean cargo in the Bills of Lading.
The shipowners had to pay to the Chinese receivers an amount equivalent to US $ 1,004,385.61.
The vessel "Tai Prize" was at the time it carried the soya bean cargo to China in a chain of two charters: a head charter party between the shipowners and time charterers Priminds Shipping and a sub-charter for the voyage from Santos to Guangzhou between the time charterers Priminds Shipping and voyage charterer Noble Chartering.
The shipowners commenced arbitration in London against the time charterers for a contribution under the Inter-Club Agreement of 50% to the sum the shipowners had to pay to the Chinese receivers. By a settlement agreement the time charterers agreed to pay US $ 500,000 to shipowners and then started arbitration in London to recover this sum from the voyage charterers.
The voyage charter party contained no express term entitling the disponent owners (time charterers) to be indemnified against their share of liability to the Chinese receivers as a result of the voyage charterers providing a cargo with excessive moisture content.
One question in dispute was whether in the absence of express terms in voyage charter party allocating the risk of liability in the case of an inaccurate description of the cargo condition by the shippers in the Bills of Lading is there any legal basis on which the voyage charterers could be liable to the disponent owners for the consequences of any inaccuracy.
The disponent owners contended that where the voyage charterers require the Master or his agents to sign a Bill of Lading which misdescribes the condition of the cargo and that misdescription cannot reasonably be discovered by the Master, the voyage charterers are liable to indemnify the shipowners or disponent owners against the consequences. Since the Brazilian shippers were acting as the voyage charterer`s agents for the purposes of supplying the cargo and presenting the Bill of Lading to the shipowner`s agents for signature, the voyage charterers were obliged to indemnify the disponent owners in respect of their share of liability for the cargo claim brought by the Chinese receivers under the Bill of Lading, pursuant to an implied contractual term in the voyage charter party.
The LMAA Arbitrator found that the cargo damage occurred because the relevant parts of the cargo were loaded with an excessive moisture content and with pre-existing heat damage. The pre-existing damage in the soya bean cargo was not visible to the ship`s crew upon a reasonable examination during loading. The timing and speed of loading did not allow the ship`s crew to notice if there were any portions of cargo with discoloured beans. But the shippers who prepared and presented the Bills of Lading to the shipowner`s agents for signature on behalf of the voyage charterers would have been able to discover the defective condition of the part of the cargo that was damaged. (In fact, the port operators prepared the Bills of Lading, and not the shippers, and they would have had the possibility to ascertain the quality characteristics of the soya beans at the time of receiving them in storage at the port silos.)
On that basis, the LMAA Arbitrator held that the shipper`s description of the soya bean cargo in the Bills of Lading as being in apparent good order and condition was not accurate. Given that the disponent owners incurred liability towards the head owners due to the instructions given by the voyage charterers to load what turned out to be a partially damaged cargo, they were entitled to be indemnified by the voyage charterers against the consequences of the Bills of Lading being inaccurate as to the apparent condition of the cargo.
The Arbitration Award was appealed by the voyage charterers to the English Commercial Court.
The Judge of the English Commercial Court held that pursuant to the Article III Rule 3 of the Hague-Visby Rules, it is the carrier`s responsibility to assess the apparent order and condition of the goods.
"In making that assessment, the master does not act on the basis of the information provided to him by the shipper but makes his own independent assessment … [of the apparent order and condition of the goods]."
The Hague-Visby Rules, incorporated in the voyage charter party by the Paramount Clause, do not stipulate that the information provided in the Bills of Lading in respect of the apparent order and condition of the goods is deemed to be guaranteed by the shipper. In such circumstances there is no room for an implied guarantee or warranty in respect of the apparent order and condition of the goods.
Therefore, the shipowners and time charterers who conclude charterparties for voyages with soya bean cargoes from Brazil to China should include in such voyage charterparties an express indemnity clause to enable them to recover from the voyage charterers any sums they may have to pay to the Chinese receivers in the event that the soya bean cargoes deteriorate during the voyage due to their pre-shipment condition (excessive moisture content). If the voyage charter party would include an express indemnity clause, the charterer`s obligation to indemnify the shipowners or disponent owners, as the case may be, will depend on the facts of the case in question and the provisions of the express indemnity clause.
The case Priminds Shipping (HK) Co Ltd v. Noble Chartering Inc. showed that unlike the Chinese courts which do not distinguish between the actual condition and the apparent condition of the goods, the English courts do this.
The Judge of the English Commercial Court held that since the pre-existing damage in the soya bean cargo was not visible to the Master or the ship`s crew upon a reasonable examination, the Bill of Lading was not inaccurate as a matter of law.
"It contained no more than a representation of fact by the Master as to apparent condition that was not inaccurate because the Master did not and could not reasonably have discovered the relevant defects because they were not reasonably visible to him or any other agent of the claimant [disponent owners] at or during shipment."
The English Court of Appeal held that in cases such as that of Priminds Shipping (HK) Co Ltd v. Noble Chartering Inc., the shipowners should not be held liable to the receivers under a Bill of Lading contract of carriage that is subject to the Hague-Visby Rules2.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Grain Trade Review Edition No. 7.
1.  EWHC 127 (Comm),  2 Lloyd`s Rep 333.
2. See Noble Chartering Inc. v Priminds Shipping Hong Kong Co Ltd. ("Tai Prize"),  EWCA Civ. 87