The blame game

The Court of Appeal decision in the recent case of Volcafe Ltd and others v. Compania Sud Americana de Vapores SA [2016] EWCA Civ 1103 clarifies the law in relation to the burden of proof in cargo claims, in particular in cases involving an 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.

The claimants were consignees under the bills of lading issued in respect of nine consignments of washed Colombian green coffee beans transported by the Defendant container line from Buenaventura in Colombia to various destinations in North Germany. 

The cargo was shipped in bags loaded into unventilated containers lined with kraft paper. Upon unloading, it was discovered that the bags in all but two of the containers suffered damage from condensation, although the damage was relatively minor and affected only 2.6% of the total value of the cargo. The bills of lading incorporated the Hague Rules and recorded receipt of the cargo in apparent good order and condition. 

The issues on appeal concerned the application of the Hague Rules to the stuffing operations as well as the operation of the burden of proof under the Hague Rules. The Court of Appeal also considered what constitutes a sound system for the carriage of cargo. 

Operation of the defence

The Court of Appeal agreed with the decision of the Mercantile Court that the Hague Rules applied to the stuffing of the containers where the carrier has assumed an obligation to stuff the containers as part of the loading services, to which the Hague Rules applied. 

The Court of Appeal also agreed that the cargo claimant who can demonstrate that goods shipped in apparent good order and condition were delivered in a damaged condition has a sustainable cause of action for breach of the carrier’s duty to carefully load, carry and care for the cargo. If the carrier offers no explanation for this loss, then the claim will almost certainly succeed. If the carrier wishes to rely on the inherent vice defence, or indeed any other exception in Article IV rule 2 of Hague Rules, it then has to prove operation of the defence. 

Crucially, however, the Court of Appeal disagreed that the carrier wishing to rely on inherent vice also has to establish that it has not been negligent. If the carrier can establish the inherent vice defence, the burden of proof then shifts back to the cargo claimant to prove the carrier’s negligence. This difference will be important in cases where findings of fact in relation to negligence are not obvious. The same rule will apply to all the exceptions under Article IV rule 2 except rule 2(q), which expressly requires the carrier to disprove fault or neglect. 

The Court of Appeal has also clarified that the inherent vice exception can apply to entirely normal (i.e. not defective) cargoes as long as the loss resulted from the natural properties of the goods. In this case, the experts appointed by the parties agreed that the damage to the cargo occurred due to condensation produced by the coffee beans themselves, which the Court of Appeal found sufficient to establish the inherent vice defence. 

A sound system?

The Court of Appeal went on to consider whether the claimants had made out the allegation that the carrier had not employed a sound system in the carriage of goods. It found that the Mercantile Court had overstated the requirements of a sound system by requiring it to prevent damage to a normal cargo. The Court of Appeal cited the decision in the Albacora [1966] 2 Lloyd’s Rep 53, in which it was held: “A sound system does not mean a system suited to all the weaknesses and idiosyncrasies of a particular cargo, but a sound system under all the circumstances in relation to the general practice of carriage of goods by sea.”

The Court of Appeal further found that the Mercantile Court had erred in law by not allowing the carrier to rely on evidence of standard industry practice for the carriage of this cargo, unless it was supported by theoretical or empirical studies.

Rather, one of the indications of a sound system is that it conforms to general industry practice. In this case, the Court of Appeal concluded on the evidence that there was a general container industry practice to line the unventilated containers with kraft paper for the carriage of bagged coffee beans.

The Court further found that the cargo claimants had failed to establish that the carrier’s system of lining the containers was not a sound system. Therefore, the carrier’s defence of inherent vice succeeded. 

Finally, the Court of Appeal held that, in addition to the inherent vice defence, the carrier had also demonstrated that minor condensation damage to coffee bags in unventilated containers, regardless of the lining, is inevitable, which gave the carrier an alternative defence to the claim. 

Burden of proof

The Court of Appeal overturned most of the lower court’s findings regarding the burden of proof that lies on the carrier who wishes to rely on the inherent vice defence.

Once the inherent vice defence is made out by the carrier, the burden shifts onto the cargo claimant to prove that the carrier did not employ a sound system in carrying the cargo.

This also applies to other defences in Article IV rule 2 (sub-rules a. to p.). Contrary to the Mercantile Court findings, general industry practice is good evidence of a sound system even in the absence of supporting theoretical or empirical studies. 

Rania Tadros is the managing partner of Ince & Co’s Dubai office. She has more than 15 years of experience in international commercial arbitration and maritime litigation. She can be contacted on +971 4307 6000 or rania.tadros@incelaw.com. Anna Fomina is a practice development lawyer based in Dubai. She handles commercial disputes arising under a variety of commercial contracts including contracts for carriage of goods, shipbuilding contracts and insurance policies, among more. She can be contacted on +971 4307 6000 or anna.fomina@incelaw.com.