Volcafe Ltd & Ors v Compania Sud Americana De Vapores SA (t/a CSAV)

On behalf of the carrier, Mr Simon Bryan QC submitted that, at the first stage of the analysis, where the goods were loaded in apparent good order and condition, but the cargo claimant established that they were delivered in a damaged condition or lost, that only led to an inference that the carrier was in breach of its obligation to properly and carefully care for and carry the goods under Article III rule 2. To the extent that Hobhouse J had gone further in The Torenia [1983] 2 Lloyd’s Rep 210 at 216-7 and held that proof by the claimant of damaged delivery or non-delivery of the goods established a sustainable cause of action (in reliance on non-Hague Rules cases such as Spurling v Bradshaw [1956] 1 WLR 461), he had gone too far. Mr Bryan QC accepted that, of course, where the carrier did not or could not rebut the inference (for example when it had no explanation for the loss of or damage to the goods whilst in its possession) then the claim would succeed. He submitted that the decision of Flaux J in Exportadora Valle de Colina S.A. v A.P. Moller-Maersk A/S [2010] EWHC 3224 (Comm) at [30] to [32] was an example of such a case.

Mr Bryan QC submitted that, at the second stage of the analysis, once the cargo claimant had set up the inference of breach of Article III rule 2, the evidential burden passed to the carrier to establish a prima facie defence based on an excepted peril, here Article IV rule 2(m), inherent vice. At the third stage, the evidential burden then passed to the cargo claimant to rebut that prima facie defence by proving negligence or a failure properly and carefully to care for and carry the goods, which the claimants had failed to do in the present case. Mr Bryan QC accepted that, in order to establish the defence of inherent vice, the carrier may have to adduce evidence showing that it was not negligent, but he emphasised that reliance on an exception in Article IV rule 2 such as (m) did not depend upon the carrier disproving negligence on its part. He relied upon a passage at the end of the speech of Lord Pearson in the Albacora case (1966) S.C. (H.L.) at 31; [1966] 2 Lloyd’s Rep at 64 rhc. :

“In my opinion, there was no breach of the prima facie obligation under Article III, Rule 2, so that the respondents do not need to rely on any immunity under Article IV. But if they did need such immunity, they could establish it under Rule 2 (m) of Article IV. There is no express provision, and in my opinion there is no implied provision, in the Hague Rules that the shipowner is debarred as a matter of law from relying on an exception unless he proves absence of negligence on his part. But he does have to prove that the damage was caused by an excepted peril or excepted cause, and in order to do that he may in a particular case have to give evidence excluding causation by his negligence. It was proved in this case that the shipowner was not negligent.”

Mr Bryan QC had a fourth stage of his analysis which was that, where the carrier proved at the second stage that it was prima facie within an Article IV exception and the cargo claimant then proved at the third stage concurrent negligence or breach of Article III rule 2, then the burden was on the carrier to prove what proportion of the damage was not caused by its negligence or breach of Article III rule 2 and, if it failed to do so, it was liable for the entirety of the loss. In support of that proposition he cited Hobhouse J in The Torenia at 218-9 and Flaux J in Exportadora Valle de Colina at [178]-[181], in each case following and applying the speech of Viscount Sumner in Gosse Millard v Canadian Government Merchant Marine [1929] A.C. 223 at 241. This fourth stage does not arise in the present case and the correctness of those cases at that stage has not been challenged.

For the claimants, Mr John Russell QC submitted that, at the first stage of the analysis, once the cargo claimant had established that goods received by the carrier in good order and condition had been lost or delivered in a damaged condition, the claimant had a sustainable cause of action and there was a legal burden on the carrier as a bailee to establish that loss or damage to the goods occurred without its negligence or that a contractual exclusion clause was applicable, relying on the judgment of Denning LJ in Spurling v Bradshaw [1956] 1 WLR 461 at 466. Mr Russell QC submitted that the incorporation of the Hague Rules into the bill of lading does not alter the incidence of the legal burden, relying on the judgment Wright J in Gosse Millard at first instance [1927] 2 KB 432 at 435-6, given soon after the Hague Rules were enacted in this jurisdiction by the Carriage of Goods by Sea Act 1924, Hobhouse J in The Torenia at 216 and the views of textbook writers: Cooke on Voyage Charters 4^th edition at 85.123 to 85.125 and Palmer on Bailment 3^rd edition at p 1107 section (K).

