Claused Bills of Lading: The DAVID AGMASHENEBELI Case
When urea met the sea and the bills of lading controlled the money, the master
of the DAVID AGMASHENEBELI chose to write clauses instead of issuing “clean”
bills, and the courts followed the documents—from price cuts and protests to
the pilotage dispute at Beihai—to decide who could sue and what a sensible
master should write.
From loading at Kotka in April–May 1995 to the final judgment on 31 May 2002,
the DAVID AGMASHENEBELI shows how the words on a bill of lading can matter as
much as the cargo.
The voyage began with a chain of contracts that all pointed to one goal: move 35,000 metric tons of bulk prilled urea from Finland to South China and get paid against documents. On 13 January 1995, the owners of the Maltese vessel let the DAVID AGMASHENEBELI on time charter to Meezan Shipping & Trading Inc. On 19 April 1995, the ship was fixed on a voyage charter to Baff Shipping to load at Kotka and discharge at one safe port in China. On 4 April 1995, Transmarine Ltd. (Columbus, Ohio) sold 35,000 metric tons of urea to Agrosin Pte Ltd. (Singapore) at US$180 per metric ton FOB Kotka. The goods were described as “white colour, free flowing, free from contamination, prilled form.” Payment was split: part to the producer in advance and the balance against shipping documents. On 10 April 1995, Agrosin resold to Grand Prestige Enterprises (Hong Kong) at US$238.75 per metric ton C&F, payable by letter of credit that required a full set of clean on board bills of lading and an independent quality certificate. Grand Prestige then sold to Guangxi Publications Import & Export Co. Ltd., again against a letter of credit requiring clean bills. Everyone knew from the start that “clean” bills were vital for the bank to release money.
The ship reached Kotka and gave notice of readiness at 09:30 on 24 April 1995, and berthed at 12:05 the same day. Early checks created tension. Agrosin’s independent surveyor, Mr. Marius Kamper of Euroservice, and Mr. Smirnov for the suppliers inspected the holds and at first said they were unfit because traces of a past coal cargo and rust remained. After extra cleaning and contrary opinions from another inspector, loading went ahead. The master refused to sign a letter of indemnity that would have traded “clean holds” for a quick schedule. Loading began at 06:30 on 27 April 1995. Within hours, the master reported that the cargo looked discoloured and contaminated with rust, plastics, and other foreign matter. He warned the charterers, suppliers, and Agrosin that he would hold them responsible for any discharge claims. In a letter of protest dated 28 April 1995, he wrote that some cargo in all holds was damp and discoloured—yellow, pink, and nearly grey—and “contaminated with plastics, glasses, stones and other materials.” He later said that on 3 May 1995, in a meeting with surveyors and Meezan’s port captain, all present agreed on a clause to capture what he had seen: “Cargo discoloured also foreign materials eg. plastic, rust, rubber, stone, black particles found in cargo.” Mr. Kamper denied agreeing that this wording was correct, saying any contamination and discoloration were minor. Loading finished at 18:20 on 4 May 1995. When Agrosin’s local agents would not insert the clause on the mate’s receipt, the master told the owners’ protective agents to do it. The receipt named Acron as shipper and “to the order of Agrosin” as consignee and expressly mentioned discolouration and foreign matter.
While the ship sailed toward China, the documents became the main fight. On 11 May 1995, Agrosin prepared draft clean bills that said “Bulk Urea, colour white,” but the owners’ agents refused to sign clean bills. On 16 June 1995, when the ship was off Beihai, bills of lading were signed in London for the master using the same clause as on the mate’s receipt and naming Agrosin as shipper. The bills showed “London UK” as the place of issue but stated “as at Kotka Finland Port 4/5/95” as the shipment date. Because the letter of credit required clean bills, the bank would not accept these claused bills. To break the stalemate and allow discharge, the parties made a special arrangement: Agrosin presented the claused mate’s receipt and accepted the three claused bills “under protest” so discharge could start. Two bills were stamped “Accomplished,” and the third was retained against a ship’s acknowledgment. The vessel went alongside at 16:00 on 25 June 1995, and discharge began at 01:00 on 26 June 1995. On 26 June 1995 the Bank of China received the documents but refused the claused bills under Guangxi’s letter of credit. The market had fallen by then, and Guangxi would not take the cargo at the original price unless there was a reduction. On 8 July 1995, Grand Prestige confirmed a price cut from US$250.80 per metric ton to US$230.00 C&F FO, CQD Beihai. After a US$2.00 per metric ton commission and other adjustments, Agrosin’s net return became US$223.45 per metric ton. On 26 July 1995, Agrosin discounted Guangxi’s letter of credit with HSBC. The slightly discoloured and slightly contaminated cargo reached the buyer, but the price drop and document problems set the stage for a lawsuit.
