UK Supreme Court rules on the burden of proof in cargo claims

In the Volcafe case the UK Supreme Court has ruled on how the burden of proof lies when it comes to cargo claims. Norwegian marine insurer Gard has said that carriers should ensure that they implement solid and diligent record-keeping routines of what is declared and known about the specific cargo to be carried, and of each step taken to care for the cargo. This includes evidence of market practice for the storage and carriage of moisture absorbing cargoes.

Filippo Lorenzon, Professor of Maritime and Commercial Law Dalian Maritime University, China and Solicitor, Campbell Johnston Clark, London, and Teresa Marie Cunningham, Gard Claims Executive, Oslo noted that in Volcafe Ltd and another v Compania Sud Americana de Vapores SA ([2018] UKSC 61) a cargo of coffee beans were shipped in containers from South America to North Europe. The coffee beans were placed by stevedores into unventilated containers who had been contracted by the carrier.

Coffee beans emit moisture when carried from a warm to a cool climate.

The containers were lined with kraft paper as a precaution against moisture damage, but on discharge the coffee beans showed evidence of condensation damage.

The cargo interests claimed against the carrier on the basis that the damage was sufficient proof that the carrier had failed to care for the cargo in breach of the Hague Rules. In particular, the cargo interests alleged that the carrier had not used enough lining paper to conform to industry practice.

The carrier argued that the moisture damage was inevitable due to the characteristics of the cargo, and therefore could rely on the inherent vice exception of the Hague Rules.

The Supreme Court considered the question of which party bore the burden of proof. Did the cargo interests need to prove that the cargo was damaged by the carrier’s breach of Article III Rule 2 rather than the inherent defect, quality or vice of the cargo (which was the conventional allocation), or did the carrier have to prove they were not in breach of the duty to care for the cargo in their possession?

The Supreme Court held that the application of the Hague Rules should be considered against the background of the common law of bailment, that being the concept that, if one party agrees to take possession of another party’s property, that person, the bailee, has a responsibility to take reasonable care of that property. If it is returned damaged, it is the bailee’s burden to prove the absence of negligence.

Article III Rule 2 of the Hague Rules puts a duty on the carrier to “properly and carefully” load, handle, stow, carry, keep, care for and discharge the cargo. The Court considered that this duty was similar to the common law position on bailment, and that the carrier had the burden of proving they were not in causative breach of this provision. This would be before they could rely on the inherent vice exception in Article IV Rule 2(m).

According to Lord Sumption JSC, delivering the judgement, said that the availability of the Article IV Rule 2(m) defence should not be interpreted as contradictory to the fundamental duty of care owed by the carrier under the general scheme of the Hague Rules. For a carrier to rely on the inherent vice exception, they had to prove either that they were not in breach of Article III Rule 2 and the damage occurred anyway, or that the cargo would not have survived the voyage regardless of whether the carrier discharged the duty of care; i.e., that the loss was inevitable.

Gard said that Volcafe was an important decision as had an impact in daily litigation practice. “However, it should not be taken to be an extraordinary shift in the law far and beyond its very specific context.”

The writers noted that  the latest advancements in technology and forensic sciences as applied to cargo damage had already changed substantially the use of Article III Rule 2 in litigation practice. This meant that the line between proving failure to ‘properly and carefully’ care for the cargo and disproving negligence in such failure had been academic for some time.

In the very recent decision in Alize 1954 and CMA CGM SA v Allianz Elementar Versicherungs AG and Others [2019] (The CMA CGM Libra) Teare J excluded that Lord Sumption’s argument on the burden of proof could affect any issues of unseaworthiness and the mechanics of Article III Rule 1 of the Hague (and indeed Hague-Visby) Rules. Teare J said that “in my judgement the conventional view as to the burden of proof [for the purposes of Article III r.1] remains good law”.

In its most recent judgement – Glencore Energy UK Ltd and Glencore Ltd v Freeport Holdings Ltd (The “Lady M”), [2019] EWCA Civ 388 – the Court of Appeal distinguished Volcafe and ruled that it did not affect the allocation of the burden of proof in case of the fire exception (Article IV Rule 2(b)), even if deliberately caused by the vessel’s chief engineer or by barratry.

The writers said that Volcafe set out the important principle that the carrier had the legal burden “of proving that he took due care to protect the goods from damage, including due care to protect the cargo from damage arising from inherent characteristics such as its hygroscopic character”.

The writers concluded that, while it was still too early to know how arbitrators and courts will digest and apply Volcafe, The CMA CGM Libra and The Lady M, this sudden attention to reliance on Hague/Hague-Visby Rules defences is a stark reminder of the importance of information sharing and diligent record keeping. As a loss prevention approach, carriers and their liability underwriters together with cargo industry representatives should consider collecting commodity specific industry practices for loading, stowing and packing and make them widely available to the market. These may then be used as benchmarks in assessing a carrier’s negligence or the absence thereof.

http://www.gard.no/web/updates/content/27345515/volcafe-the-uk-supreme-court-rules-on-the-burden-of-proof-in-cargo-claims