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"My cargo was damaged while on your ship: now prove it wasn’t your fault.."

May 9 2019

“My cargo was damaged while on your ship: now prove it wasn’t your fault”: the UK’s Supreme Court agreed, but more recent decisions have considered the scope of its application

Speed Read
It is not often that the burden of proof in a cargo claim brought under the Hague/Hague-Visby Rules hits the legal headlines, but that happened in the December 2018 UK Supreme Court’s decision in Volcafe Ltd v Cia Sud Americana de Vapores SA. In this short article we consider the extent to which subsequent judgments have applied the decision. As a practical measure, shipowners should assess whether their current procedures are adequate, not only for the purposes of complying with their obligations regarding vessel seaworthiness and care of cargo, but also in order to be able to prove such compliance.

The burden of proof under the Hague/Hague-Visby Rules: the basics

The main obligations of shipowners (and other carriers) are contained in Article III.1 and III.2 of the Hague and Hague-Visby Rules. Broadly, Article III.1 requires the shipowner to exercise due diligence, before and at the beginning of the voyage, to ensure that the ship is seaworthy (including cargo-worthy). Article III.2 requires the shipowner to properly and carefully load, handle, stow, carry, keep, care for, and discharge the cargo. Article IV.1 follows on from Article III.1, in that once unseaworthiness has been established, it places the burden of proving the exercise of due diligence on the shipowner (or other person claiming exemption). Finally, Article IV.2 contains a list of potential defences (excepted perils) in respect of loss or damage arising or resulting from a variety of circumstances, including negligent navigation, fire and insufficiency of packing.

Volcafe Ltd v Cia Sud Americana de Vapores SA [2018] 3 WLR 2087
In Volcafe, coffee beans were carried under the Hague Rules. The beans were loaded in apparent good order and condition but, when delivered, were found to have suffered condensation damage. The cargo owner claimed damages from the shipowner.
The Supreme Court’s judgment addressed the burden of proof under the Hague/Hague-Visby Rules, and the interaction between the carrier’s duty to care for cargo under Article III.2 and the defences available under Article IV.2. The Court held that where a shipowner fails to deliver the cargo in the same good order and condition as when shipped, the legal burden rests upon it to prove either that the damage occurred without a breach of its duty of care under Article III.2, or that such damage was caused by an excepted peril. Where a shipowner intends to rely on an excepted peril, it must also prove that the damage was not caused by its negligence.
The effect of the decision appears to be extensive, overturning not only the Court of Appeal’s decision below, but also an 1894 Court of Appeal decision in the Glendarroch and rejecting comments of the House of Lords (the previous name of the Supreme Court) in the 1996 case of Albacora SRL v Westcott & Laurence Line Ltd, however it has been somewhat narrowly interpreted in two subsequent decisions.

Alize 1954 v Allianz Elementar Versicherungs AG [2019] EWHC 481 (Admlty)
The CMA CGM Libra grounded whilst leaving the port of Xiamen, China. Salvage services were required, resulting in a claim in general average by her owners. Certain cargo interests disputed their liability to contribute in general average on the basis that the casualty was caused by the shipowners’ actionable fault, in that there was a defective passage plan that rendered the vessel unseaworthy and that the owners had failed to exercise due diligence in allowing the vessel to sail with such a defect. The English Admiralty Court agreed with the cargo Interests. In discussing the burden of proof, the Admiralty Judge confirmed that the burden of proof for the purposes of Article III.1 is as stated in Article IV.1, which assumes that the cargo owner has established loss or damage and that such loss or damage resulted from unseaworthiness, at which point the burden shifts to the shipowner to establish that it exercised due diligence. In so deciding, the Judge stated that the decision of the Supreme Court in Volcafe, specifically its determination regarding the burden of proof, was limited to Article III.2 (the provision governing loading and care of cargo), and not Article III.1 (which states the shipowner’s general obligation to make the vessel seaworthy/cargoworthy).

Glencore Energy UK Ltd, Glencore Ltd v Freeport Holdings Ltd, The ‘Lady M’ [2019] EWCA Civ 388
While on a voyage from Russia to the United States, the Chief Engineer intentionally started a fire in the engine room of the Lady M. Salvors were employed and the vessel was towed to Las Palmas, where general average was declared. One cargo interest brought proceedings against the owners of the vessel, claiming recovery of the amount of its contribution. They alleged breach of the contract of carriage, namely that the fire was the result of an act or omission of the Master and/or crew done with intent to cause damage or recklessly and with knowledge that damage would result. It argued that the exception provided for by Article IV.2(b) did not apply where the fire was caused deliberately or barratrously (which is “the wilful casting away of a vessel by the master or crew without the knowledge or connivance of the shipowner”). Article IV.2 provides that the shipowner is not responsible for loss or damage arising or resulting from fire, unless caused by their actual fault or privity. At first instance, the Judge concluded that the shipowners could rely upon Article IV.2. In the Court of Appeal, discussing the application of Volcafe, Lord Justice Simon observed that “Lord Sumption’s observations that the carriers have the legal burden of disproving negligence for the purposes of invoking an exception under article IV.2 did not address any argument in relation to Article IV.2(b);”. In other words, the Court of Appeal stated that Volcafe was not applicable to the case before the court and confirmed the decision of the first instance Judge.

Practical suggestions
Although application of the decision of the Supreme Court in Volcafe has been limited in subsequent decisions of the Admiralty Court and Court of Appeal, it is still clearly important insofar as the burden of proof under Article III.2 is concerned.
So, how should shipowners react? They would be well advised to refer to any relevant industry standards in caring for a particular cargo. Especially where there are no such industry standards, they should consider requesting specific instructions from shippers. Whether complying with industry standards or a shipper’s instructions (or both), shipowners would be well advised to keep accurate records of the steps they have taken so as to ensure that, if a claim is brought, they have the necessary evidence to meet the legal burden that rests upon them.

Kevin Cooper
Kirsten Jackson

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