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Supreme Court confirms carrier liability for cargo damage

The legal burden of disproving a claim for negligence when cargo is lost or damaged at sea rests with the carrier of the goods, the UK's highest court has ruled.10 Dec 2018

The unanimous judgment by the Supreme Court "provides authoritative analysis to the global shipping community on the legal burden of proof for negligence resting with the carrier" under Article III, Rule 2 of the Hague-Visby Rules, which govern the international carriage of goods by sea, according to shipping law expert Charlotte Evenden of Pinsent Masons, the law firm behind Out-Law.com.

The judgment also provides useful assistance on the defences available to carriers for breaches of the Hague and Hague-Visby Rules, particularly the defence of 'inherent vice'.

"To rely on the inherent vice defence enshrined in Article IV, Rule 2(m) of the Hague-Visby Rules, the carrier will be required to prove that either it provided the degree of care contracted for within the charterparty or that even if it had done, that the cargo damage would have arisen in any event," she said.

Volcafe Ltd and five other coffee companies (Volcafe) had appointed Compania Sud Americana de Vapores SA (Compania) as carrier to transport several containers of green coffee beans from Columbia to Germany. The bills of lading incorporated the Hague-Visby Rules and were on LCL/FCL ('less than container load/full container load') terms, which meant that Compania was responsible for preparing and stuffing the containers. Upon commencement of discharge in Germany, 18 of the containers were found to have suffered condensation damage.

Coffee beans are 'hygroscopic', which means that they absorb, store and emit moisture. While they may be carried in either ventilated or unventilated containers, beans carried in unventilated containers will inevitably emit moisture when transported from a warm to a cooler climate. For this reason, unventilated containers used to carry coffee beans must be 'dressed' with absorbent material. Stevedores employed by Compania dressed the containers as was standard practice at the time. However, this did not prevent the damage sustained during the voyage.

Volcafe brought a claim against Compania, as carrier, either for breach of duty under the common law of bailment, or breach of Article III, Rule 2 of the Hague-Visby Rules which requires carriers "properly and carefully to load, handle, stow, carry, keep, care for and discharge" the cargo. They also claimed Compania had been negligent on a number of grounds, including that it had failed to adequately or sufficiently dress the containers. Compania pleaded the defence of inherent vice at Article IV, Rule 2(m) of the Hague-Visby Rules, on the grounds that the coffee beans were unable to withstand ordinary levels of compensation.

In the High Court, judge David Donaldson QC found in favour of Volcafe on the burden of proof question. In the judge's view, there was a factual presumption that the damage to the cargo was caused by Compania's negligence, and it was for Compania to rebut that presumption. The judge also made a number of findings of fact about the paper used and commercial practice to prevent condensation of coffee cargoes during voyage. The Court of Appeal overturned the High Court's judgment, and inserted its own findings of fact. It found that, following the 1894 case of 'The Glendarroch', once the carrier had established a 'prima facie' case of inherent vice, the burden of proving negligence shifted to the cargo companies.

The Supreme Court overturned the Court of Appeal's judgment, and restored the High Court's findings of fact. It held that the Hague-Visby Rules had to be read against the common law backdrop, meaning that it was for the carrier to prove the absence of negligence by showing that it took reasonable care of the goods or that any want of reasonable care did not cause the loss or damage.

"The purpose of the [Hague] Rules was to standardise the obligations of the carrier and to limit the exceptions on which he should be entitled to rely," said Lord Sumption, giving the judgment of the Supreme Court. "They are accordingly concerned almost exclusively with the standard of performance ... Nothing in the Hague Rules alters the status of a contract of carriage by sea as a species of bailment for reward on terms."

"For these reasons I consider that in principle where cargo was shipped in apparent good order and condition but is discharged damaged, the carrier bears the burden of proving that that was not due to its breach of the obligation in article III.2 [of the Hague Rules] to take reasonable care," he said.

The Supreme Court then considered the interaction between negligence and the inherent vice exemption in the Hague-Visby Rules. It found that the Glendarroch case, which was decided 30 years before the Hague Rules were adopted, was no longer good law as far as being the source of a general rule governing the burden of proof. Lord Sumption further commented that the Glendarroch case dealt with the exception for 'perils of the sea' in a pre-Hague Rules context, and was not relevant to the exception for inherent vice.

"A cargo does not suffer from inherent vice in the abstract, but only in relation to some assumed standard of knowledge and diligence on the part of the carrier," he said in his judgment. "Thus the mere fact that coffee beans are hygroscopic and emit moisture as the ambient temperature falls may constitute inherent vice if the effects cannot be countered by reasonable care in the provision of the service contracted for, but not if they can and should be."

Finally, the Supreme Court ruled that the Court of Appeal was not entitled to overturn the trial judge's findings of fact "simply because [it] would have found them differently". The Supreme Court's restoration of the factual findings of the judge at first instance serves as a pertinent reminder that the threshold for an appellate court to interfere with primary findings of fact is high and will not be granted lightly.

"The Supreme Court's ruling brings welcome clarification to the interpretation of the Hague-Visby Rules, and overturns the previously long-standing, yet controversial, case of The Glendarroch," said shipping law expert Charlotte Evenden. "The basis on which cargo claimants can bring a claim is now clear: they will be able to rely on proof of damage to the cargo alone as establishing a sustainable cause of action against the carrier, with the legal burden falling on the carrier to disprove their negligence."