Volcafe Ltd & Ors v Compania Sud Americana De Vapores SA [2018] UKSC 61

Coffee cargoes shipped in unventilated containers from Colombia to Germany were damaged by condensation. The Supreme Court held the carrier bears the legal burden of proving absence of negligence or that damage was caused by an excepted peril under the Hague Rules.

Facts

Six cargo owners shipped nine consignments of bagged Colombian green coffee beans from Buenaventura to Bremen between January and April 2012, stowed in 20 unventilated 20-foot containers on vessels owned by the defendant carriers. The bills of lading were on LCL/FCL terms, governed by English law, and incorporated the Hague Rules. The carriers were responsible for preparing and stuffing the containers, which they did through stevedores. Coffee being hygroscopic, when carried in unventilated containers from warm to cool climates, condensation forms on the walls and roof. Standard practice was to dress the containers with absorbent Kraft paper. On opening at Bremen, bags in 18 containers were found to have suffered water damage from condensation.

The cargo owners alleged breach of bailment and breach of article III.2 of the Hague Rules, particularly failure to use adequate Kraft paper. The carriers pleaded inherent vice under article IV.2(m), arguing that coffee beans could not withstand ordinary condensation in containers during such voyages.

At first instance, the deputy judge (David Donaldson QC) found there was no generally accepted commercial practice as to the appropriate weight or number of layers of paper, and that the evidence did not establish how many layers or what weight of paper had been used (other than that it exceeded 80 gsm). The Court of Appeal reversed, making its own findings of fact. The cargo owners appealed.

Issues

The principal legal issues were:

• Whether, under a contract of carriage incorporating the Hague Rules, the cargo owner bears the legal burden of proving breach of article III.2, or whether the carrier bears the burden of disproving negligence once damage on outturn is shown.
• Whether, in invoking the article IV.2(m) exception for inherent vice, the carrier need only prove the existence of the inherent characteristic, leaving the cargo owner to prove that damage occurred only because of the carrier’s negligence.
• Whether the Court of Appeal was justified in overturning the deputy judge’s findings of fact.

Arguments

Carrier’s submissions

Mr Rainey QC for the carrier argued that: (i) the Hague Rules are a complete code; (ii) an international convention should not be construed by reference to particular domestic law principles such as the common law of bailment; and (iii) since article III.2 imposes a duty of reasonable care, the ordinary rule that he who asserts must prove placed the burden on the cargo owner. He further argued that, under The “GLENDARROCH” [1894] P 226, once the carrier proved the existence of an excepted peril (inherent vice), it was for the cargo owner to prove that the peril operated only because of the carrier’s negligence.

Cargo owners’ submissions

The cargo owners contended that a contract of carriage by sea remains a species of bailment for reward, and that the long-established common law principle places the burden on the bailee to disprove negligence. The Hague Rules did not displace this allocation of burden.

Judgment

Lord Sumption (with whom Lord Reed, Lord Wilson, Lord Hodge and Lord Kitchin agreed) allowed the appeal and restored the order of the deputy judge.

Bailment at common law

The Court reaffirmed two fundamental principles of bailment: a bailee for reward is not an insurer but is bound to take reasonable care; and although the obligation is qualified, the bailee bears the legal burden of proving the absence of negligence. This was supported by authorities including Reeve v Palmer (1858), Morison, Pollexfen & Blair v Walton (1909), Joseph Travers & Sons Ltd v Cooper [1915] 1 KB 73, and The “RUAPEHU” (1925). Lord Sumption noted that this principle is not peculiar to the common law but is shared by civil law jurisdictions, deriving from the Roman praetorian edict Nautae, Caupones Stabularii.

Burden of proof under article III.2

Lord Sumption rejected each step of the carrier’s argument. The Hague Rules are not exhaustive on matters of evidence and proof; such matters are for the law of the forum. The common law principle is not purely domestic. The misconception underlying the carrier’s argument was that the common law burden depended on a strict obligation of redelivery; in fact, the bailee’s obligation has always been one of reasonable care, consistent with the burden of disproof. Moreover, the scheme of the Hague Rules itself assumes the carrier bears the burden, since article IV exceptions require him to prove facts (including for articles IV.1 and IV.2(q) expressly), and it would be incoherent to impose differing burdens for the same factual matters.

