Introduction

In the recent case of Volcafe & Others v CSAV [2016] EWCA Civ 1103, the English Court of Appeal has considered the much-debated question of whether a carrier can rely on the defences under Article IV Rule 2 of the Hague Rules when confronted with an allegation of breach of Article III Rule 2 by way of negligence. In that case, the Court has clarified that a carrier does not first need to disprove negligence before it can rely on the defences under Article IV Rule 2 of the Hague Rules.

The Facts

In 2012, the defendant carrier carried 9 consignments of Columbian coffee beans from Buenaventura, Columbia to various ports in Northern Europe. The Hague Rules were incorporated into the bill of lading for each consignment. Pursuant to the said bills of lading, the carrier was responsible for preparing and stuffing the bags into the containers. After preparing and stuffing the containers, the containers were then moved to the export area and loaded onto vessels during the period from January to April 2012.

According to the bills of lading, the shipments were in apparent good order and condition when loaded. However, upon discharge, the bags in all but two of the containers were found to have suffered some degree of condensation damage.

As a result, the cargo owners filed a cargo claim against the carrier to claim for damages on the basis that loss and damage were suffered by them as a result of the condensation damage which was caused by the negligence of the carrier. Further or alternatively, the cargo owners claimed that the carrier was in breach of its obligation to under Article III Rule 2 of the Hague Rules.

The Relevant Provisions in the Hague Rules

The relevant provisions in dispute were Article III Rule 2 and Article IV Rule 2 of the Hague Rules.

Article III Rule 2 provides that:

“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.”

Article IV Rule 2 provides that:

“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from: …(m) wastage in bulk of weight or any other loss or damage arising from inherent defect, quality or vice of the goods…”

The cargo owners argued that the carrier was in breach of Article III Rule 2 in causing the the condensation damage, whilst the carrier sought to rely on the exception set out in Article IV Rule 2 as its defence.

The First Instance’s Decision

At first instance, David Donaldson QC ruled in favour of the cargo owners and held that the defendant carrier must establish inherent vice or inevitability of damage and to disprove negligence before it can rely on Article IV Rule 2. He considered that there was “complete circularity” between Article III Rule 2 and Article IV Rule 2 such that Article IV Rule 2 was not in any real sense a true exception.

In the circumstances, he held that the carrier failed to disprove negligence. He also held that the carrier was unable to demonstrate a “sound system” for shipping the cargo because, among others, it had failed to adduce evidence of a suitable empirical study that a particular weight and/or type of paper was sufficient in practice to prevent damage throughout the carriage. In addition, he rejected the carrier’s argument that it can rely on the alternative defence of inevitability of damage. As a result, the defendant carrier appealed.

The Court of Appeal’s Decision

The Court of Appeal had unanimously overruled the first instance’s decision and allowed the carrier’s appeal. Below are some key issues that the Court of Appeal had addressed in its judgment:-

Burden of Proof

Regarding burden of proof, the Court of Appeal rejected the approach of the first instance and held that once the carrier has shown a prima facie case for the application of the exception of inherent vice in Article IV Rule 2, the burden shifted to the claimants to establish that the exception did not apply because of the carrier’s negligence.

In reaching such conclusion, the Court of Appeal placed much emphasis on the common law principle that “he who alleges must prove”. Mr. Justice Flaux, who gave the leading judgment, said that the question of whether there was some inherent defect, quality or vice in the cargo (on which the burden of proof is on the carrier) is anterior to the question whether there was negligence on the part of the carrier or breach of the duty to properly and carefully care for and carry the cargo (on which the burden is on the claimant to disprove the operation of the exception).

Inherent Vice

The Court of Appeal was also of the view that the judge at first instance was wrong to equate the concept of “inherent vice” with that of “inevitability of loss”. In Mr. Justice Flaux’s view, “inherent vice” encompasses damage caused by the inherent qualities of an otherwise normal cargo, which not the same as “inevitability of loss”.

In light of the above, the Court of Appeal held that although the cargo owners had established their case in the present case, the carrier had also made out a defence on the basis of inherent vice under Article IV Rule 2 based on the expert evidence given. The onus therefore fell on the cargo owners to establish negligence on the part of the carrier. The Court of Appeal held that the cargo owners failed to show that the carrier was negligent during the carriage.

Sound System

Regarding the issue of “sound system”, the Court of Appeal held that the first instance’s decision was misdirected as to the correct interpretation of whether a system is “sound” for the purposes of determining whether a carrier was in breach of its obligation to properly care for and carry goods under Article III Rule 2. In Mr. Justice Flaux’s view, the first instance had adopted an “overly rigorous approach” which “overstated to a considerable extent what was required for a sound system”. In particular, he criticized the first instance’s requirement for a scientific calculation or empirical regarding the sufficiency of lining in that it imposed a standard that went beyond what the law requires.

On the facts of the present case, the Court of Appeal was satisfied that the carrier had adopted a “sound system” by using kraft paper to line container surfaces, which was a widely accepted practice in the container industry.

Temporal Applicability of the Hague Rules

Last but not least, whilst noting that the parties were free to determine what acts or services fell within the operation of “loading” for which the Hague Rules would apply, the Court of Appeal confirmed the first instance’s decision in relation to the temporal scope of the Hague Rules, and held that the Hague Rules also apply to the stuffing of the containers by the carrier’s stevedores at the container yard. The carrier’s appeal in this regard was therefore rejected.

Conclusion

The Court of Appeal’s decision in this case is welcome as it clarified the operation of the burden of proof in cargo claims where the Hague Rules apply. It is now clear that a carrier does not first need to disprove its own fault or negligence in order to rely on the defences under Article IV Rule 2 of the Hague Rules. Cargo claimants are required to positively establish negligence on the part of the defendant carriers.

This case also provides valuable guidance on the scope of the inherent vice defence and the test for assessing of whether a system is “sound” for the purposes of determining whether a carrier is in breach of its obligations to properly care for and carry the cargo under Article III Rule 2.

In light of the above, it is important to ensure that there is sufficient contemporaneous evidence of the conditions of the cargo both on shipment and on arrival. If the cargo was indeed shipped according to the standard industry practice, it would be difficult for cargo owners to prove negligence on part of the carrier to prevent the carrier from relying on the defences under the Hague Rules.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.