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Supreme Court considers burden of proof in cargo damage claims under Hague Rules

17.12.2018 Shipping

Rania Tadros

Rania Tadros Managing Partner

Sheridan Steiger

Sheridan Steiger Senior Associate

Volcafe v. CSAV [2018] UKSC 61 

This recent Supreme Court judgment deals with the issue of whether the carrier or cargo interests bear the burden of proof under the Hague Rules in relation to claims for cargo loss and damage. In particular, it considers the interplay between a carrier’s obligations under Article III.2 of the Hague Rules to properly and carefully load, carry and care for the cargo and the inherent vice defence provided under Article IV.2.(m).

The background facts

The Claimants were the owners and bill of lading holders for consignments of bagged coffee beans transported by the Defendant container line from Colombia to Northern Europe. 

The cargo was loaded into 20 unventilated containers lined with kraft paper. Upon unloading, it was discovered that the bags in all but two of the containers had suffered condensation damage. The bills of lading incorporated the Hague Rules (the “Rules”).

Coffee beans are a hygroscopic cargo, meaning that they absorb, store and emit moisture and, when carried in unventilated containers from a hot to a warm climate, they inevitably emit moisture. It is possible to mitigate the condensation damage suffered in such a voyage by lining the container with paper.

The Defendant argued that the condensation damage was caused by an inherent vice of the cargo (its hygroscopic nature) and that it was entitled to rely on the defence provided by Article IV.2.(m) of the Rules. The Claimants argued that the Defendant failed to apply sufficient paper to the walls of the containers and that it, therefore, breached its obligations under Article III.2 of the Rules.

The decisions of the lower courts

The Mercantile Court held the Defendant liable for the damage to the cargo on the basis that the burden fell on the carrier to establish that it had not been negligent in performing its obligations under Article III.2 of the Rules and that it had not been able to establish on the evidence that it had done so.

The Defendant appealed. The Court of Appeal overturned most of the lower Court’s findings holding that, once the Defendant (carrier) made out the inherent vice defence under Article IV.2.(m) of the Rules, the burden of proof then shifted on to the Claimants (cargo owners) to prove that the Defendant had not employed a sound method for carrying the cargo.

The Claimants appealed.

The Supreme Court decision

The Supreme Court was asked to identify which party bore the burden of proving whether the cargo was damaged by: (i) negligent preparation of the containers, or (ii) inherent vice.

The Supreme Court first considered the position under common law, noting that many of the leading authorities had been handed down before the Rules came into force. It was held that the carrier, as bailee of the goods, is obliged to take reasonable care of the goods whilst they are in his possession. Importantly, the Supreme Court noted that it is the bailee who bears the legal burden of proving that he took reasonable care of the goods and was not negligent in the event that a claim for damage to the cargo is brought. Where the bailee received goods in a good condition and delivers them in a damaged condition, it may be said to be entirely logical that the burden of proving that reasonable care was taken and that damage was not caused by negligence would be on the party who had possession of the goods. That position can of course be altered by any applicable contractual terms.

The Supreme Court considered that the issue on the burden of proof arose at two stages of the analysis.

The first was under Article III.2 of the Rules, which provides that the carrier must, “properly and carefully load, handle, stow, carry, keep, care for and discharge the goods”.  It held that the carrier bears the burden of proving that the damage to the cargo was not caused by its breach of Article III.2 when a cargo is shipped in apparent good order and condition, but is discharged damaged. 

The Supreme Court then considered who bears the burden of proof under Article IV.2, which sets out a list of causes of cargo loss/damage in respect of which the carrier is exempted from liability. It was accepted that the burden of proof is on the carrier to prove the loss or damage results from the excepted cause. For the “inherent vice” exception under Article IV.2(m), it was held that this burden extends to proving that the damage could not have been avoided by the carrier exercising reasonable care. To rely on the exception, the carrier must therefore prove that he took reasonable care of the cargo, but that the damage occurred nonetheless; or that, whatever reasonable steps might have been taken, the damage would have occurred in any event because of the cargo’s inherent characteristics.

The Supreme Court highlighted that a trial judge’s findings of fact should not be overturned lightly. This should only be done where the judge was plainly wrong. In this case, the Court of Appeal should not have overturned the judge’s two material factual findings.

The Supreme Court concluded by allowing the appeal on the basis that the Defendant had failed to evidence that it discharged its obligation under Article III.2 of the Rules.

Comment

As acknowledged by the Supreme Court, the case involved a relatively rare example of liability being determined on the burden of proof due to the absence of persuasive evidence from either party. In practical terms, it is a reminder to carriers of the importance of maintaining appropriate records to evidence compliance with their obligations under Article III.2 and, in the event of any cargo loss or damage occurring, ensuring that all relevant evidence is gathered and preserved.

Article authors:

Rania Tadros Sheridan Steiger