The cargo was not pure snow-white. The court looked at photos and videos from Kotka and Beihai, and heard from Mr. Kamper and Captain Wood. It found that even before loading there was a small amount of foreign matter—soil, dirt, broken glass, rust, oil, and general rubbish—in the stockpiles. Captain Wood spoke of “a few kilos,” and the court estimated about 0.01% of the cargo, roughly 3 metric tons out of the 33,319.98 metric tons shipped. The cargo also showed discoloration—yellowish, beige, pink, and some grey—although most of it was bright white or off-white. The court accepted that more discoloration probably occurred after loading when rain fell and coal dust and rust dropped from the hatch covers and steelwork if covers were not closed fast enough. But it rejected the claim that the cargo was entirely white at shipment. These facts framed the legal issue: what does Article III rule 3 of the Hague-Visby Rules require of a master when stating “apparent good order and condition” on a bill of lading?
The court defined the “Clausing Issue” with four questions. First, what duty does the law place on shipowners about the master’s clausing? Second, did the apparent condition at loading justify the descriptions the master inserted? Third, if the clausing was wrong, was there a breach? Fourth, if there was a breach, what loss followed? The claimants said the owners had a duty to use skill and care. In their view, the master’s statements must be accurate about apparent condition, and inserting excessive or misleading clauses was a breach of the contract of carriage or a tort of negligence. The owners said the master’s job under Article III rule 3 is to record his reasonable and honest view of how the goods look at loading. He does not need to be a cargo expert, run tests, or guarantee accuracy. A bill of lading is a receipt that reflects the master’s reasonable judgment, not a warranty of the cargo’s actual condition. The court agreed with the owners. It held that the duty is to record the apparent order and condition according to what a reasonable and honest master would see and note at the time. The word “apparent” is key: the master must write what a reasonably competent and observant master would write when looking at the cargo, but he is not held to a laboratory or expert standard. The court refused to add a wider tort duty of care or imply extra terms beyond the Rules, because that would slow loading with tests and experts and raise costs across trade. In short, the master must observe reasonably and judge honestly; he does not promise the truth of every detail.
The next question was whether this master stayed within that duty. The court’s answer was mixed. It found that the cargo was not all white and contained a very small amount of foreign matter. So a reasonable master would likely have added a clause noting partial discoloration. But the exact wording used—“Cargo discoloured also foreign materials eg. plastic, rust, rubber, stone, black particles found in cargo”—went beyond what the evidence supported about how the cargo looked when loaded. The wording suggested that the whole cargo was not in apparent good order and listed contaminants in a way that overstated what a reasonable master would say about a few kilos of stray material in tens of thousands of tons. In that sense, the master “misrepresented the apparent order and condition” and acted “otherwise than in accordance” with Article III rule 3. The key question then became causation: even if the clause was too broad, did it cause the price reduction and the other losses claimed by Agrosin?
On causation, the court compared two worlds. In the real world, the broad clause was used. In the “what if” world, the master would have complied with Article III rule 3 and written a narrower clause. Because the cargo was not entirely white and did show visible discoloration, a reasonable master would still have issued a claused bill noting partial discoloration. In both worlds, the bills would not have been “clean.” Since Guangxi’s bank required clean bills, Agrosin would still have failed to negotiate the letter of credit. With the urea market falling in late June 1995, Agrosin would likely have had to accept a similar price reduction to persuade Guangxi to take the cargo despite the documentary discrepancy. Therefore, even though the master’s language went too far, the claimants did not prove that this excess caused their loss. The loss came from the fact that the bills would not have been clean either way.
