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UK Supreme Court Rules on Burden of Proof under Hague Rules

In a recent case Volcafe Ltd v Compania Sudamerica de Vapores [2018] UKSC 61, the UK Supreme Court considered the question of whether the carrier or the cargo owners bear the burden of proof in cargo claims for damage caused by negligent preparation of containers (Art. III.2 Hague-Visby Rules) and by inherent vice (Art. IV.2(m)). The UKSC referred multiple times to burden of proof rules in civil law jurisdictions, so the case provides an opportunity to reflect on the rules which apply to similar types of dispute in Russia.

The facts

The claimants in Volcafe were owners of consignments of bagged coffee beans shipped from Colombia to Germany by the defendant carriers. The bags were stowed in unventilated containers. The bills of lading, which incorporated the Hague Rules, were on LCL/FCL (less than full container load/full container load) terms, i.e. the carriers were responsible for preparing the containers and stuffing the coffee into them.

Coffee is a hygroscopic cargo. It absorbs, stores and emits moisture. It can be carried in ventilated or unventilated containers. The shippers had chosen unventilated containers. If such containers are used to carry coffee from a warm to a cooler climate, the beans inevitably emit moisture causing 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 containers with absorbent “Kraft” paper (which was done in the present case). When the containers were opened at Bremen, however, the bags in almost all of them were found to have suffered water damage from condensation.

The owners claimed that the carrier had negligently breached its obligation under Art. III.2 of the Hague Rules to “properly and carefully load, handle, stow, carry, keep, care for and discharge” the cargoes, i.e. the carriers failed to adequately line the inside of the containers with Kraft paper.

The carriers argued that the sole cause of the damage was inherent vice on the basis that the coffee beans were unable to withstand the ordinary levels of condensation forming in containers during the voyage.  The owners replied that any inherent characteristic of the cargo which resulted in damage, did so only because of the carriers’ negligent failure to adequately dress the containers to protect the cargoes.

It is important that the evidence did not establish what weight of Kraft paper was used for the shipments and how many layers were used. Therefore, these crucial questions of fact fell to be decided on the burden of proof.

The issues

Thus, the UKSC was faced with the question of which party (the carriers or the owners) bore the burden of proving that the cargo was damaged by: (i) negligent preparation of the containers (under Art. III.2 of the Hague Rules), or (ii) inherent vice (under Art. IV.2(m)).

The Court first analysed the rules of bailment at common law, since they formed the background against which the Hague Rules were drafted. As a common law bailee, the carrier bears the burden of proving that he took all reasonable care of the goods while they were in his possession where the cargo is redelivered in a damaged condition. The UKSC noted that this allocation of burden was logical (since the carrier is usually in a better position than anyone else to account for the loss) and was also a feature of civil law (e.g. of modern French law on contracts of deposit).

Notably, Arts. 401(2) and 901(1) of the Russian Civil Code similarly impose on the depositary the burden of proving lack of fault for the loss. Moreover, if the depositary is a company or a trader, he can only escape liability by showing that the loss was caused by force majeure, the depositor’s intention or recklessness, or by a characteristic of the goods which could not and should not have been known to the depositary. The problem with drawing a similar analogy between carriers and bailees in Russia is that there is no equivalent to common law bailment in Russian law. The carrier is never treated as a depositary, because the rules governing contracts of deposit apply to other types of contractual relations only if this is expressly provided in the relevant legislative act, and the federal laws governing carriage of goods by sea contain no such references.

Art. III.2 Hague Rules

The UKSC then turned to the burden of proof under Art. III.2 of the Hague Rules, which provides that the carrier must, “properly and carefully load, handle, stow, carry, keep, care for and discharge the goods”.

The Court held that the imposition of this duty of care on the carrier under Article III.2 of the Hague Rules also imposes a similar burden of disproving negligence. The UKSC held that, on the basis that Article III.2 is expressly subject to Article IV (under which the carrier bears the burden of proving facts which bring him within an Article IV exception), it would be incoherent for the law to impose the burden of proving the same fact on the carrier for the purpose of Article IV but on the cargo owner for the purpose of Article III.2. The Supreme Court agreed with the cargo claimants that the Hague Rules must therefore logically impose on the carrier the obligation to disprove negligence in respect of the damage to the goods sustained during the carriage.

Art. IV.2(m) Hague Rules

The Court then addressed the burden of proof under Art. IV.2(m) of the Rules. The carriers argued that once it has been proved that the cargo suffered from inherent vice, the burden was on the owners to show that it was the carriers’ negligence that lead to the cargo’s inherent characteristics resulting in damage.

