Volcafe and Ors v CSAV
Volcafe Ltd and Others v Cia Sud Americana de Vapores SA
Supreme Court: Lord Reed DPSC, Lords Wilson, Sumption, Hodge and Kitchin JJSC;  UKSC 61; 5 December 2018
John Russell QC and Benjamin Coffer, instructed by Clyde & Co LLP, Guildford, for Volcafe Ltd and others;
Simon Rainey QC and David Semark, instructed by Mills & Co Solicitors Ltd, Newcastle upon Tyne, for Cia Sud Americana de Vapores SA.
SHIPPING: BILL OF LADING: HAGUE RULES: WHETHER BURDEN ON CARRIER TO PROVE DAMAGE TO GOODS CAUSED WITHOUT NEGLIGENCE OR DUE TO INHERENT VICE: INHERENT VICE
Where cargo had been shipped in apparent good order and condition but discharged damaged, the carrier bore the legal burden of proving either that that was not due to its breach of the obligation in Article III, Rule 2 of the Hague Rules to take reasonable care or that the damage had been caused by one of the excepted perils in Article IV.
The exception based on inherent vice under Article IV, Rule 2(m) of the Hague Rules can only be invoked if the carrier can show either that it had taken reasonable care of the cargo but the damage had occurred nonetheless or that whatever reasonable steps might have been taken to protect the cargo from damage would have failed in the face of its inherent propensities.
This note has been contributed by Li Pak Hei, Barrister (Hong Kong) of Sir Oswald Cheung’s Chambers, LLB (English Law and Hong Kong Law) (King’s College London), LLB (University of Hong Kong), LLM (Maritime Law) (University College London).
This appeal concerned the burden of proof in actions against a carrier for loss of or damage to cargo. Volcafe Ltd and 5 other claimants (collectively “the Cargo Owners”) were the owners and bill of lading holders of 9 separate consignments of bagged green coffee beans shipped from Colombia in 2012 on various vessels owned by the defendant shipowner (“the Carrier”) for carriage to Bremen. The coffee beans were stowed in a total of 20 unventilated containers. They were transshipped in Panama and discharged at Rotterdam, Hamburg or Bremerhaven for on-carriage to Bremen. Each consignment was covered by a bill of lading covering the entire carriage to Bremen.
The bills of lading were subject to English law and incorporated the Hague Rules. It was common ground that the Carrier was contractually responsible for preparing the containers for carriage and stuffing the bags of coffee beans into them. When coffee beans are carried in unventilated containers from a warm to a cooler climate (which was the case here), they will emit moisture which will cause condensation to form on the walls and roof of the container. It is therefore necessary to protect the beans from water damage by dressing the containers with an absorbent material such as cardboard, corrugated paper or “kraft” paper. The use of kraft paper was a common commercial practice in 2012 and it was employed in this case. However, when the containers were opened at Bremen, the coffee beans were found to have suffered water damage from condensation.
The Cargo Owners’ primary case was that the Carrier had breached its duties as a bailee to deliver the cargoes in the same good order and condition as that recorded on the bill of lading on shipment. Alternatively, they claimed that the Carrier was in breach of Article III, Rule 2 of the Hague Rules by failing properly and carefully to load, handle, stow, carry, keep, care for and discharge the cargoes. In particular, it was alleged that the Carrier failed to use adequate or sufficient kraft paper to protect the cargoes from condensation.
The Carrier relied on the defence of inherent vice of coffee beans and argued that they were unable to withstand the ordinary levels of condensation forming in containers during passages from warm to cool climates.
Upon trial, deputy High Court Judge David Donaldson QC found in favour of the Cargo Interests. He held that, while there was no legal burden on the Carrier to prove that the damage to the cargo was caused without negligence or by an excepted peril, there was a factual presumption that damage ascertained on discharge was due to negligence. And since the evidence did not establish what weight or how many layers of paper had been used and there was no evidence, or generally accepted commercial practice, to show what thickness of paper should have been used, the carrier had been unable to demonstrate that it had carried the goods in accordance with a sound system or to establish a defence of inherent vice. In particular, the judge made the following conclusions:
1. Bagged coffee can be (and at the time routinely was) carried without damage from warm to cooler countries in unventilated containers lined with kraft paper, provided that a sufficient thickness of paper or number of layers is used.
2. The evidence did not establish what weight of paper was used for these shipments, except that it was more than 80gsm. Nor did it establish how many layers were used, except that the photographs appeared to the judge to show that there was only one.
3. There was no evidence to show what thickness of paper ought to be used for a given number of layers, in order to avoid condensation damage.
4. There was no generally accepted commercial practice on point (3). It was not suggested that the paper had been improperly fixed.
The Court of Appeal overturned the first instance decision[]. On appeal to the Supreme Court, the issue was who bore the burden of proving whether the cargoes were damaged by 1) negligent preparation of the containers, or 2) inherent vice.
The Supreme Court unanimously allowed the appeal and restored David Donaldson QC’s decision. It was held that the Carrier had the legal burden of proving that he took due care to protect the goods from damage, including due care to protect the cargo from damage arising from inherent characteristics such as its hygroscopic character. In the absence of evidence about the weight and the number of layers of lining paper used, the Carrier had failed to prove that the containers were properly dressed/prepared.
In reaching this conclusion, the Court first noted that the delivery of goods for carriage by sea is a bailment for reward on the terms of the bill of lading. Two principles should be noted. First, a bailee’s duty is limited to taking reasonable care of the goods. Second, at common law a bailee bears the legal burden of proving the absence of negligence. Hence, he must show either that he took reasonable care of the goods or that any want of reasonable care did not cause the loss or damage sustained.
The Court then considered the Hague Rules. Article III, Rule 2 imposes on the Carrier a general duty to take reasonable care of the cargo during carriage. The Hague Rules do not alter the status of a contract of carriage by sea as a species of bailment for reward on terms. Therefore, where cargo is 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, Rule 2 to take reasonable care. The Court further held that the same legal burden of disproving negligence applies for the purpose of invoking an exception under Article IV, Rule 2.
In any event, the Court held that Article IV, Rule 2(m) (the exception of inherent vice of the cargo) of the Hague Rules did not avail the Carrier. The mere fact that coffee beans are hygroscopic and emit moisture as the ambient temperature falls will only constitute inherent vice if the effects cannot be countered by reasonable care in the provision of the service contracted for. If the Carrier could and should have taken precautions which would have prevented some inherent characteristic of the cargo from resulting in damage, that characteristic is not inherent vice. Accordingly, in order to be able to rely on the exception for inherent vice, the carrier must show either that he took reasonable care of the cargo but the damage occurred nonetheless; or else that whatever reasonable steps might have been taken to protect the cargo from damage would have failed in the face of its inherent propensities. In this case, the Carrier failed to show that he took reasonable care of the cargo. Furthermore, bagged coffee beans were at the material time commonly carried in unventilated containers from warm climates to cooler ones without mishap. It therefore seemed probable that with reasonable care the cargo was perfectly capable of withstanding the risks of unventilated carriage.
Shipowners/Carriers should take note of the legal burden they bear in establishing that they have taken reasonable care of the goods. In practical terms, they should keep good record of the steps they have taken to take care of the goods. In this case, the Court expected that invoices would be available to show that two layers of paper were purchased to protect the coffee beans. However, the Carrier failed to adduce them and the Court could only draw inferences based on the photographs taken at the port of loading (which did not show clearly how many layers of paper were used). Shipowners/Carriers are therefore advised to keep proper record of the documentary evidence generated before shipment.