Volcafe & Ors v Compania Sud Americana de Vapores - CSAV

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DMC/SandT/17/02

England

Volcafe Ltd and Others v Compania Sud Americana de Vapores SA (Trading as “CSAV”): English Court of Appeal: Gloster LJ, King LJ and Flaux J: (2016) EWCA Civ 1103

Simon Bryan QC and David Semark (instructed by Mills & Co) for the Appellant/Defendant, CSAV

John Russell QC and Benjamin Coffer (instructed by Clyde & Co) for the Respondent/Claimants, Volcafe & 5 Ors

CARRIAGE OF GOODS BY SEA: CONSIGNMENTS OF BAGGED COFFEE BEANS IN CONTAINERS CARRIED ON LCL/FCL TERMS: CARGO DAMAGED BY CONDENSATION: TEMPORAL SCOPE OF HAGUE RULES: BURDEN OF PROOF: WHETHER CARRIER FAILED PROPERLY AND CAREFULLY TO LOAD AND CARRY THE GOODS: WHETHER CARRIER ENTITLED TO RELY ON “INHERENT VICE” EXCEPTION: WHETHER DAMAGE INEVITABLE: HAGUE RULES, ARTICLE III RULE 2 AND ARTICLE IV RULE 2(M)

Summary

The appellant carrier was entitled to succeed on its appeal. Once the carrier had shown a prima facie case for the application of the defence of inherent vice of the cargo, as per Article IV Rule 2(m) of the Hague Rules, the burden shifted to the claimant consignee to establish that the exception did not apply because of the carrier’s negligence.

This note has been prepared by Joanna Meadows, BA Classics (Hons), Solicitor of England & Wales

Background

Coffee beans in bags were carried by the carrier in dry, unventilated containers from Colombia to Northern Germany. The bills of lading were on LCL/FCL terms, the effect of which was that the carrier’s stevedores were responsible for preparing and stuffing the containers. Before stuffing, the bare corrugated steel of the containers was lined with kraft paper. Upon outturn, most of the bags had suffered condensation damage, although the damage was relatively minor. Moisture in warm air rising from the stow had condensed on contact with the cold roof of the container wetting the bags at the top and the sides of the stow. Conflicting evidence was put before the judge on whether a single or double layer of kraft paper had been used to line the containers, and on the weight of that paper.

It was common ground between the parties that condensation is inevitable when a hygroscopic cargo, such as coffee beans, is carried from a warm to a cold climate and that industry guides recommened carriage in ventilated containers. However, it was also common ground that carriage in lined, unventilated containers was a widespread commercial practice.

Hague Rules

A large part of the case focused of the operation of and the burden of proof under the Hague Rules in relation to Article III r.2 which provides: “Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”

and Article IV r.2 which provides:

“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:…(m) … any other loss or damage arising from inherent … vice of the goods.”

Judgment

The Court of Appeal held that the first instance judge had erred in law in all but one of his conclusions.

(1) Burden of proof in cargo claims governed by the Hague Rules

It had been argued on behalf of the cargo claimant, and accepted by the judge at first instance (the “judge”), that at the first stage of the analysis, once the cargo claimant had established that goods loaded in good order had been delivered in a damaged condition, the cargo claimant had a sustainable cause of action and that the legal burden then shifted onto the carrier to prove either that the damage to the goods occurred without its negligence, or that it could rely on an exception under the Hague Rules. However, this was rejected by the Court of Appeal. Where the goods were loaded in apparent good order and condition, but delivered in a damaged condition, this only led to an inference that the carrier was in breach of its obligation under Art III r.2 to properly and carefully care for and carry the goods. At this stage the evidential burden shifted to the carrier to establish a prima facie defence based on an excepted peril. In this case, the excepted peril relied on was inherent vice, as per Art IV r.2(m). If the carrier could show a prima facie case for the exception, the burden then shifted back to the cargo claimant to establish negligence on the part of the carrier, such as would negative the operation of the exception. The carrier did not need to disprove negligence to rely upon the exception. This was also in accordance with the principle that he who alleges, must prove.

