Clarification of a Carriers Burden of Proof when relying on a Hague Rules Defence

November 2016

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Clarification of a Carrier’s Burden of Proof When Relying on a Hague Rules Defence

On 10 November 2016, the Court of Appeal handed down its decision in Volcafe v CSAV [2016] EWCA Civ 1103. This case concerned the question of whether a defendant carrier must first disprove negligence before being able to rely on the available defences in Article IV Rule 2 of the Hague Rules. For the reasons explained below, the Court of Appeal held in a unanimous decision that the answer to this is “no”.

This is a question which has been extensively debated over the last 90 years. The decision is welcome confirmation that the burden of proof under the Hague Rules does not require a carrier to disprove its own negligence in order to rely on the available defences.

 

Facts

The claims were for condensation damage to nine consignments of bagged coffee beans carried in twenty kraft paper lined, unventilated containers from Columbia to various disports in Northern Europe. The claimant cargo interests alleged that the carrier had failed to take reasonable care of the cargo and was in breach of its obligation to carefully load, handle, stow, carry, keep, care for and discharge the cargoes.

The Bills of Lading, which were issued by the defendant carrier, recorded the shipment as in apparent good order and condition and contained a clause paramount making the carriage by sea subject to the Hague Rules from the time of loading onto the ship. Pursuant to the terms of carriage, the carrier’s stevedores were responsible for preparing the containers and stuffing the bags into them at the loadport. After the stuffing of the containers, they were loaded onto vessels owned or operated by the carrier on various dates between January and April 2012.

It was common ground between the experts at the trial that:

i. condensation is inevitable in the carriage of bagged coffee from a warm to a cold climate; and
ii. there is no certain way to prevent condensation damage when bagged coffee carried in a lined unventilated container, which is why industry guides recommend carriage in ventilated containers.

However, the experts agreed that carriage in lined and unventilated containers is a widespread commercial practice.

 

The Hague Rules

The revenant provisions of the Hague Rules which were considered were:

i.   Article III Rule 2 - “the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”.

ii.  In G. H. Renton v Palmyra Trading [1957] AC 149 and Albacora v Westcott & Laurence Line Ltd 1966 S.C. (H.L.) 19.) the word “properly” was interpreted as meaning “in accordance with a sound system”.

iii. Article IV Rule 2 (m) – “Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from wastage in bulk or weight or any other loss or damage arising from an inherent defect.

 

The Mercantile Court Decision

In the first instance hearing, the carrier put forward the following arguments:

i.  Reliance was placed on the inherent vice defence at Article IV Rule 2 (m) of the Hague Rules.
ii.  Alternatively, condensation damage to this cargo was inevitable; and
iii. Article II Rule 2 of the Hague Rules did not apply to the stuffing and lining of the container as these operations were carried out several days prior to loading.

The cargo interests’ position was that the bags had been negligently stowed in the container and that this was causative of the damage. In considering this matter, the Judge took the approach that once the consignees had shown that the coffee bags had been delivered in a damaged condition, the onus was then on the carrier to establish inherent vice or inevitability of damage and also to disprove negligence.

Whilst the consignees’ argument that there had been negligent stowage within the containers which increased condensation was rejected, the Judge still concluded that the carrier was liable for the damage. This was on the basis that carrier could not demonstrate that it had complied with Article II Rule 2 as it could not evidence that the containers had been carried “in accordance with a sound system”. In reaching this conclusion, the Judge commented “a general practice – had one existed - could not itself have rendered a system sound in the absence of any appropriate theoretical or empirical underpinning, and I do not read any judicial pronouncement as having decided or even suggested the contrary.

In this case, the carrier could not prove it had obtained expert input to demonstrate that the material used by the stevedores to line the containers could be expected to prevent the damage.

It was also held that where a cargo is loaded into a carrier’s containers which are subsequently loaded onto the vessel, it is unrealistic to treat this as anything other than a single loading process even if there is an interval between stuffing and loading.


