The English High Court decision in The Maersk Klaipeda sets out important limits to a carrier’s duties when describing containerised cargo in a bill of lading.

In 2019 a cargo receiver bought copper wire scrap from a Dubai-based shipper.  The shipper contracted with Maersk (as carrier) to ship it in sealed containers on the containerships Maersk Klaipeda and MSC Hamburg from Jebel Ali to Piraeus.

The shipper gave Maersk its shipping instructions containing its declared gross cargo weight (GCW), empty container tare weight (TW), and copper wire scrap description of the goods.  This looked in order.

But the loadport terminal separately gave Maersk each container’s actual verified gross mass weight (VGM).  Under SOLAS, the shipper must give this so the carrier can prepare the stowage plan.  The actual VGM total weight figure was less than 40% of the declared weight figure, a big difference.

Maersk’s customer services department received the shipping instructions and issued bills of lading (“bills”); and a different department received the VGM figures and prepared stowage plans.  The two sets of figures were not cross-checked by those two departments, so clean bills were issued referring to the incorrect declared weights.  On delivery, the containers were also found to contain different cargo – concrete blocks. 

The overpaid shipper vanished before the cargo receiver could enforce a Dubai judgment against it for its apparent fraud, so the cargo receiver claimed its losses from Maersk on the basis that:

1. Article III rule 3(c) of the Hague Rules (incorporated into the bills) gives a shipper the right after loading to require the carrier to issue bills showing the cargo’s (i) “weight” except where the carrier has “reasonable grounds for suspecting [the figures does] not accurately…represent the goods actually received, or which [it] has no reasonable means of checking” and (ii) “apparent order and condition”.
2. Maersk should have known the shipper’s declared weights were wrong because of the actual VGM figures it had received.  This should also have told Maersk the goods were not in apparent good order and condition.
3. So (receiver’s contractual claim under the bills) under Article III rule 3(c) Maersk should have claused the bills regarding the apparent order and condition of the cargo instead of issuing clean ones.
4. And (alternative claim in tort) Maersk were in breach of a duty of care towards the receiver to take reasonable steps not to issue bills that a reasonably competent carrier would know or suspect to be fraudulent.

However, the High Court judge ruled in favour of Maersk:

1. Weight.  If Maersk had in fact spotted the weight discrepancy, it would have had to mention this in the bills despite a ‘weight unknown’ clause in the bills (which Maersk said also absolved them of liability but which the judge rejected).  But Maersk did not spot it, so the question was whether it should have done so.  And whilst Maersk could have cross-checked the declared weights with the actual ones (and from 2020 it started doing that) the judge was not shown that it should have done so in 2019.  It was for the receiver to prove that in 2019 carriers appreciated there could be discrepancies or that consignees might become victims of shipper’s fraud, which the receiver had not done.  The VGM was introduced by SOLAS for technical safety purposes, for the stowage plan, not for cross-checking before issuing bills.
2. Apparent order and condition.  The receiver’s case was not just about a lesser cargo weight – it was about a wrong cargo too.  It said the significant weight discrepancy indicated something seriously wrong with the container contents, requiring Maersk to qualify the cargo’s likely order and condition in the bills.  The judge held that ‘order and condition’ refers to the external condition, not the cargo weight.  If e.g. the crew had seen a container drop from a height or heard glass shattering in it or noted a bad smell from a container supposedly containing fresh fish, the carrier could not ignore such plain evidence and issue clean bills regarding the cargo’s apparent order and condition.  But this was different.
3. That answered the receiver’s contractual and tort claims.

But Carriers Beware!

Despite this carrier’s victory, the result could be different on other facts.

First, whilst Article III rule 3 just gives a carrier the right (not obligation) to refuse to insert the shipper’s declared weight in a bill where it hasreasonable grounds for suspecting the figure is incorrect or it has no reasonable means of checking it, if it in fact spots a significant discrepancy then it must say so in the bill or not issue a bill at all.

