Bill of lading – Condition of cargo – Representation as to condition of cargo

Breffka & Hehnke GMBH & Co KG and others v Navire Shipping Co Ltd and others: Queen's Bench Division, Commercial Court (Mr Justice Simon): 7 November 2012

The instant claim arose from the carriage of a consignment of steel pipes on a vessel from Korea to ports in North America between September and October 2008, which, it was claimed, were found to be damaged on arrival. The relevant contracts of carriage were 13 bills of lading signed by Orion (the agent), and which named the shipper as Nexteel Co Ltd of Korea, and the 'consignee' and 'Notify Party' as the second claimant (KOP).

The first defendant company was the registered owner of the vessel, the second defendant was the demise charterer and the third defendant (the owner) was the time charterer of the vessel. The terms and conditions of the bills of lading included an English jurisdiction clause and an applicable US General Paramount Clause incorporating the United States Carriage of Goods by Sea Act 1936 (COGSA). The bills of lading contained a statement that the cargo was shipped 'in apparent good order and condition'.

A report by Korea Surveyors and Adjusters stated that the cargo was 'in apparent good order & condition with the following damage/exception', which it stated existed prior to loading. A letter of indemnity for issuance of clean bills of lading was addressed to the owner. The owner subsequently issued clean bills of lading. Upon the vessel's arrival at the three discharge ports in October 2008, the cargo was found to be rusted. The calculation of loss was agreed at $430,996.19, with an overall loss of $458,655.69.

Under section 3(3)(c) of COGSA, after shipment of the cargo on board the vessel, the master, or his agent was bound on demand to issue to the shipper a bill of lading showing the apparent order and condition of the goods, having formed an honest and reasonable non-expert view of the cargo's apparent order and condition.

The claimants brought proceedings for damage to the cargo. It was agreed that any such claim laid only against the owner. It was common ground that KOP was the only one of the second to ninth claimants that could be said to be a party to any contract contained in or evidenced by the bills of lading. KOP was indemnified against their loss by their German insurers, who acted through and by the first claimant (B&H). B&H claimed against the owner on the basis that it satisfied the conditions of a procedural agency under German law, being authorised to bring a claim in its own name on behalf of the insurers.

The issues for consideration were: (i) whether the decision to issue and sign clean bills of lading had involved false representations by the owners, which had been relied on; (ii) whether and to what extent B&H was entitled to sue and recover damages on behalf of the insurers; and (iii) whether the claims of B&H, on behalf of insurers, would be admitted by a German court as a matter of German procedural law and what, if any, damages B&H was entitled to. Consideration was given to an authorisation dated 2 November 1925 (the 1925 authorisation), which gave authority to B&H to, among other things, settle claims and conduct proceedings.

The court ruled: (1) In the instant case, the decision to issue and sign clean bills of lading had involved false representations by the owners, which had been known to be untrue and intended to be relied on. What had occurred had not been an 'honest and reasonable non-expert view of the cargo as it appeared'. Accordingly, the representation in the bills of lading had been fraudulent and a presumption arose that the innocent party, the holder of the bills of lading, KOP, had been influenced by it. The owners had failed to rebut that presumption (see [55], [56] of the judgment). The David Agmashenebeli (cargo owners) v The David Agmashenebeli (owners) [2002] 2 All ER (Comm) 806 considered.

(2) In respect of issue (ii) the answer was provided by the terms of the 1925 authorisation. As a matter of German substantive law, B&H was entitled to bring proceedings in its own name (see [65] of the judgment).

(3) On the balance, the claims of B&H would be admitted under German law on the basis of a procedural agency, as a consequence of both their function and the length of time that they had carried out such functions (see [75] of the judgment). B&H was entitled to judgment in the principal sum of $458,655.69 (see [76] of the judgment).

Robert Thomas QC (instructed by Clyde & Co) for the claimants; Sudhanshu Swaroop (instructed by Swinnerton Moore LLP) for the defendants.