Court of Appeal Decision

Following a detailed review of the first instance decision and the previous authorities, the Court of Appeal allowed the appeal. The Judgment also provided useful guidance on the burden of proof under the Hague Rules, how to assess whether a system is “sound”, the scope of the inherent vice reference, and also the interaction between Article III Rule 2 and Article IV Rule 2 (m).

The key points from his Judgment are as follows:

i. Once the carrier has shown a prima facie case for application of an Article IV Rule 2 defence, which includes inherent vice, the burden shifts to the cargo claimant to establish negligence on the part of the carrier and therefore the operation of the exception. Mr Justice Flaux commented “I do not consider that there is anything in the Rules themselves which points to a different construction than that, in relation to exceptions such as Article IV rule 2(m) (or for that matter other exceptions such as rule 2(c)), the carrier does not need to disprove negligence to rely upon the exception.” This analysis was considered to be consistent with the weight of the authorities, which apply the principles set out in The Glendarroch [1894] P 226.

ii. Therefore, whilst there is a degree of overlap between the inherent vice defence and the obligation of the carrier pursuant to Article II Rule 2, in that the focus is on the ability of the cargo to withstand the ordinary incidents of carriage in light of the carrier’s obligations to properly care for the cargo, the burden remains on the cargo claimant to establish that the carrier was negligent. In reaching this decision, Mr Justice Flaux emphasised the principle that he who alleges must prove.

iii. The inherent vice defence encompasses damage caused by the inherent qualities of normal cargo.

iv. In light of the agreement between the experts at the trial that the damage to the cargo was due to condensation and that the coffee beans themselves were the source of this condensation, a conclusion ought to have been reached by the High Court that the carrier had an Article IV Rule 2 (n) defence. The second question to be considered should then have been whether the claimant had established that the carrier was negligent in employment of an unsound system for the carriage of the goods..

v. The trial judge’s approach to determining whether there was a sound system in place went beyond what the law requires and would impose a counsel of perfection on carriers and their masters and officers. Mr Justice Flaux confirmed that one of the indicators that there is a sound system in place is that it is in accordance with general industry practice, as set out in Albacora [1966] 2 Lloyd’s Rep 53. On the basis of the expert evidence, he should have concluded that there was a general industry practice of lining the containers with corrugated cardboard or kraft paper of 1 or 2 layers. The evidence was that two lawyers of kraft paper had been used to line the containers and therefore the Judge should have concluded that the cargo claimant had failed to establish that the carrier’s system was not a sound system. If this conclusion had been reached, the inherent device defence would have succeeded.

vi. The evidence also suggested that minor condensation damage to cargo carried in unventilated containers would be inevitable, no matter what lining was used. Therefore, the carrier’s alternative defence that the damage was inevitable should have been upheld.

vii. Finally, Mr Justice Flaux confirmed the temporal scope of the Hague Rules. In his Judgment he noted that it is open to the parties to agree what acts or services fall within the concept of “loading”. In this instance, it was agreed that the carrier would be responsible for lining and stuffing the containers and, therefore, these were operations to which the Hague Rules applied. As a result, the carrier was obliged to perform these services properly and carefully, as required by Article III Rule 2. This was notwithstanding that the preparation, stuffing and loading of the containers took place some days prior to loading at the container terminal.

 

Comment 

This type of damage regularly occurs in the container trade but it is rare for these questions to reach High Court, let alone the Court of Appeal. These are routine matters which will usually result in a commercial settlement before the case escalates to this level. Therefore, this case provides useful clarification on the onus of proof where cargo is recorded as being received in apparent good order and condition yet is damaged on discharge. In addition, it provides welcome guidance on a carrier’s duty of care under Article II Rule 2 and how these duties relate to the carrier’s defences in Article IV.

Leave to appeal the Court of Appeal deicision was granted in early May 2017. 

 

  

Article by Heloise Clifford,

Syndicate Manager

Eastern Syndicate