In today’s decision in Volcafe Ltd and others (Appellants) v Compania Sud Americana De Vapores SA (Respondent)  UKSC 61 the Supreme Court has overruled the decision of the Court of Appeal on the incidence of the burden of proof in relation to the exception of inherent vice in article IV (2)(m) of the Hague Rules.
The claim arose out of for nine separate consignments of bagged Colombian green coffee beans shipped at Buenaventura in Colombia between 14 January and 6 April 2012 on various vessels owned by the defendant shipowners for carriage to Bremen. They were stowed in a total of 20 unventilated 20-foot containers.
The bills of lading, which were subject to English law and jurisdiction and incorporated the Hague Rules, were on LCL/FCL (less than full container load/full container load) terms which meant that the carriers were contractually responsible for preparing the containers for carriage and stuffing the bags of coffee into them. If coffee is carried in unventilated containers from a warm to a cooler climate the beans will inevitably emit moisture which will cause condensation to form on the walls and roof of the container. This makes it necessary to protect the coffee from water damage by lining the roof and walls with an absorbent material such as cardboard, corrugated paper or “Kraft” paper. This was a common commercial practice in 2012 and was used by the carriers in this case, but when the containers were opened the bags in 18 of them were found to have suffered water damage from condensation.
The case raised the issue of the legal burden of proof at two stages. First, does the cargo-owner bear the legal burden of proving breach of article III(2) of the Hague Rules, or is it for the carrier, once loss or damage to the cargo has been ascertained, to prove compliance? Second, as regards to article IV.2, and particularly exception (m), what is the burden of proof.. The carrier accepted that he must bear the burden of proving facts which bring the case within an exception, but submitted that once he had done so it is for the cargo-owner to prove that it was the negligence of the carrier which caused the excepted peril (in this case, inherent vice) to operate on the cargo. This was the analysis adopted by the Court of Appeal.
Lord Sumption gave the leading judgment and found that the questions must be resolved by examining the nature of a contract for the carriage of goods by sea. This was a contract of bailment under which the carrier is under an obligation is to take reasonable care of the goods accepted into its custody with a rule that the carrier would be liable for loss or damage to the goods while in its custody unless it could disprove negligence. The scheme of the Hague Rules assumes that the carrier does indeed have the burden of disproving negligence albeit without imposing that burden on him in terms.
In principle where cargo is shipped in apparent good order and condition but is discharged damaged the carrier bears the burden of proving that that was not due to its breach of the obligation in article III.2 to take reasonable care. The Hague Rules authorities, such as Gosse Millard v Canadian Government Merchant Marine Ltd  2 KB 432 and Silver v Ocean Steamship Co Ltd  1 KB, bear this out. The true rule is that the carrier must show either that the damage occurred without fault in the various respects covered by article III.2, or that it was caused by an excepted peril. If the carrier can show that the loss or damage to the cargo occurred without a breach of the carrier’s duty of care under article III.2, he will not need to rely on an exception.
As regards the second issue, the burden of proof under article IV (2), pre Hague Rules decisions such as Notara v Henderson (1872) LR 7 QB 225 and The Xantho (1887) 12 App Cas 503 and Hamilton, Fraser & Co v Pandorf & Co (1887) 12 App Cas 518 treated absence of fault as an integral part of the exception of perils of the sea. Against that there is the decision of the Court of Appeal in The Glendarroch  P 226, holding that the burden of proving that an excepted peril had been occasioned by the carrier’s negligence lay on the cargo owner.
Even if the decision was correct as regards the exception for perils of the sea, it would not apply to the exception for inherent vice. The distinction between the existence of the peril and the standard of care required of the carrier is impossible to make in that context. A cargo does not suffer from inherent vice in the abstract, but only in relation to some assumed standard of knowledge and diligence on the part of the carrier. Lord Sumption stated:
- It follows that if the carrier could and should have taken precautions which would have prevented some inherent characteristic of the cargo from resulting in damage, that characteristic is not inherent vice. Accordingly, in order to be able to rely on the exception for inherent vice, the carrier must show either that he took reasonable care of the cargo but the damage occurred nonetheless; or else that whatever reasonable steps might have been taken to protect the cargo from damage would have failed in the face of its inherent propensities.
The Court of Appeal held that the Deputy Judge’s had misdirected himself in finding that article III (2) meant that the cargo had to be carried in accordance with a system that would prevent damage, and that inherent vice could be demonstrated only if damage was inevitable. The Deputy Judge had found that the evidence did not establish what weight of paper was used for these shipments, except that it was more than 80 gsm, and did not establish how many layers were used, and there was no evidence to show what thickness of paper ought to be used for a given number of layers, in order to avoid condensation damage, and no generally accepted commercial practice this point. The Court of Appeal had made two different findings of fact. First, that there was an accepted industry practice in 2012 for lining unventilated containers for the carriage of bagged coffee, either by using two layers of paper of at least 80 gsm or one layer of at least 125 gsm. Second, that two layers of paper had been used. It therefore followed that the containers had been lined in accordance with accepted industry practice. The Court of Appeal was not justified in overturning the deputy judge’s findings on either of these two critical points.
Lord Sumption concluded:
- I would hold 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. I would reinstate the deputy judge’s conclusions about the practice of the trade in the lining of unventilated containers for the carriage of bagged coffee and the absence of evidence that the containers were dressed with more than one layer of lining paper. In the absence of evidence about the weight of the paper employed, it must follow that the carrier has failed to prove that the containers were properly dressed.
Today’s decision is of great importance to both carriers and cargo owners. It reiterates the accepted wisdom as regards the operation of the burden of proof in respect of Article III(2), but departs substantially from that position as regards the incidence of the burden of proof in respect of the exceptions afforded to the carrier under Article IV(2). Although the case concerned the specific exception of inherent vice, the Supreme Court’s decision would apply equally to all the exceptions in Article IV(2) – save for the nautical fault exception in (a) and the ‘catch-all’ exception in (q) which in terms specifically requires the carrier to prove absence of fault on its part or that of its servant or agents.