Accordingly, Mr Russell QC submitted that, at the second stage of the analysis, once the claimant had shown that the goods had been delivered in a damaged condition, there was a legal burden on the carrier to establish that it was relieved from liability by the application of an excepted peril or that it had properly and carefully cared for and carried the goods. He relied in particular upon the judgment of Roskill J in The Flowergate [1967] 1 Lloyd’s Rep 1, a case about inherent vice to which I will return. At p 7 lhc Roskill J said:

“That the burden of proof rests upon the defendants to establish the defence of inherent vice admits of no doubt. See the speech of Viscount Sumner in F.C. Bradley & Sons Ltd v Federal Steam Navigation Company Ltd (1927) 27 Ll. L. Rep. 395, a case decided, it must be remembered, not under the Hague Rules but under the Australian Sea Carriage of Goods Act 1904, Sect 8(d).”

Mr Russell QC submitted that this reference to Bradley (another inherent vice case) made it clear that Roskill J was referring to the legal, not merely the evidential burden of proof, since, in that case, Viscount Sumner was clearly referring to the legal and not merely an evidential burden being on the carrier, when he said at 396 lhc:

“Accordingly, in strict law, on proof being given of the actual good condition of the apples on shipment and of their damaged condition on arrival, the burden of proof passed from the consignees to the shipowners to prove some excepted peril which relieved them from liability…”

In those circumstances, Mr Russell QC submitted that the judge should have found that, notwithstanding the incorporation of the Hague Rules, there was a legal burden on the carrier as a bailee to show that it was entitled to rely upon an exception from liability. This was the subject of the Respondent’s Notice. Mr Russell QC relied upon the classic definition of inherent vice by Gorell Barnes J in The Barcore [1896] P 294 at 297: “[The] cargo was not damaged by reason of the shipowner committing a breach of contract, or omitting to do something which he ought to have done, but it was deteriorated in condition by its own want of power to bear the ordinary transit in a ship” and Lord Reid’s conclusion in Albacora (at [1966] 2 Lloyd’s Rep 58, 59 lhc) that “ordinary transit” means “the kind of transit which the contract requires the carrier to afford” or “the voyage provided for in the contract”. On the basis of that definition, as refined and explained by Lord Reid, Mr Russell QC submitted that the carrier could discharge the legal burden upon it in one or other of two ways: (i) by showing that it did properly and carefully carry the cargo, but the damage still eventuated or (ii) by showing that, even if it had properly and carefully carried the cargo, the damage was inevitable.

Either way, Mr Russell QC submitted that the legal burden of proof was upon the carrier at this second stage and that, accordingly, the carrier had to obtain findings of fact in its favour to establish its defences of inherent vice or inevitability of damage. In the present case, he submitted that the carrier had not obtained findings of fact in its favour, so that the defences failed and the appeal must be dismissed. He submitted that Mr Bryan QC’s third stage was not reached and this was not a Stage 3 case.

The classic exposition of the incidence of the burden of proof in cases of carriage of goods by sea at common law, before the adoption of the Hague Rules, is contained in the judgment of Lord Esher MR in The Glendarroch [1894] P 226. In that case, the carrier sought to rely upon an exception in the bill of lading for loss occasioned by perils of the sea. The bill of lading did not contain an exception for loss caused by the negligence of the carrier’s servants in the navigation of the vessel. The judge at first instance held that, in order to rely upon the exception, the carrier had to prove not only that there was a peril of the sea, but that it was a peril of the sea not occasioned by their negligence. That decision was reversed by the Court of Appeal, which held that once the carrier had shown a loss apparently falling within the exception, the burden of showing that the carrier could not rely upon the exception because of its negligence passed to the cargo claimant.

