Volcafe decision examined from UK and US perspective

Volcafe Ltd v Compania Sud Americana de Vapores SA [05.12.2018]

This case review was co-authored by Natalie Seal, Trainee Solicitor, London.

Volcafe provides the first authoritative analysis of the burden of proof under the Hague and Hague-Visby Rules. The decision by the Supreme Court overturned The Glendarroch [1894], rejected dicta previously thought to be authoritative and places a legal burden on the carrier to disprove causative negligence.

Background

Bills of lading incorporating the Hague Rules 1924 and Hague-Visby Rules 1968 (the HVR) were issued in respect of nine consignments of bagged green coffee beans, shipped from Colombia to Germany on “less than container load/full container load terms” meaning the carrier was contractually responsible for the preparing and loading the containers.

On discharge, 18 of the 20 unventilated containers containing bags of the beans were found to have suffered condensation damage during the voyage.

Proceedings were issued by the cargo owners against the carrier:

  • A breach of duty as bailee, due to failure to deliver the beans in the same good condition as loaded.
  • Breach of its obligations under Article III.2 of the HVR to properly and carefully load and stow the goods carried.

The carrier defended the claim on the basis of the HVR Article IV.2(m) exception that carriers were not liable for damage resulting from an ‘inherent vice’ in the cargo, such as a propensity to emit moisture. The cargo owners’ reply was that any inherent characteristic of the cargo that resulted in damage only arose because of the carrier's negligent failure to take proper measures for its protection.

At first instance, the judge found in favour of the cargo owners. It was held that there was a factual presumption that damage to a previously undamaged cargo had been caused by the negligence of the carrier.

The Court of Appeal overturned the judge at first instance and, in applying The Glendarroch, found that if the carrier could establish a prime facie case of inherent vice, the burden would shift to the cargo owners to prove that the damage was caused by a failure to exercise reasonable care. The cargo owners appealed.

Decision

The Supreme Court held:

1. The bailee’s duty was limited to taking reasonable care of the goods.

In the event that damage was sustained during the period of bailment, the bailee bore the legal burden of proving that the damage had not been caused by its negligence or that a contractual exclusion clause would apply.

2. The questions of evidence of the burden of proof were left to the law and procedure of the forum in which the matter was litigated.

The HVR did not alter the status of a contract of carriage by sea as a species of bailment. Thus, past decisions which suggested that the cargo owner bore the legal burden of proving a breach of Article III.2, were mistaken.

3. When an inherent vice exception is claimed, the burden of proof lies with the carrier

In order to rely on the inherent vice exception, the carrier had to show either that the damage had occurred despite having taken reasonable care of the cargo, or that any reasonable steps to protect the cargo would have failed in the face of its inherent vice (The Glendarroch overruled).

Comment from the UK

Perhaps the decision is not altogether surprising. It confirms that, where cargo is lost or damaged in carriage, the burden of proof lies on the carrier to demonstrate what occurred to the cargo if it wishes to rely on the defences under the HVR. Carriers subject to the HVR will, therefore, be treated in much the same way as other bailees of goods. This rule has been justified by explaining that the bailee of goods is best placed to say what occurred to those goods whilst in their custody.

What might, to some, be a little more surprising, is the impact of the decision when the carrier alleges a defence under Article IV.2 of the HVR (such as inherent vice, error in navigation or fire). It has often been proposed by carriers that, if they can establish one of these exceptions, that is the end of any claim. This decision, however, makes it clear that the carrier has the burden of proving both that the exception exists and that it caused the loss without a breach by the carrier of its duty of care to the cargo.

Using the example of inherent vice (which was the defence alleged in this case), for the carrier to rely on that defence, it must show that the cargo is unfit to withstand the ordinary incidents of the voyage. This must be assessed by reference to the degree of care that the carrier must exercise in its handling and carriage of that cargo. If a cargo is particularly sensitive, a “reasonable degree of care” may require a higher standard than with a less sensitive cargo. It is clear, following this decision, that if a carrier wishes to rely on the defence of inherent vice, the burden of proof will be on the carrier to show that it exercised a reasonable degree of skill and care and, notwithstanding this, the loss or damage occurred in any event.

Comment from the US

The ultimate result of Volcafe would probably be the same if decided under US law. The difference would be in how the court reaches its decision.

Where a carrier simply agrees to transport a shipper loaded and sealed container from origin to destination, the carrier will generally have no obligation with regard to how the cargo is stowed inside the container. Volcafe is not the “normal” containerised cargo case from a US perspective because in Volcafe the carrier undertook to stow the cargo in the container in preparation for carriage.

As with any other cargo damage case under the US Carriage of Goods by Sea Act, once the cargo plaintiff establishes its prima facie case the carrier would be able to assert the inherent vice of the green coffee cargo as a defence. At some point, however, the carrier would have to prove that it was not negligent when it decided to stow the bags of coffee in the unventilated containers. The burden could be expressed either as an affirmative (“the carrier exercised due diligence…”) or as a negative (“the carrier was not negligent…”) but the end result would likely be the same; if the choice of the stowing method and level of protection for the bags of coffee was improper, the carrier would be held liable.

This case review was co-authored by Natalie Seal, Trainee Solicitor, London.

Read other items in Marine Brief - December 2018