The UKSC disagreed and ruled that the burden of disproving negligence in inherent vice cases lay on the carriers. The Court stressed the fact that a cargo does not suffer from inherent vice in the abstract, but only in relation to some standard of care on the part of the carrier. 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. What amounts to an inherent vice depends on the nature of the service contracted for. In the present case, the fact that that coffee beans emit moisture when the surrounding temperature drops would not, by itself, constitute an inherent vice if this effect could and should have been countered by a reasonable carrier. Therefore, 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.

On the facts of the case, the Court that the applicable standard of care required the carriers to take reasonable steps to protect the coffee from the inevitable formation of condensation on the inside of the unventilated containers. Given that coffee was commonly carried in unventilated containers from warm climates to cooler ones without damage, with reasonable care the cargo was perfectly capable of withstanding the risk of condensation forming. Since there was no evidence as to the weight of Kraft paper employed and the number of layers used, the Court decided that the carriers failed to prove that they had properly dressed the containers for the voyage.

The Russian approach

The relevant rules of Russian law may be found in Arts. 150 and 166 of the Merchant Shipping Code (MSC). Art. 150(1) MSC largely replicates Art. III.2 Hague Rules and reads as follows:

The carrier, from the moment of accepting the goods for carriage and until the moment the goods are delivered, shall carefully and properly load, handle, stow, carry, keep, care for, and discharge the goods carried.”

Surprisingly, no reported case seems to have touched on the burden of proof under this article. A leading commentary on the Russian MSC edited by Professor G.G. Ivanov takes a rather unusual position. It states, rather curtly and without any further explanation, that it is the cargo claimant who is required to prove improper loading (comm. §3 to Art. 155 MSC), stowage (comm. §4) or discharge (comm. §5).

In the absence of judicial guidance, the question is how much weight should be given to these comments. In our opinion, such an interpretation of Art. 150(1) MSC would be doubtful. If followed, it would stand in sharp contrast to Art. 401 of the Civil Code which states, first, that the burden of showing lack of fault lies on the defendant and, second, that where the defendant breaches an obligation in the course of its commercial activity, it may be discharged only by proving force-majeure (which also points strongly towards imposing on the defendant the burden of exculpating itself), unless it is provided otherwise in a law.

This is an important addition: since Art. 150(1) MSC (which would be ‘a law’ in the sense above) is silent on the question of burden, it cannot be taken to have displaced the rule in Art. 401 of the Civil Code.

Given this general rule and absence of express provisions displacing it in the MSC, it is quite unlikely that a Russian court would follow Professor Ivanov’s position and impose the burden of proving improper stowage on the cargo claimant. A more appropriate and probable outcome would be to place it on the carrier.

Turning to inherent vice, Art. 166(1) MSC, which is generally based on Art. IV(2) of the Hague Rules, states that:

“1. The carrier shall not be liable for loss or damage to cargo accepted for carriage, or for late delivery if he proves that the loss, damage or late delivery resulted from:

1) force majeure;

2) perils, dangers and accidents of the sea or other navigable waters;

3) any measures taken to save life or reasonable measures to save property at sea;

4) fire, unless caused by the actual fault or privity of the carrier;

5) acts or orders of state authorities (detainments, arrests, quarantines and others);

6) military actions and civil commotions;

7) acts or omissions of the shipper or consignee;

8) latent defects of the cargo, its characteristics, or wastage arising naturally;

9) defects in packaging not discoverable from its appearance;

10) insufficiency or inadequacy of marks;

11) strikes or other circumstances causing interruptions or restrictions on the provision of services;

12) any other cause arising without fault or privity of the carrier, his workers or agents.

According to Professor Ivanov’s commentary (comm. §3 to Art. 166 MSC), the consignee only needs to prove: (1) that the cargo was transferred into the carrier’s possession undamaged; (2) when delivered, the cargo was damaged (or lost); and (3) the amount of losses estimated with a reasonable degree of certainty. Characteristically, the consignee does not have to establish the carrier’s fault, which is presumed. It follows that, just like in situations involving improper stowage, the burden of disproving fault in inherent vice cases lies on the carrier.

Thus, if the facts of Volcafe were to come before a Russian court, it is likely that it would reach the same conclusions as the UKSC and courts in most civil law jurisdictions, which should be welcomed given the international character of the Hague and Hague-Visby Rules and the stated need to promote uniformity in their application.