The Court endorsed the analyses of Wright J in Gosse Millard v Canadian Government Merchant Marine Ltd [1927] 2 KB 432, Scrutton LJ in Silver v Ocean Steamship Co Ltd [1930] 1 KB 416, and Hobhouse J in The “TORENIA” [1983] 2 Lloyd’s Rep 210. Contrary dicta in Albacora SRL v Westcott & Laurence Line Ltd 1966 SC(HL) 19 and The “BUNGA SEROJA” [1999] 1 Lloyd’s Rep 512 were rejected as obiter, unsupported by full citation of authority, and inconsistent with the bailment characterisation of carriage contracts.

Burden of proof under article IV.2(m)

The Court held that The “GLENDARROCH”, while long-standing, should no longer be regarded as good law as a source of a general rule on the burden of proof. The distinction between an exception and an exception to an exception was unsatisfactory, technical, and out of place under the Hague Rules. Article IV.2 expressly requires loss to have arisen or resulted from the excepted cause, making causation an integral part of what the carrier must prove. The carrier therefore has the legal burden of disproving negligence to invoke an exception under article IV.2.

In particular, this applied with even greater force to inherent vice. Drawing on Nugent v Smith (1876) 1 CPD 423 and The “Albacora”, Lord Sumption emphasised that inherent vice cannot be defined in the abstract but only by reference to an assumed standard of care for the contracted carriage. Therefore, to invoke inherent vice, the carrier must prove either that he took reasonable care but damage occurred nonetheless, or that no reasonable steps would have prevented the damage.

Treatment of facts

The Court of Appeal had wrongly substituted its own findings for those of the deputy judge. Appellate courts should not overturn findings of fact unless the trial judge was wrong, in the sense of misunderstanding the issue or evidence, failing to take evidence into account, or reaching a conclusion the evidence could not support. The deputy judge’s findings on the absence of established industry practice and on the layers of paper used were within his entitlement on the evidence.

Disposal

The carrier had failed to prove that the containers were properly dressed, and therefore failed to discharge the burden of disproving negligence or establishing inherent vice. The appeal was allowed and the deputy judge’s order restored.

Implications

This judgment authoritatively settles a long-standing uncertainty regarding the burden of proof in cargo claims under the Hague Rules (and, by extension, contracts incorporating them). The principal points of legal significance are:

• Where cargo is shipped in apparent good order and discharged damaged, the carrier bears the legal burden of proving that the damage was not caused by breach of article III.2, or that it was caused by an excepted peril under article IV.2.
• The carrier’s burden in invoking an article IV exception extends not only to proving the existence of the excepted circumstance but also to its causative effect, including the absence of negligence.
• In particular, the exception for inherent vice (article IV.2(m)) cannot be made out without the carrier showing that reasonable care was exercised, or that damage would have occurred regardless of any reasonable steps.
• The “GLENDARROCH” [1894] P 226 is no longer good law as a source of a general rule about the burden of proof for excepted perils.

The decision realigns English law with the position long applied in many civil law jurisdictions party to the Hague Convention, where the occurrence of damage during carriage shifts a substantial burden onto the carrier. The ruling matters principally to shipowners, cargo interests, P&I clubs, and cargo underwriters. It strengthens the position of cargo claimants by clarifying that they need only prove shipment in good order and outturn in damaged condition; the evidential and legal task of explaining what happened lies squarely with the carrier, who has custody of the goods and access to the relevant evidence.

The decision also reinforces appellate restraint regarding trial judges’ findings of fact. Its limits should be noted: the case concerned the Hague Rules as contractually incorporated; the Hague-Visby Rules under the 1971 Act were not directly in issue (though similar reasoning would likely apply). The judgment does not alter the substantive standard of care under article III.2, only the allocation of the burden of proving compliance.

Verdict: Appeal allowed. The order of the deputy judge was restored. The Supreme Court held that the carrier bears the legal burden of proving that loss or damage to cargo was not caused by breach of its duty of care under article III.2 of the Hague Rules, and equally bears the burden of proving the application of any article IV.2 exception, including inherent vice, which requires showing absence of negligence. As the carrier had not proved that the containers were properly dressed with adequate Kraft paper, it failed to discharge that burden and was liable for the condensation damage to the coffee cargoes.

Source: Volcafe Ltd & Ors v Compania Sud Americana De Vapores SA [2018] UKSC 61