Another major issue was who had the right to sue. The owners argued that the final receivers—Guangxi, or any buyers from Guangxi—held title to sue under the Carriage of Goods by Sea Act 1992, not Agrosin. The court looked closely at the sales chain and, most importantly, at what happened in July 1995 after the bank refused the claused bills. On 8 July 1995, Agrosin, Grand Prestige, and Guangxi made a new agreement. The price fell from US$250.80 to US$230.00 per metric ton C&F FO, CQD Beihai; Agrosin’s net was US$223.45 after commission and adjustments; and Beihai was fixed as the discharge port. The court decided that this July agreement replaced the earlier structure. Delivery would now be taken from Agrosin with claused bills, not from the ship using the original clean documents. So the proviso in section 2(2)(a) of the 1992 Act, which can pass rights of suit to a transferee when bills cease to be documents of title, did not apply. Guangxi got no rights of suit against the shipowners. Agrosin alone had title to sue. Because of that, the court did not need to decide if any Guangxi claim would have been time-barred under Article III rule 6 or had been abandoned, though it suggested such a claim would not have been time-barred and had not been abandoned.
The last big dispute was the “Berthing Claim” at Beihai. On 19 June 1995, while at anchorage, the Harbour Authority told the ship to berth at No. 3 berth on that night’s tide. The master doubted the depth, the tug strength, the number of pilots, and the safety of the channel. Radio messages confirmed that pilots were expected at 21:00. The master later wrote that high water would give only 9.4 meters of depth, not enough for the ship’s arrival draft of about 11.12 meters, and said a Chinese pilot had agreed it was unsafe. The court compared these notes with the Port Authority’s evidence and tidal data. It rejected the master’s 9.4-meter figure. It accepted that between 21:10 and 23:17 on 19 June 1995 the available depth was between 11.55 meters and 11.95 meters, which was enough. The Harbour Authority’s request to berth was not “obviously wrong,” and the master, based on what he knew, could not conclude that obeying the order would inevitably cause grounding. Under the contract of carriage, he had to proceed to the designated berth. His refusal was a breach. The extra shifting and port charges that followed were proved in the amount of US$20,000, which the court awarded.
All through the judgment, the court linked legal rules with trading practice. A clean bill of lading is prima facie evidence of apparent good order and condition and, for a good-faith third party, can be conclusive. For that reason, issuing a clean bill for damaged or apparently defective goods can estop shipowners later as against an indorsee for value. But the court refused to turn that into the reverse trap: a master who sees a visible problem does not have to issue a clean bill at his peril, nor must he stop loading for tests and experts before writing any clause. His role is not to guarantee the true condition of the goods. It is to record, honestly and reasonably, how they appear to him at loading. That balance—speed of trade versus reliability of documents—depends on keeping the duty calibrated to “apparent” condition. If courts demanded more, many loadings would slow down, ships would wait, and costs would rise with little benefit. The court also refused to bolt on an extra negligence duty or an implied term beyond Article III rule 3.
Applying that standard to this ship, the court focused on what the master could see at the time. Before and during loading there was visible discoloration—yellowish, beige, pink, and some grey—and some surface contamination: coal dust and rust from hatch structures and a very small amount of foreign matter in the stockpiled urea. Discharge surveys later noted rare amounts of rust and coal dust on the surface and less than 0.1% yellowish colour in isolated areas. That matched the court’s view: most of the cargo was bright white or off-white, with some discoloured parts and with very small, scattered contaminants. In this setting, a reasonable master could clause to note partial discoloration, but would not write as if the entire cargo were discoloured and contaminated. The problem was not the decision to clause; it was the breadth and tone of the clause.
