Bills of Lading 3 - Issues with Quantity and Quality of the Cargo at the Loadport Claims Guides The condition of the cargo a)Owners’ obligations: to record the apparent order and condition of the goods Article III Rule 3 of the Hague Visby Rules states that the carrier or the master are under an obligation to record the condition of the cargo as received: “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....” As a result the carrier should clause the mate’s receipts and bills of ladings (B/Ls) if the cargo is damaged before loading. The carrier’s duty is to record the apparent visible of the cargo “condition” not “its quality”. The description must be accurate, proportionate and record the condition of the cargo at the moment of receipt by the carrier. A question arises as to whether the bill of lading should be claused when the cargo is damaged after receipt by the carrier but before the bill of lading is issued. If the bill of lading is a “shipped on board” bill, then the bill of lading must show the apparent order and condition at the time of loading. The issue as to when the loading operations are finished is a more difficult matter in particular for bulk cargo. If this situation arises Members should contact the Club Managers for advice. If the cargo is not in “apparent good order and condition” the bill of lading should be claused. The master is not expected to be an expert: he is only expected to ascertain damages or defects apparent to a reasonable, nonexpert person. This duty is reflected within the ambit of the Club’s cover in respect of cargo claims and failure to comply with this duty may result and cover restrictions – see Rule 2 Section s16(c) (e). Reference to a survey report will not constitute adequate clausing (unless it is attached to all bills of lading and the pages are numbered as forming part of the bill of lading together with, ideally, the bill of lading number stamped on the report). b) Can the carrier issue a clean bill of lading against a letter of indemnity (LOI)? The shippers will generally require a clean bill of lading in order for the bank to make a payment through the documentary credit system. If a cargo is damaged, the shipper/charterers will often put pressure on the carrier to issue a clean bill of lading. In consideration of doing so the shipper/ charterers may propose to issue an LOI (Letter of Indemnity) in favour of the owners/charterers. Issuing a clean bill of lading when the cargo is damaged, constitutes fraud under English law. An LOI for which the purpose is to defraud a third party is unenforceable under English law. Furthermore, not only will the LOI be unenforceable but the carrier may prejudice his Club cover - see again the exclusions from cover under Rule 2 Section 16(c)(e). c)If the cargo is damaged prior to loading but the charterparty stipulates that “the carrier shall only issue clean bills” or “sign the bill of lading as presented”: what should the carrier/owner do? If the charterparty requires the master to issue clean mate’s receipts or bills of lading, the master should reject (if possible) any cargo which description would require the bill of lading to be claused. If only defective cargo is available, then shippers/charterers cannot rely on the charterparty to force the issue of clean