Secondly, the judge accepted (at least for the alternative tort claim) that where a carrier should have known there was a substantial discrepancy between declared and actual weights, the bill should be claused or not issued at all.  But when should the carrier know?  In 2019 the judge said there was no reason for Maersk to suspect the shipper would provide fraudulent data to require cross-checking – suggesting that in 2019 a carrier would need a specific reason to be suspicious before being required to cross-check the figures.  But it seems possible that today, after 4 years of Maersk cross-checking figures and discovering several cases of fraud in doing so, the decision might be different.

So, carriers must take care despite this victory!

The post Victory for Carriers!  Limits when Describing Cargo in Container Bills of Lading appeared first on LCI Law.

LCI Law are delighted to announce that they have been joined by Stephen Drury as a consultant in LCI Law’s Shipping Advisory, Corporate & Transactional, and Shipping Dispute Resolution practices.

Stephen has 46 years of experience practicing law, having previously spent 43 years working at the Hong Kong and London offices of a major international law firm, of which he was a partner for 35 years and then a consultant for another 3 years.

Shipping is the focus of Stephen’s career, in particular the area of ship finance in which he has advised various interests including banks, leasing companies, owners and operators.  Stephen has extensive experience in ship recycling including the environmental and regulatory challenges affecting this and all aspects of the shipping industry.  Stephen has also acted for numerous clients in shipping litigation matters. Stephen has acted for a wide range of clients with issues arising in a variety of jurisdictions, he has previously been named as a “Legal Expert” in The Legal 500, and he brings a wealth of knowledge and experience to LCI Law and its clients.

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In Orion Shipping and Trading Ltd v Great Asia Maritime Ltd (The Lila Lisbon), the High Court of England and Wales has held that clause 14 of the 2012 Norwegian Sale Form (NSF) memorandum of agreement (MOA) gives a buyer of a second-hand ship limited damages if the cancelling date is missed.

The Sellers failed to make the necessary arrangements to deliver the vessel by its cancelling date under clause 5 of the MOA.

The Buyers cancelled the MOA as per the right given to them by clause 14 and claimed damages under its provision requiring the Sellers to “make due compensation to the Buyers for their loss and for all expenses together with interest if their failure [to deliver by the cancelling date] is due to proven negligence”, which the Sellers were held to be guilty of. The Buyers claimed as loss of bargain damages the difference between the contract price and the market value.

But the High Court judge rejected the Buyers’ claim on the basis that:

1. The 2012 NSF does not impose an obligation on the seller to deliver by the cancelling date – it just gives the buyer the right to cancel the MOA if the cancelling date is missed.
2. And even if it does impose such an obligation, it is not a legal ‘condition’ of the MOA (i.e. a breach so serious as to entitle the innocent party to terminate the contract).
3. In the absence of an actual breach, the question is what specific compensation clause 14 gives the Buyers. In the Court’s view, it permits recovery of accrued (pre-cancelling date) losses/expenses but not a post-cancellation prospective loss of bargain. Clause 14 awards damages for missing the cancelling date (which is what the clause is concerned with), not for the cancellation/loss of the MOA.
4. So, clause 14 awards as damages those expenses incurred by the buyer in advance of the expected delivery that end up being wasted when delivery does not take place by the cancelling date, e.g. crewing expenses, inspections, and legal costs, as well loss of use profits for the late delivery period.
5. If the missing of the cancellation had involved a repudiatory or renunciatory breach (i.e. so serious as to deprive the Buyers of substantially the whole benefit of the MOA contract), the Buyers could have claimed a post-cancellation loss of bargain as damages. But it was not repudiatory or renunciatory.

This decision is important to the shipping market, demonstrating the limits of clause 14 of the 2012 NSF form. If a buyer of a second-hand ship wants loss of bargain damages under clause 14, they will need to include in their MOA an adequately-worded obligation to deliver the ship by the cancelling date.

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