At 230-232, Lord Esher MR analysed the matter in this way:

“Before you come to the exceptions the liability of the shipowner is absolute. He has contracted that he will deliver the goods at the end of the voyage. If there were no exceptions, it would be utterly immaterial whether the loss was caused by his servants or not. Even if there were no negligence whatever he would be liable. It cannot be, therefore, that this irresistible inference ought to be written into that part of the contract. It is not wanted there; therefore you must write it into that part which contains the exceptions.

When you come to the exceptions, among others, there is that one, perils of the sea. There are no words which say “perils of the sea not caused by the negligence of the captain or crew.” You have got to read those words in by a necessary inference. How can you read them in? They can only be read in, in my opinion, as an exception upon the exceptions. You must read in, “Except the loss is by perils of the sea, unless or except that loss is the result of the negligence of the servants of the owner.”

That being so, I think that according to the ordinary course of practice each party would have to prove the part of the matter which lies upon him. The plaintiffs would have to prove the contract and the non-delivery. If they leave that in doubt, of course they fail. The defendants' answer is, “Yes; but the case was brought within the exception - within its ordinary meaning.” That lies upon them. Then the plaintiffs have a right to say there are exceptional circumstances, viz., that the damage was brought about by the negligence of the defendants' servants, and it seems to me that it is for the plaintiffs to make out that second exception.

….

…that which is said in Mr. Carver's bookis correct, viz., that if the loss apparently falls within the exception, the burden of shewing that the shipowner is not entitled to the benefit of the exception, on the ground of negligence, is upon the person so contending.”

Lopes and Davey LJJ delivered concurring judgments, Lopes LJ stating at 234-5:

“…as a general rule, it may be said that the burden of proof lies on the person who affirms a particular thing “ei incumbit probatio qui dicit, non qui negat.” It appears to me in this case that the burden of proving that the loss which has happened is attributable to an excepted cause lies on the person who is setting it up. That in this case would be the defendants, the shipowners. If, however, the excepted cause by itself is sufficient to account for the loss, it appears to me that the burden of shewing that there is something else which deprives the party of the power of relying on the excepted cause lies on the person who sets up that contention. That in this case would be the plaintiffs, who are the shippers.”

This approach to the burden of proof and, specifically, to the shifting of the burden, was followed in cases which did not involve the incorporation of the Hague Rules, both before and after they were adopted. Thus in Owners of Steamship Matheos v Louis Dreyfus and Company [1925] AC 654 Lord Sumner referred to this principle derived from The Glendarroch with approval at 666. Joseph Constantine Steamship Line v Imperial smelting Corporation Ltd [1942] AC 154 was a case of frustration of a charterparty where, before commencement of loading of cargo, the vessel suffered a violent boiler explosion. The House of Lords held that, in order to establish frustration, the shipowners were not bound to prove that the explosion was not due to their default. Lord Wright in particular considered the position with regard to bailment and carriage by sea at 194:

“On the ruling of the Court of Appeal the shipowners have placed on them the unusual task of proving a negative. It is sought to say that the rule is not anomalous because of some other cases in which a party is required to prove a negative, but what are cited as parallels are so different and are so few in number as to emphasize the general rule. Thus, the law as to the liability of a bailee depends on the special obligation which the law has imposed on him from ancient times. It has recently been discussed by the Court of Appeal in Brooks Wharf v. Goodman [1937] 1 KB 538. If the bailee fails duly to redeliver the goods, he must, in the absence of exceptions, show that he has taken reasonable care in keeping them. Similarly, the liability of a common carrier depends, according to the old law, on the custom of the realm, like that of the innkeeper. Under this special rule a carrier is an insurer who is absolutely liable for the safe carriage of the goods unless he can explain the loss as due to the act of God, the King's enemies, or inherent vice. In modern times the practice of having special contracts has been superimposed on the custom of the realm. These contracts contain exceptions. If the carrier pleads an exception, the goods owner may counter by pleading the fault of the carrier, but the onus of proving that, as also of proving an allegation of unseaworthiness, is, as I have already explained, on the goods owner who makes it.”

