Who Has to Produce the Evidence in a Cargo Claim?

Today the Supreme Court issued a judgment concerning the burden of proof in cargo claims. This case was about the carriage of bagged coffee in unventilated containers from South America to Northern Europe. During transit the cargo suffered condensation damage resulting from cargo sweat. The containers were prepared and stuffed by stevedores contracted by the carrier.

The Supreme Court dealt with a narrow point arising under the Hague Rules: who bears the burden of proof in the context of a cargo claim not arising from unseaworthiness? The Supreme Court has clarified that, for all practical purposes, the common law liability of a carrier, unless modified by contract or subject to a cargo convention like the Hague Rules, is to take reasonable care of the goods.

The position under the Hague Rules was dealt with in two stages by the Supreme Court.

1. Article III, rule 2 of the Hague Rules deal with the obligations to “properly and carefully” transport goods. The Supreme Court decided that where cargo is shipped in apparent good order and condition, but is discharged damaged, the carrier must show either that the damage occurred without its fault in the various respects covered by Article III, rule 2.

2. Article IV, rule 2 of the Hague Rules sets out a list of defences to a claim for breach of Article III, rule 2. When invoking most of those defences, the carrier has the legal burden of disproving any negligence on its part. In relation to the “inherent vice” defence at Article IV, rule 2(m) in particular, the carrier must show either it took reasonable care of the cargo but the damage occurred anyway, or that whatever reasonable steps might have been taken to protect the cargo from damage would have failed in the face of its inherent propensities.

Since the trial judge had not made findings on some key issues relating to how the containers were prepared, the carrier had failed to discharge its burden of proof and the cargo claims succeeded.

It is welcome to have clarity on this important issue. The full extent of any impact from the judgment will only be known after a period of time has passed and no doubt the decision will be subject to detailed analysis in subsequent cases.

The case serves to highlight the importance of creating accurate records throughout the period cargo is in the custody of carriers and of preserving evidence in relation to any potential cargo claim. Practical guidance can be found in the Club’s publication on the collection of evidence and in guides on particular types of cargo claims.

A few points can be made about the limits of this decision.

1. Nature of carrier’s obligation under Article III, rule 2: the Court of Appeal’s judgment in this case reviewed the authorities on the nature of the carrier’s obligation under Article III, rule 2. The Court of Appeal stated it is well-established that the obligation to care for and carry the goods “properly” under Article III, rule 2 means “in accordance with a sound system”. The law does not require the carrier to employ a system which is guaranteed to avoid damage nor is there an obligation to ensure goods arrive in an undamaged condition at their destination. The carrier is to adopt a system which is sound in light of all the knowledge which a carrier has or ought to have about the nature of the goods. It does not mean a system which is suitable for all the weaknesses of a particular cargo. One indicator of a sound system is that it is in accordance with general industry practice. Nothing in the Supreme Court’s judgment changes that summary of the law.

2. Standard of proof: Where the carrier bears the burden of proof, it will be required to demonstrate those facts required to discharge its burden on the balance of probabilities (i.e. whether something was more likely than not to have occurred). Volcafe v. CSAV is not a case about the weight a judge or arbitrator might attach to the available evidence.

3. Evidential Burden: Cargo interests remain under an evidential burden to show that (a) cargo was loaded in apparent good order and condition and (b) that it was discharged damaged.

4. Seaworthiness: Nothing in the Volcafe v. CSAV judgment impacts on cases involving an allegation that there was a failure to exercise due diligence to make the ship seaworthy at the commencement of a voyage in breach of Article III, rule 1. Cargo interests retain the burden of proving causative unseaworthiness.

5. Loading, handling, stowage and discharge: This decision does not cast doubt on the analysis in The Jordan II that The Hague and Hague-Visby Rules do not require the carrier to perform loading, handling, stowage or discharge operations. It is only insofar as the carrier agrees to carry out any of the functions mentioned in Article III, rule 2, that he agrees to perform them “properly and carefully” / with “reasonable care”.

6. Article IV defences: The Volcafe v. CSAV judgment requires the carrier to disprove negligence in order to rely on many of the Article IV defences. However evidence of negligence on the part of the carrier will not defeat the nautical fault exception (Article IV, rule 2(a)) or, as per the decision of the High Court in The Lady M, the fire defence (Article IV, rule 2(b)).