Retla Clause: Does it apply to all kinds of rust of whatever severity?

Breffka & Henke GMBH & CO KG & 8 ORS v (1) Navire Shipping Co Ltd, (2) Saga Ship Carriers International AS [2012] EWHC 3124 (Comms) (Simon J)

Further to the well-known decision in Tokio Marine & Fire Insurance Co v Retla Steamship Co [1970] 2 Lloyd’s Rep. 91, there comes a recent Commercial Court decision interpreting the 'Retla' when included in a bill of lading.

It will be recalled that in addition to the usual “shipped in apparent good order and condition” notation in a bill of lading, that such clause is incorporated in certain product trades (e.g. steel, metals, timber) so as to bring within such description incidental and usual condition issues affecting that type of cargo, such as (in the case of steel) surface oxidation.

The fundamental issue was to what extent, if ever, a carrier can hide behind a Retla clause, in permitting a clean bill to be issued where there is obvious cargo damage, and correspondingly the position of a consignee who takes delivery of damaged cargo shipped under a bill containing a Retla clause.

Background

This claim arose from a carriage of a consignment of steel pipes shipped under 13 Bills of Lading dated 25 September 2008, incorporating the Retla clause. The goods were carried on board the vessel MV “Saga Explorer” between September to October 2008 -from Ulsan in Korea to various ports on the West Coast of North America. It was claimed that the steel pipes were found to be damaged by rust at the port of discharge.

The bills of lading provided:

On the front of the printed form: "SHIPPED in apparent good order and condition … to be delivered in the like good order and condition at the aforesaid Port unto Consignees or their Assigns"

Retla Clause: “If the Goods as described by the Merchant are iron, steel… the phrase ‘apparent good order and condition’ … does not mean the Goods were received … free of visible rust or moisture… Nor does the Carrier warrant the accuracy of any piece …. If the Merchant so requests, a substitute Bill of Lading will be issued omitting this definition and setting forth any notations which may appear on the mate’s or tally clerk’s receipt”.

The Bills of Lading also included an English jurisdiction clause and an applicable US General Paramount Clause incorporating the United States COGSA 1936.

The pre-loading survey reported that the goods were in “apparent good order & condition with the following damage/exception”. There then followed 16 pages of condition issues and descriptions including “partly rust stained”, “wetted before shipment by rain and partly rust stained and slightly scratched” “…rust stained in white oxidation on surface”.

However, the bills of lading were not claused, and, further, the shippers provided the vessel owners with a letter of indemnity in consideration of clean bills being issued. Owners’ evidence was that they believed the noted damage fell within the Retla clause but that the LOI was “out of caution… as a last resort”. In relation to this Simon J commented: “The very much more likely explanation is that Nexteel realised that if the Bills of Lading were claused they would not be paid and persuaded Mr Kim that Owners should issue clean bills of lading in exchange…”

Dispute

The Receivers brought claims for damages against Owners arising out of the alleged fraudulent misdescription of the cargo, which induced them to pay for it on sight of clean bills. They contended the Retla clause only covered minor or superficial rust which was likely to be found in any normal cargo and which would not detract from its overall nature and quality. However, here, the pre-shipment damage was much more wide-ranging which the Owners clearly recognised.

The Owners however asserted that the Retla clause had wider application and that in Tokio Marine (a US Court decision) all surface rust of whatever degree was excluded from the representation of apparent good order and condition.

Simon J. held that the Master must form an honest reasonable and non-expert view of the cargo as he sees it, in particular as to its apparent order and condition: The “David Agmashenebeli” [2002] EWHC 104. Meanwhile, the Retla clause was to be construed as a legitimate clarification of what was to be understood of the condition upon shipment and “…was not to be construed as a contradiction of the representation of the cargo’s good order and condition, but as a qualification that there was an appearance of rust and moisture of a type to be expected… which is difficult, if not impossible, to avoid…”. Accordingly, the Retla clause could not apply to all rust of whatever severity.

The Court, therefore, concluded that the Owners deliberately issued and signed clean bills of lading containing false and fraudulent representations regarding the condition of the goods. There was also the presumption that the holders of the bills of lading unknowingly relied upon their misleading contents, and were entitled to recover damages. As Clarke J. stated in Standard Chartered Bank v Pakistan National Shipping Corporation [1995] 2 Lloyd’s Rep 364: “Honest commerce requires that those who put important documents, like bills of lading, into circulation do so only where the bill of lading, as far as they know, represents the facts”.

Conclusion

This decision provides clear guidance as to the interpretation and application of the Retla clause. The message to vessel owners remains that, notwithstanding pressure from shippers, the basic obligation to record the apparent condition of cargo is paramount. In this connection, the Retla clause does not offer an exemption or excuse to overlook obvious concerns.