That analysis accords with the three stage analysis put forward by Mr Bryan QC in the present case, in other words that, where the carrier sets up a case within the exception, it is for the cargo claimant to establish that the exception does not apply because of the carrier’s negligence. That would seem to be so, whether the burden at stages one and two is a legal one, as the claimants contend, or only an evidential one. As to whether the burden of proof at the first and second stages is a legal burden on the cargo claimant to prove delivery in a damaged condition or non-delivery, then a legal burden on the carrier to establish the operation of one of the Article IV rule 2 exceptions, or merely in each case an evidential burden, I consider that the better view is that in each case, the burden is a legal one. That was not only the view of Viscount Sumner in Bradley (albeit not a Hague Rules case) but of Roskill J in The Flowergate [1967] 1 Lloyd’s Rep 1 and of Hobhouse J in The Torenia [1983] 2 Lloyd’s Rep 210. At 216, he analysed the position as follows:

“The relationship between the present parties is contractual. It follows (as was accepted by both Counsel) that the question of legal burden of proof has ultimately to be decided by construing the contract between them. Cases such as The Glendarroch (sup.) were decided as a matter of construction of the contract before the Court, albeit approaching the question of construction by having clearly in mind the legal and historical background to such contract. In ascertaining the effect of the contract one must take into account the nature of the contract. The contract here is a contract in a bill of lading; it is a contract of carriage - that is to say, a species of a contract of bailment…

It is only because the contract in this case is a contract of bailment that the plaintiff sets up a sustainable cause of action by proving the non-delivery of the goods. It was then for the defendants to set up a sustainable defence. I use the word "sustainable" in preference to "prima facie", since "prima facie" is frequently used to refer to a case which shifts the evidential burden of proof rather than giving rise to a legal burden of proof in the opposite party in the manner I have explained above.”

Of course, because the contract of carriage is one of bailment on terms, the initial burden on the cargo claimant is one which is easily discharged by proving non-delivery or delivery in a damaged condition, given that the acknowledgment by the carrier in the bill of lading of receipt in apparent good order and condition precludes the carrier from alleging that the goods were damaged on shipment or not shipped at all. Once the cargo claimant demonstrates non-delivery or delivery in a damaged condition, he has, as Hobhouse J, says, set up a sustainable cause of action. It is then for the carrier to explain what happened to the goods whilst they were in his care and, if he can put forward no explanation, then the claim will almost certainly succeed (see per Lord Pearson in Albacora at 63 rhc; Flaux J in Exportadora Valle de Colina at [31]). If the explanation advanced by the carrier involves the invocation of one or more of the exceptions in Article IV rule 2, then Mr Bryan QC’s second stage is reached and the legal burden of proof is on the carrier to establish that the exception applies.

The critical question is whether, in cases to which the Hague Rules apply, it is, as Mr Russell QC contends, a necessary part of establishing the application of the exception, here the exception in Article IV rule 2(m), that the carrier establishes that the damage occurred without its negligence or notwithstanding that it properly and carefully carried the goods or whether, in accordance with the principles laid down in The Glendarroch and the cases which have followed it, Mr Bryan QC’s third stage is then reached and the legal burden is on the cargo claimant to negative the operation of the exception by establishing negligence or want of care on the part of the carrier.

