Breffka & Hehnke GmbH & Co KG & Ors v Navire Shipping Co Ltd & Ors

A bill of lading statement that cargo was shipped in apparent good order and condition is a representation based on the honest and reasonable, non-expert judgment of the master. A RETLA clause may qualify that representation by excluding superficial oxidation ordinarily expected on steel cargo, but it does not exclude rust of every severity. A clean bill issued knowingly contrary to the cargo’s apparent condition may constitute fraudulent misrepresentation. Where fraud is established, reliance is presumed unless rebutted. Substantive entitlement to sue is governed by the applicable foreign law, but procedural questions are generally governed by the lex fori.

The claim concerned steel pipes carried from Korea to North America under 13 bills of lading. The bills stated that the cargo was shipped in apparent good order and condition and contained a RETLA clause excluding visible rust or moisture from that description. The cargo had been recorded before shipment as partly rust stained and wetted, but clean bills were issued against letters of indemnity.

The claimants alleged that the bills contained actionable misrepresentations and claimed the resulting cargo loss. A further issue concerned whether B&H, acting on behalf of German insurers, had title to sue in its own name. The court determined the construction of the RETLA clause, liability, reliance, damages and B&H’s standing.

1. Representation in the bills of lading. Under s 3(3)(c) of the US Carriage of Goods by Sea Act 1936, the master or his agent must issue a bill showing the apparent order and condition of the goods. The representation reflects an honest and reasonable, non-expert view of the cargo as it appears.
2. Construction of the RETLA clause. The clause was a legitimate clarification of the representation, not a contradiction of it. It excluded superficial oxidation caused by atmospheric conditions, of the type likely to appear on any steel cargo. It did not exclude rust of whatever severity. That construction preserved an effective role for the representation and was consistent with the need to assess inherent quality under s 4(2)(m) of the US Carriage of Goods by Sea Act 1936 and art 4(2)(m) of the Hague-Visby Rules. The reasoning in Tokio Marine & Fire Insurance Company Ltd v Retla Steamship Company [1970] 2 Lloyd’s Rep 91, insofar as it treated all surface rust as excluded, was rejected.
3. Liability and reliance. The pre-shipment survey and mate’s receipts showed that the cargo was not in the ordinary superficial condition contemplated by the RETLA clause. The clean bills therefore contained false representations. The decision to issue them was fraudulent because the agent knew the relevant condition and intended the bills to be relied upon. Reliance was presumed, and the defendants failed to rebut that presumption. KOP relied on the bills in taking delivery and would have rejected the cargo or required further survey had the true condition been disclosed. This approach was supported by the observations in Standard Chartered Bank v Pakistan National Shipping Corporation and others [1995] 2 Lloyd’s Rep 364 and [1998] 1 Lloyd’s Rep 684.
4. Loss and title to sue. The recoverable loss, including surveyors’ fees, was agreed at US$458,655.69. B&H had a substantive right under German law to bring proceedings in its own name on behalf of the insurers. Whether the claim was procedurally admissible was a matter for the English lex fori. In any event, B&H satisfied the requirements of a German procedural agency on the evidence.
5. Order. Judgment was entered for B&H in the principal sum of US$458,655.69.