This case arose from China Animal Husbandry Industry Co Ltd (China Animal Husbandry) purchasing approximately 54,999.642 mt of US distillers dried grains with solubles (DDGS), which were carried by Palmer Maritime Inc (Palmer) to Huangpu Port, China. The sale contract required a Hunter colour L value of at least 50. RMG, the surveyor at the port of loading, sampled the entire cargo, and issued a quality certificate recording a Hunter colour L value of 50.8. The carrier issued a clean bill of lading stating that the cargo was in apparent good order and condition on shipment and that the weight, quality, and quantity of the cargo were unknown. After the cargo arrived in Guangzhou, China Animal Husbandry considered that part of the DDGS was darker in colour and had a burnt smell, caking, and a small amount of mould. It instructed CCIC to inspect 20,931.98 mt of cargo that had been selected and separately stored. The Hunter colour L value obtained from the inspection was 42.5. On this basis, China Animal Husbandry alleged that the cargo had been damaged during the sea carriage, and claimed damages from Palmer. The Guangzhou Maritime Court ordered Palmer to compensate China Animal Husbandry for the cargo loss plus interest. The Guangdong High People's Court upheld that judgment on appeal. Palmer then applied to the Supreme People’s Court for retrial, which in September 2021 ordered a retrial and stayed enforcement of the judgment.

Held: Retrial allowed. First and second instance judgments set aside. China Animal Husbandry's claims dismissed.

The Supreme People's Court first considered whether the cargo had been damaged during the carrier's period of responsibility. Under art 46.1 of the PRC Maritime Code, the carrier is responsible for non-containerised goods from loading to discharge. China Animal Husbandry therefore had to prove that the damage occurred during that period. RMG had sampled the entire 54,999.642 mt at the loading port and recorded a Hunter colour L value of 50.8, whereas CCIC tested only about 20,000 mt of darker cargo selected and separately stored after discharge. As the two inspections differed in scope, sampling method, testing standard, and timing, their results were not directly comparable. The CCIC result of 42.5 therefore did not prove that the cargo had changed colour during the voyage.

The loading records and photographs showed that DDGS of different colours had already been loaded into the vessel's holds, while the condition observed at discharge was broadly consistent with that at loading. The appellate Court therefore erred in requiring Palmer to prove that the cargo's colour and Hunter L value had not changed.

The Supreme People's Court then considered whether Palmer had breached its obligations by issuing a clean bill of lading without making any reservation as to the cargo's colour. Under arts 75 and 76 of the Maritime Code, the carrier may qualify the bill where it knows or has reasonable grounds to suspect that the stated particulars are inaccurate, or has no adequate means of checking them; in the absence of any reservation as to apparent condition, the goods are deemed to have been in apparent good order and condition. These provisions correspond to arts 3.3 of the Hague and Hague-Visby Rules, particularly art 3.3.c on the goods' apparent order and condition.

The Supreme People's Court held that differences in DDGS colour did not in themselves amount to cargo damage or an apparent defect. The shipper had not declared the sale contract's colour requirement, and the Hunter L value required specialised testing. Palmer was therefore entitled to issue a clean bill of lading on the basis of the cargo's apparent condition. The bill of lading did not guarantee uniform colour, or compliance with the contractual Hunter L value. Palmer's failure to make a reservation as to colour accordingly did not breach arts 75 and 76 of the Maritime Code, and the lower Courts had erred in holding otherwise.