One of the first cases decided after the enactment of the Carriage of Goods by Sea Act 1924 was Gosse Millard v Canadian Government Merchant Marine [1927] 2 KB 432, a decision of Wright J. His judgment certainly lends support to Mr Russell QC’s submission. In that case, cargoes of tinplates were delivered damaged by fresh water, probably emanating from rain during the discharge of overstowed lumber cargo. The carrier relied upon a number of exceptions in Article IV rule 2 including 2(q). The judge held that the provision in that exception, that it was for the carrier to disprove its own fault or neglect or that of its servants, also applied to the other exceptions. At 435-436 he said:

“The words of para. (q) expressly refer to the carrier as claiming the benefit of the exception, and I think that, by implication, as regards each of the other exceptions, the same onus is on the carrier. He must claim the benefit of the exception, and that is because he has to relieve himself of the prima facie breach of contract in not delivering from the ship the goods in condition as received. I do not think that the terms of Art. III. put the preliminary onus on the owner of the goods to give affirmative evidence that the carrier has been negligent. It is enough if the owner of the goods proves either that the goods have not been delivered, or have been delivered damaged. The carrier is a bailee and it is for him to show that he has taken reasonable care of the goods while they have been in his custody (which includes the custody of his servants or agents on his behalf) and to bring himself, if there be loss or damage, within the specified immunities. It is, I think, the general rule applicable in English law to the position of bailees that the bailee is bound to restore the subject of the bailment in the same condition as that in which he received it, and it is for him to explain or to offer valid excuse if he has not done so. It is for him to prove that reasonable care had been exercised.

[The judge then cited several earlier bailment cases and continued]

The principle is also discussed by Atkin L.J. in The Ruapehu (1925) 21 Ll. L. Rep. 310, 315, where he points out that it is wrong to say that the onus on the bailee to prove absence of negligence does not arise until the bailor has first shown some negligence on the part of the bailee. I think that this principle of onus of proof is applicable to the carrier under the Act. Indeed, in the general exception of Art. IV. r. 2 (q), it is expressly laid down.”

The actual decision in that case was reversed in the Court of Appeal and then restored in the House of Lords, but on a different point, namely the position which arises at Mr Bryan QC’s fourth stage, not relevant for present purposes, where there are concurrent causes of loss, one excepted and one not. In such circumstances, the burden is on the carrier to prove what part of the loss is attributable to the excepted peril. The decision of Wright J that, under the Article IV rule 2 exceptions, the burden is on the carrier to disprove negligence was followed by a number of judges of the Commercial Court at first instance: Roche J in Borthwick v New Zealand Shipping Co (1934) 49 Ll. L. Rep 23 at 24; Atkinson J in Phillips v Clan Line (1943) 76 Ll. L. Rep 58 at 61 and Pilcher J in Svenska Traktor Akt v Maritime Agencies (Southampton) [1953] 2 QB 295. However, as Hobhouse J noted in The Torenia [1983] 2 Lloyd’s Rep 210 at 218 lhc, this is a highly controversial issue.

Wright J himself at least seems to have had second thoughts on the point, at least as a matter of the law of bailment, by the time he came to decide the Joseph Constantine case as Lord Wright (see [34] above). Furthermore, in the Albacora case, Lord Pearce doubted whether what Wright J had held was correct. In that case, the Lord Ordinary had held in the Court of Session that the cargo claimants had failed to make out their allegations of negligence. Lord Pearce recorded the argument of the cargo claimants before their Lordships that the burden still remained on the carrier to disprove negligence and dismissed it in these terms (at [1966] 2 Lloyd’s Rep 61 rhc:

“The pursuers contend, however, that this does not amount to an affirmative disproof of negligence; and that even assuming that the cargo has been shown by the defenders to have suffered damage arising from inherent vice within Article IV, Rule 2 (m), there yet remains an additional onus on the defenders to disprove negligence—an onus which they have failed to discharge. I have doubt whether Wright, J., was correct in saying [in Gosse Millard] that such an additional onus lies on the defenders.”

The speech of Lord Pearson in that case at 64 rhc, to which we have already referred at [24] above contradicts what Wright J said, since Lord Pearson was of the opinion that the carrier was not debarred, as a matter of law, from relying on Article IV rule 2 (m) unless it disproved negligence on its part. The other Law Lords did not express a view on this point. In The Torenia at 218 Hobhouse J noted that it was not necessary for him to decide where the burden of proof on negligence lay, because, on the facts before him, the carrier’s submission of law was bound to fail on the correct construction of Article IV rule 2.

