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Burden of proof for cargo claims under Hague Rules

The Commercial Court has held that the Package Limitation Provisions in Article IV Rule 5 of the Hague Rules do not apply to bulk cargo.

Volcafe Limited & others v Compania Sud America De Vapores SA (Trading as “CSAV”) Court of Appeal [2016] EWCA Civ 1103 (Gloster and King LJJ Flaux J)

Executive summary

The Court of Appeal has recently given an important judgment determining the operation of the burden of proof in cargo claims where the Hague Rules apply. The ruling confirms that a carrier does not first need to disprove negligence on its part in order to rely on the defences under Article IV Rule 2 of the Hague Rules.

Facts

The claims concerned condensation damage to consignments of bagged Columbian coffee beans carried by the Chilean container line CSAV from Columbia to Northern Europe in unventilated containers. The bill of lading was on LCL/FCL (less than container load/full container load) terms, so that the carrier’s stevedores were responsible for preparing and loading the containers with the cargo. This involved lining the insides of the containers with Kraft paper before stuffing the bags into them at the container terminal. The condensation damage was caused by moisture in warm air rising from the bags, condensing on contact with the cold roof before falling back on the bags on and around the stow in each container. The overall damage was relatively minor, producing a loss of only US$62,500 or some 2.6% of the total value of the shipment.

The bills of lading incorporated the Hague Rules as a matter of contract and recorded the cargo as having been shipped in apparent good order and condition. The Hague Rules provide as follows:

Article III rule 2

Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

Article IV rule 2

Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:

(m) Wastage in bulk of weight or any other loss or damage arising from inherent defect, quality or vice of the goods. 

The claimants contended the damage was caused by the negligence of the carrier and/or in breach of Article III rule 2. It was common ground that coffee beans were hygroscopic, so that they might suffer condensation damage when carried from warmer to colder climates and the claimants contended the carrier should have lined the containers with stronger or thicker paper, or alternatively with several layers of thin Kraft paper in order to prevent condensation damage. The carrier argued they had lined the containers with sufficient Kraft paper to protect ordinary goods against damage from ordinary levels of condensation, and that the effective cause of the damage was inherent vice of the cargo within the meaning of Article IV rule 2.

First instance decision [2015] EWHC 516 (Comm)

Mr Donaldson QC, sitting as a Deputy High Court Judge in the London Mercantile Court, held that where goods loaded in apparent good order and condition were discharged damaged, that could justify the inference of a breach of Article III rule 2. That required the carrier to produce evidence establishing that it had not been in breach of its obligations under that article before it could rely on any of the exceptions in Article IV rule 2. Therefore the burden was on the carrier to establish inherent vice or inevitability of damage and also to disprove negligence.

The authorities had established that “properly” in Article III rule 2 meant “in accordance with a sound system”. Here the carrier had not been able to demonstrate such a sound system for the carriage of the coffee beans and was liable for the loss.  CSAV obtained leave to appeal to the Court of Appeal. 

Court of Appeal decision

On the burden of proof under the Hague Rules, the Court of Appeal held that the correct analysis is that once the carrier has shown a prima facie case for the application of inherent vice in Article IV rule 2(m), the burden then shifts to the cargo claimant to establish negligence on the part of the carrier such that will negative the operation of the exception. This was consistent with the weight of the authorities, which had applied the principles in The Glendarroch [1894] P 226 (a pre-Hague Rules case) on the burden of proof even in cases to which the Hague Rules applied. The contrary view expressed in Gosse Millerd v Canadian Government Merchant Marine [1927] 2 KB 432 was incorrect. The approach was also consistent with the common law principle that he who alleges must prove. There was nothing in the Hague Rules to point to a different construction.

It was common ground between the parties’ experts that the condensation causing the cargo damage was due to the coffee beans themselves and the judge should have concluded that the carrier had made out a sustainable defence within Article IV rule 2(m).  The judge should then have gone on to consider whether the exception was negated because the carrier had not employed a sound system for the carriage of the beans. 

In this case the expert evidence indicated that there was an established industry practice of lining containers with corrugated cardboard or Kraft paper. Where Kraft paper was used, one layer of thicker paper would suffice, but if thinner paper was used, two layers should be applied. Here, the weight of the evidence was that two layers of paper had been used for the shipments. The weight of evidence also suggested that minor condensation damage to coffee in bags carried in unventilated containers was endemic but that this form of carriage was the general practice in the trade. The judge should have concluded that the claimants had failed to establish that the carrier’s method of lining the containers was not in accordance with a sound system.

The Court of Appeal accordingly allowed the carrier’s appeal against liability for the loss. 

Comment

The decision lays to rest an issue on the burden of proof under the Hague Rules that has existed since the Gosse Millerd decision in 1927.  It is now clear that if a carrier can show a prime facie case for the application of an Article IV rule 2 exception, the burden then shifts to the claimant to establish negligence on the part of the carrier negating the operation of the exception. 

The decision also provides useful guidance on the scope of the inherent vice defence and on the approach to assessing whether a system is “sound” for the purposes of the carrier’s obligations to carry the cargo safely under Article III rule 2.  In this case the expert evidence was that carriage of bagged coffee beans in lined, unventilated containers is a widespread commercial practice. The Court noted that industry guides recommend carriage of such a cargo in ventilated containers.  While the claimants could have elected for the carriage of these consignments in ventilated containers, that would have involved the payment of additional freight. This aspect will no doubt be of interest to the insurers of such goods that are susceptible to condensation damage during sea carriage.

To discuss any of the issues in this update please contact:
Terry Donaghy, Consultant at terry.donaghy@weightmans.com  or call on 0151 242 6528