Because the proper wording would still have been a clause for partial discoloration, the bills would still have been non-clean. The bank under Guangxi’s letters of credit would still have refused them. The price reduction agreed on 8 July 1995—from US$250.80 to US$230.00 per metric ton—therefore did not flow from the master’s extra-broad language. It flowed from the basic fact that clean bills were never likely, given the visible condition at loading. Even if one accepted the claimants’ interest numbers—US$230.00 per metric ton said to include 90 days’ interest, plus a further US$67,973.44—there was no proof that those sums were caused by the particular words used by the master. If quantum had mattered (it did not, because causation failed), the measure would have been the difference between Agrosin’s actual revenue on the US$230.00 sale and what it would have got if clean bills had been issued on 4 May 1995. But clean bills were never probable because of the visible discoloration, so that hypothetical did not arise.
The decision on title to sue also illustrated a common risk in string sales. When documents do not meet a bank’s terms, parties often renegotiate to keep cargo moving. After that, statutory transfers of rights may not match the original chain. Here, the 8 July 1995 agreement created a new path: Agrosin would present claused bills, Guangxi would accept against a lower price, Beihai would be the discharge port, and delivery would be taken from Agrosin rather than from the ship against original clean bills. Under section 2(2) of the 1992 Act, proviso (a) did not pass rights of suit to Guangxi. That kept the case focused and avoided side fights about whether any statutory transfer had happened or whether such a claim was out of time or abandoned.
Looking down the timeline makes the story clear. On 24–25 April 1995 the ship prepared to load. On 27 April 1995 loading began. On 28 April 1995 the master sent his letter of protest about moisture, discoloration, and contaminants. On 3 May 1995 the disputed clause wording was discussed. On 4 May 1995 loading ended and the mate’s receipt was issued with the clause. On 16 June 1995 bills of lading with the clause were issued and the ship arrived off Beihai. On 19 June 1995 the master refused to berth when told to do so. On 25–26 June 1995 the ship went alongside and discharge began. On 26 June 1995 the Bank of China received the documents and refused them. On 8 July 1995 the price was cut to US$230.00 per metric ton. On 26 July 1995 Agrosin discounted the letter of credit. Each step left a paper trail, and the court relied on independent records and contemporaneous notes more than on later memories.
In the end, the court reached a split result that matches the rough edges of maritime trade. On the main clausing claim, the court held that the master’s wording went beyond what a reasonable master would have written under Article III rule 3, but that this excess caused no recoverable loss because the bills would still have been claused to note partial discoloration and so would still have been unacceptable under the letters of credit. No damages were awarded on that claim. On title to sue, the court held that Guangxi got no rights against the shipowners and that Agrosin alone had title to sue. On the Berthing Claim, the court held that the master wrongly refused to berth on the night of 19 June 1995. The directions from the Harbour Authority were not obviously wrong, the available depth—11.55 to 11.95 meters—was enough for the 11.12-meter draft, and the master was in breach by not proceeding to the berth. The court awarded US$20,000 in proven shifting and port costs. These were concrete outcomes tied to dates, depths, and dollars.
The legal meaning is clear. Under Article III rule 3, the carrier, acting through the master, must state how the cargo appears at loading, using reasonable observation and honest judgment. The bill of lading is not a guarantee of the cargo’s true condition, and the law does not require the master to be a surveyor, run tests, or seek expert opinions before writing. Courts will not add an extra negligence duty or an extra contractual warranty on top of the Rules. If a master overreaches in his wording, a breach can be found, but the claimant must still prove causation and loss. If a reasonable master would still have issued a non-clean bill because of visible discoloration, the same commercial results—bank refusal and renegotiation—break the chain to damages. On rights of suit, when the parties replace earlier arrangements with a new deal that uses claused bills and provides delivery from the seller rather than from the ship against original clean bills, the statutory transfer under section 2(2)(a) of the 1992 Act may not apply, leaving the original seller as the only claimant. Finally, when harbour directions are not obviously wrong and the water is deep enough—11.55 to 11.95 meters against an 11.12-meter draft on 19 June 1995—a master’s refusal to berth is a breach for which the owners are liable, here in the sum of US$20,000. The message to trade is practical: a master must look, judge, and write what a reasonable master would write; buyers and sellers using strict letters of credit must accept that a non-clean bill will not do; and when safety doubts do not fit the facts, refusing to berth will cost money.