The submission by Mr Bryan QC that, once the carrier has shown that the loss apparently falls within the inherent vice exception, at the third stage the burden then shifts back to the cargo claimant to disprove negligence, is also supported by the views expressed in Scrutton on Charterparties 23^rd edition (2015) at 14-082 (but which is a passage that has been in the text since the 14^th edition (1939) edited by Messrs McNair and Mocatta) that:

“Save in cases where negligence or privity is expressly dealt with as in Rule 2(a) and (b) it is submitted that the carrier is protected that the carrier is protected against loss or damage on proof by him that the case falls within the specific exception unless the goods-owner in his turn proves negligence. Under exception (q) the onus of disproving negligence and privity is placed expressly upon the carrier.”

The editors of Carver on Bills of Lading 3^rd edition, Professors Treitel and Reynolds, concur, albeit somewhat reluctantly, that the weight of authority favours the view expressed in Scrutton. At 9-243 they say:

“As regards proof of negligence at least, that the position under the Rules is the same as the common law position to be derived from The Glendarroch is the view expressed in Scrutton. Older editions of Carver, basing themselves on the view of Wright J. referred to above, took the first, bailment, view. Later editions reversed this approach on the grounds of inconsistency with the common law rules, and that it would render Art.IV.2 (q) superfluous. It was even described in the 12th edition of 1971 as “heresy”. The majority of authority, including obiter dicta in the House of Lords, [in Albacora] therefore favours the view of Scrutton. But a rule so formulated creates considerable difficulties for cargo claimants in respect of matters peculiarly within the knowledge of the carrier, and authoritative doubts have been expressed about it quite recently. There is in fact a strong case for applying the bailment rule, rather than that stemming from The Glendarroch, in this context; or indeed more generally, perhaps for disavowing The Glendarroch itself.”

The reference to the “authoritative doubts” is to a passage in the judgment of Hobhouse J in The Torenia at 219 lhc:

“Nor are the specific arguments advanced by the defendants persuasive as a mode of construction of the Hague Rules.While it is right to say that any terms used in the Hague Rules should be construed having regard to the previously understood meaning of those terms, there have been warnings that one should not pay excessive regard to earlier decisions of English Courts in construing this international code. (See, for example, per Lord Atkin in Stag Line Ltd. v. Foscolo Mango & Co. [1932] A.C. 328 at pp. 171 and 342). Thus it is not useful to construe the Hague Rules by reference to what was the position of a common carrier under English law nor by reference to the special position of the implied warranty of seaworthiness under English law - an implied warranty which is expressly negatived by s. 3 of the Carriage of Goods by Sea Act, 1924. On any view, such arguments do not determine the construction of the paragraphs of art. IV, r. 2, inter se. This is a matter with which the earlier English decisions were not concerned at all.”

However, in my judgment, too much cannot be made of that point in the present case, since it is apparent from the earlier part of his judgment in The Torenia, that Hobhouse J approved the analysis of the burden of proof in cases of carriage by sea as set out in The Glendarroch. It is true that he did not decide whether that analysis would be equally applicable under the Hague Rules, which, in relation to Mr Bryan QC’s third stage, was what he described as the “highly controversial issue” he did not need to decide on the facts of that case. Therefore, the passage from the judgment I have just quoted is not dealing with that issue, which the judge said he did not have to decide. Rather, as the opening words of the passage make clear, it is focusing on the argument on behalf of the carrier in that case that the burden of proof in relation to unseaworthiness under Articles III rule 1 and IV rule 1 of the Hague Rules was on the claimant throughout, as it would have been on the claimant to prove breach of the implied warranty of seaworthiness at common law.

