The Supreme Court had to consider who (between the carrier and the cargo owners) had the burden of proving the cargoes were damaged by (i) negligent preparation of the containers or (ii) inherent vice.

Factual background

The six claimants were cargo owners and bill of lading holders of consignments of bagged Columbian green coffee beans. The cargo was shipped from Colombia to Germany between 14 January and 6 April 2012 in unventilated containers on vessels owned by the defendant shipowners.

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. This meant that the carriers were contractually responsible for preparing the containers for carriage and stuffing the bags of coffee into them. Coffee beans absorb, store and emit moisture, therefore, in order to protect the coffee beans from damage during carriage, containers are usually dressed with an absorbent material such as kraft paper. In this case, although the containers were dressed with kraft paper, when they were opened in Germany the coffee beans had suffered wetting damage.

The cargo owners brought a claim against the carrier pleading that in breach of its duties as bailee the carrier had failed to deliver the cargo in the same good order and condition as that recorded on the bills of lading on shipment. In the alternative, they argued that in breach of article III.2 of the Hague Rules the carrier had failed to properly and carefully, load, handle, stow, carry, keep, care for and discharge the cargo.

The carrier pleaded the exception of inherent vice pursuant to article IV.2(m) of the Hague Rules, on the ground that the coffee beans were unable to withstand the ordinary levels of condensation.

At first instance, the judge found in favour of the cargo owners. He held that the carrier was required to establish inherent vice or inevitability of damage and failed to do so based on the evidence available.

The carrier appealed. The Court of Appeal overturned the High Court decision and allowed the appeal. They were satisfied that the cargo owners had established their case but also that the carrier had made out a sustainable defence on the basis of inherent vice, it was then for the cargo interest to bear the legal burden of showing that the inherent vice only resulted in damage to the cargo because the carrier had failed to take reasonable care of it. View the summary of the Court of Appeal decision.

Legal issues

The delivery of goods for carriage by sea is a bailment for reward on the terms of the bill of lading. The two fundamental principles of bailment are that (1) the bailee’s duty is limited to taking reasonable care of the goods and (2) the bailee bears the legal burden of proving the absence of negligence if any damage to the goods occurs. Historically this was supported on the ground that because the bailee was in possession of the goods it might be difficult or impossible for anyone else to account for the loss or damage sustained by them.

The legal issue in this case was whether the common law of bailment applied or if the burden of proof was different in a modern contract for carriage by sea incorporating the Hague Rules. The burden of proof arose in this appeal at two stages of the analysis.

  1. Hague Rules article III.2 – ‘Subject to the provision of article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.’

Did the cargo owner bear the legal burden of proving breach of article III.2, or was it for the carrier, once loss or damage to the cargo had been ascertained to prove compliance?

In order to argue that the common law of bailment did not apply and the burden of proof under the Hague Rules was different the carrier submitted that:

  1. the Hague Rules constituted a complete code governing the care of the cargo
  2. an international convention such as the Hague Rules should not be construed in the light of particular features of English law or any other domestic system of law
  3. article III.2, by imposing an obligation to take reasonable care of the cargo, displaced the English law rule about the burden of proof

Lord Sumption (with whom Lords Reed, Wilson, Hodge and Kitchin agreed) delivered the judgment. In his view each of the arguments put forward by the carrier were ‘fallacious’. He held that the rules had effect only by virtue of their contractual incorporation into the bill of lading. They were a complete code on the matters which they covered, but were not exhaustive of all matters relating to the legal responsibility of carriers for the cargo. Further, in relation to submission (ii) although the principle that international conventions should not be construed by reference to principles of purely domestic application was well established, this had no bearing on the present issue, as the Hague Rules were not concerned with the incidence of the burden of proof save in limited respects. Finally, for submission (iii) the court stated that it was based on a ‘misconception’ as the common law obligation of a bailee was not strict, but was the same standard as that under the Hague Rules, i.e. to take reasonable care.

Nothing in the Hague Rules changed the status of a contract of carriage by sea as a species of bailment for reward on terms. Therefore, where cargo was shipped in apparent good condition but was discharged damaged, the burden of proof was on the carrier to show that it did not breach its obligation in article III.2 to take reasonable care.

  1. Hague Rules article IV.2 – ‘Neither the carrier nor the ship shall be responsible for loss or damage arising from – (m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods.’

Once the carrier had established an exception, did the cargo owner bear the legal burden of proving that it was the negligence of the carrier which caused the excepted peril to operate on the cargo?

Although only one of the article IV.2 exceptions expressly imposed the burden of proof on the carrier, both the carrier and cargo owners agreed that it was well established that the carrier bore the burden of bringing itself within any of the exceptions. The carrier argued that once an exception was established it was for the cargo owner to positively prove that it was only because of the carrier’s negligence that the cargo’s inherent vice resulted in damage.

The Supreme Court considered the existing case law in this area and held that it was the carrier who had the legal burden of disproving negligence for the purpose of invoking an exception under article IV.2. They held ‘It must in principle follow that if the burden of proving the application of the exception is on the carrier, that must extend to proving that the damage could not be avoided by the exercise of reasonable care.’

Specifically in relation exception (m), the Supreme Court ruled that in order to rely on the exception for inherent vice, the carrier had to show either that he took reasonable care to protect the cargo from damage, including damage from inherent characteristics, but the damage occurred nonetheless; or alternatively that whatever reasonable steps the carrier might have taken to protect the cargo from damage would have failed in any event in the face of its inherent vice.

Therefore the Supreme Court upheld the appeal and restored the order of David Donaldson QC.

The Supreme Court’s judgment brings finality to the position as to which party has the burden of proof for the specific Hague Rules analysed.

The judgment is also a demonstration of the Supreme Court’s disapproval towards the Court of Appeal for reversing decisions not because the trial judge was wrong but because they would have found the findings of fact differently. As it was emphatically stated, the Supreme Court had on a number of occasions pointed out that while an appeal to the Court of Appeal was by way of rehearing, a trial judge’s findings of fact should not be overturned simply because the Court of Appeal would have found them differently. It had to be shown that the trial judge was wrong: ie that he fundamentally misunderstood the issue or the evidence, or that he plainly failed to take the evidence into account, or that he arrived at a conclusion which the evidence could not on any view support. Within these broad limits, the weight of the evidence was a matter for the trial judge.

This article originally appeared in the January 2019 edition of shipping case digest. Other articles include:

Griffin Underwriting Limited -v- Ion G. Varouxakis (The “FREE GODDESS”) [2018] EWHC 3259 (Comm)