(2) Inherent vice

The judge had concluded that since Art III r.2 is made subject to Art IV r.2, one could only look at the unfitness of the goods to withstand the voyage in relation to the degree of care required by the ship owner to carefully carry the goods. In other words, that there was circularity between Art III r.2 and Art IV r.2(m). Moreover, he had held that the exception of inherent vice was not in any real sense an excepted peril. However, that was rejected by the Court of Appeal. One looked first at whether there was some inherent defect with the cargo (for which the burden of proof lay with the carrier), before looking at the question whether there was negligence on the part of the carrier, or breach on its part of its obligation properly and carefully to care for and carry the cargo (for which the burden lay with the claimant). The Court of Appeal also confirmed that inherent vice had long been recognised as an excepted peril.

Furthermore, the judge had erred in proceeding on the basis that the carrier could not rely on the inherent vice exception in the case of a “normal” cargo of coffee beans, the judge had erred. The inherent vice exception does include inherent qualities of an otherwise normal cargo. As stated in the case of Soya GmbH v White [1983] 1 Lloyd's Rep. 122,

“A loss by inherent vice is one which is proximately caused by the natural behaviour of the subject matter insured, being what it is, in the circumstances in which it was expected to be carried.”

Since it was common ground between the experts that the damage to the cargoes was due to condensation, and that the source of the condensation was the coffee beans themselves, and since the judge at first instance had accepted that the condensation arose when going from a warm to a cool climate, the Court of Appeal considered that the judge should have concluded that the carrier had made out a sustainable defence under the inherent vice exception.

(3) Sound system

It is well established that the obligation to care for and carry the goods “properly” under Art III r.2 means “in accordance with a sound system”. In the judge’s view, a system could only be regarded as sound if the carrier could demonstrate a reliable basis for concluding that its lining arrangements could be expected to prevent condensation damage during the contracted carriage, such as a theoretical calculation or an empirical study on the moisture absorption and retention of a certain weight or type of paper. However, the judge had misdirected himself on the law in relation to Art III r.2. He had sought to impose an obligation on the carrier which went beyond what the law requires. The law did not require a carrier to adopt a system which would prevent damage, but rather, a sound system under all the circumstances in relation to the general practice of carriage of goods by sea. In the judgment of the Court of Appeal, if the judge had applied the law in relation to what constitutes a sound system and the burden of proof correctly, he would have concluded that the claimant 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.

(4) Inevitability of Damage

The carrier’s alternative defence was that minor condensation damage (which this was) was endemic when coffee in bags was carried in unventilated containers lined with kraft paper, as per the normal industry practice. Since the judge had sought to impose on the carrier an obligation with regard to a sound system which went beyond the general practice of the trade, the judge had rejected that argument. However, the judge was incorrect, and the appeal was allowed on this point also.

(5) Temporal scope of the Hague Rules

The carrier had submitted that, as the stuffing of the containers by his stevedore agents had occurred before the loading of the containers, the Hague Rules did not apply. Therefore, he (the carrier) had argued, that he was entitled to rely on the clauses of the bill of lading, and in particular, on two special conditions, which, he argued, reduced the scope of his obligation from that which would otherwise be prescribed by Art III r.2. The judge had held that where the obligation to stuff its own containers was assumed by the carrier, the contract of carriage would be interpreted as including that as part of the loading, and the Hague Rules would apply. In this regard, he relied on the decision in the case of Pyrene Co Ltd v Scindia Steam Navigation Co [1954] 2 Q.B. 402. Moreover, he held that the terms in the bill of lading relied on would not have applied in any event.

There was no appeal against the judge’s finding on the bill of lading terms, so even though the carrier had appealed against the judge’s finding as to the temporal application of the Hague Rules, the ground of appeal was academic. Nonetheless, the Court of Appeal was urged to decide the issue, and it found that the judge’s analysis of the temporal scope of the Hague Rules was correct. Here, the carrier had assumed responsibility for the dressing and stuffing of the containers, so that those services formed part of the operation of “loading”, to which the Hague Rules applied.

Comment

The detailed judgment given by the Court of Appeal is very helpful in that it sets out clearly the way the burden of proof operates under the Hague Rules. It also highlights that the inherent vice exception applies where the loss is caused simply by a normal cargo behaving in the way it does under the circumstances in which it is expected to be carried. It also re-emphasises that the carrier’s obligation to care for and carry the goods properly, that is, in accordance with a sound system, does not require a carrier to adopt a system which would prevent damage, but merely a system which constitutes a sound system in relation to the general practice of carriage of goods by sea. So this will be a welcome decision for ship owners generally.