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Web Alert: 'Volcafe v CSAV' - The Court of Appeal overturns the first instance judgment on the order and burden of proof in cargo claims

14 November 2016

On 10 November 2016, the Court of Appeal set aside the High Court’s decision in Volcafe & others v CSAV [2015] EWHC 516 (Comm) that the carrier must first disprove negligence on its part before it can rely on its defences under Article IV Rule of the Hague Rules.

This web alert should be read in conjunction with the club’s earlier publication: High Court decision handed down regarding a carrier’s care of coffee beans dated March 2015.

In 2015, the judge in Volcafe & others v CSAV [2015] EWHC 516 (Comm), Mr David Donaldson QC, controversially supported a ‘complete circularity’ between Article III rule 2 and Article IV rule 2(m), the inherent vice exception, leading him to his judgment that once the claimants had shown that the coffee bags were delivered in a damaged condition, the onus was on the carrier to establish inherent vice or inevitability of damage and to disprove negligence.

The relevant provisions of the Hague Rules read as follows:

Article II

Under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities hereinafter set forth

Article III rule (2)

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)

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.

In 2016, the case came before the Court of Appeal by way of defendants’/carrier’s appeal, raising a series of issues of principle in relation to the scope and operation of the Hague Rules. The leading judgment of Mr Justice Flaux overturns the Trial judge’s decision as to the order and burden of proof and also contains valuable guidance as to:

i) the interplay between Article III Rule 2 and Article IV Rule 2(m);
ii) the assessment of whether a system is sound for determining carrier’s compliance under Article III Rule 2;
iii) the scope of inherent vice defence;
iv) the temporal scope of the application of the Hague Rules.

The Facts

In 2012, the defendant carrier/container line carried 9 consignments of washed Columbian green coffee beans from Buenaventura, Columbia to various ports in Northern Europe. Upon outturn, the bags in all but two of the containers were found to have suffered some degree of condensation damage. The claimants/cargo interests filed against the carrier a cargo claim, in that the carrier was in breach of the contract of carriage as it had failed to take reasonable care of the cargo by delivering it at the place of destination in the same good order and condition upon shipment. Further and alternatively, the claimants argued that the carrier was in breach of its obligation to properly and carefully load, handle stow, carry, keep, care for, and discharge the cargoes, Article III rule 2 of the Hague Rules.

On the one hand, Mr Simon Bryan QC on behalf of the carrier argued the following staged process:

  1. delivery of the goods in a damaged condition or lost, leads only to an inference that the carrier is in breach of its obligation to properly and carefully care for and carry the goods under Article III rule 2;
  2. having established the inference of breach of Article III rule 2, the evidential burden passes to the carrier to establish a prima facie defence based on an excepted peril, [here Article IV rule 2(m)], whilst emphasising that reliance on an exception in Article IV rule 2 did not depend upon the carrier disproving negligence on its part; 
  3. the evidential burden then passes to the cargo claimant to rebut that prima facie defence by proving negligence or a failure properly and carefully to care for and carry the goods;
  4. where the carrier proved at the second stage that it was prima facie within an Article IV exception and the cargo claimant then proved at the third stage concurrent negligence or breach of Article III rule 2, then the burden is on the carrier to prove what proportion of the damage was not caused by its negligence or breach of Article III rule 2.

On the other hand, Mr John Russell QC on behalf of the claimants counter-argued that:

  1. delivery of the goods in a damaged condition or lost, leads to an inference that the carrier is in breach of its obligation to properly and carefully care for and carry the goods under Article III rule 2;
  2. having established the inference of breach of Article III rule 2, the claimant has a sustainable cause of action and there is a legal burden on the carrier to establish that loss or damage to the goods occurred without its negligence or that a contractual exclusion clause was applicable. In other words, there is a legal burden on the carrier to establish that it was relieved from liability by the application of an excepted peril or that it had properly and carefully cared for and carried the goods.


The Court of Appeal Decision

Following a detailed review of the decision in the first instance, the Court of Appeal criticised the High Court judge’s decision and particularly the conclusion that once the claimants establish the inference of breach of Article III rule 2, the onus is on the carrier to establish inherent vice or inevitability of damage and to disprove negligence, implying that in the absence of the latter he has no right to invoke the former.

The Court of Appeal unanimously 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 (m), the burden then shifts to the cargo claimant to establish negligence on the part of the carrier, such as will negate the operation of the exception. This is understood to be relevant even if the burden of proving an Article IV Rule 2 exception is a legal burden and not evidential. The preferred approach is that the burden is a legal one.

This analysis is consistent with the weight of the authorities, which apply the principles enunciated in The Glendarroch, even where the Hague Rules apply to the contract of carriage. Mr Justice Flaux emphasised the principle that he who alleges must prove. The Court asserted that the question as to whether there is 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 the carrier was negligent or in breach of its duty to care for the cargo (on which the burden is on the cargo claimant to disprove the operation of the exception) [53].

Mr Justice Flaux also rejected trial judge’s analysis of ‘complete circularity’ between Article III Rule 2 and Article IV Rule 2(m) as by doing so the judge deprived the exception in paragraph (m) of its force and that it has been long recognised as an excepted peril. The trial judge’s judgment adopts an erroneous approach that the carrier cannot avail himself of this exception unless he can disprove his negligence.

Further, the Court of Appeal held that the trial judge’s approach to a sound system and in particular his requirement for a scientific calculation or empirical study, went beyond what the law requires. It is well-established that one of the indicia of a sound system is that it is in accordance with general industry practice [73], Albacora [1966] 2 Lloyd's Rep 53.

The Court of Appeal also analysed that the inherent vice defence encompasses damage caused by the inherent qualities of a normal cargo, which is a different concept to inevitability of loss.

Lastly Mr Justice Flaux confirmed the trial judge’s decision of the temporal scope of the Hague Rules, whilst noting that the parties are free to determine contractually the acts or services that fall within the operation of loading.

This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.