Our attention was also drawn to various Commonwealth authorities decided since the enactment in the country in question of the Hague Rules which decide that, in cases governed by the Hague Rules, the principles established by The Glendarroch still apply, namely that once the carrier discharges the onus upon it of showing that the loss apparently fell within the Article IV exception, the burden shifts back to the cargo claimant to establish negligence negativing the exception. The clearest of these authorities is the decision of Hay J in the New Zealand Supreme Court (the court of first instance) in Shaw Savill & Albion Company Ltd v Powley & Co [1949] N.Z.L.R. 668, another case where the exception relied upon was Article IV rule 2(m).

The decision of the High Court of Australia in Shipping Corporation of India v Gamlen Chemical Co [1980] 147 C.L.R. 142 was a case where the carrier relied upon the exception for perils of the sea in Article IV rule 2(c). The appeal concerned an argument by the carrier, which had found favour with the trial judge, but not with the Court of Appeal, that the effect of the opening words of Article III rule 2 was to subordinate that rule to the provisions of Article IV. Before the High Court, the appellant carrier placed considerable reliance upon the passage in the speech of Lord Pearson in the Albacora case which I quoted at [24] above, as somehow demonstrating that the carrier could rely upon the exceptions in Article IV, even though it had been negligent. The carrier accepted that the pre-Hague Rules cases had established an order of burden of proof which was essentially the three stage process for which Mr Bryan QC contends, but submitted that the position was different under the Hague Rules, which provided an exclusive code under which the position was different, as demonstrated by the opening words of Article III.

The arguments of the carrier were dismissed by the High Court, on the basis that the Hague Rules had not effected the radical departure for which the carrier contended. The High Court considered that the order of burden of proof remained as it had at common law in The Glendarroch: see per Stephen J at 151-3 and per Mason and Wilson JJ at 167-8. In those passages, the High Court also made it clear that the passage in the speech of Lord Pearson was dealing with the burden of proof and refuting the view of Wright J in Gosse Millard that the carrier could only successfully rely upon an Article 4 rule 2 exception if it disproved negligence.

The subsequent decision of the High Court of Australia in The Bunge Seroja [1999] 1 Lloyd’s Rep 512 was another case where the exception of perils of the sea in Article IV rule 2(c) had been relied upon by the carrier. The trial judge and the New South Wales Court of Appeal had held that there had been no breach of Article III rule 2, so that the claim failed, and the High Court dismissed the appeal by the cargo interests. It is true that some of the High Court considered that there was difficulty in construing the Hague Rules by reference to the common law rules of pleading and order of burden of proof, given that they were reached as a matter of international agreement: see the judgment of Gaudron, Gummow and Hayne JJ at [19] to [23]. However, McHugh J considered that the scheme of Articles III rule 2 and IV rule 2 effectively tracked the common law: see [90] to [95], particularly at [92]. Kirby J at [154] to [156] and Callinan J at [225] specifically approved the analysis of the High Court in Gamlen which had approved the application of the principles in The Glendarroch to cases under the Hague Rules. Accordingly, that case cannot be viewed as an authority for the application of a different approach to the order of burden of proof in cases under the Hague Rules than at common law. Furthermore, the concern expressed by the members of the High Court, about the application of English law and Australian law principles to cases under the Hague Rules, seems to have centred on the definition of perils of the sea pursuant to those principles, which differs from the definition in other jurisdictions, such as the United States and Germany. That concern is of no relevance to the present case.

In my judgment, the correct analysis, at Mr Bryan QC’s third stage, is that once the carrier has shown a prima facie case for the application of the exception of inherent vice in article IV rule 2 (m), the burden then shifts to the cargo claimant to establish negligence on the part of the carrier, such as will negative the operation of the exception. This analysis is consistent with the weight of the authorities, which apply the principles enunciated in The Glendarroch, even where the Hague Rules apply to the contract of carriage. I also consider that it is in accordance with the principle that he who alleges must prove. That may be a principle of the common law, but it is one which accords with fairness and, although the Hague Rules are to be construed against the background that they are an internationally adopted convention, I do not consider that there is anything in the Rules themselves which points to a different construction than that, in relation to exceptions such as Article IV rule 2(m) (or for that matter other exceptions such as rule 2(c)), the carrier does not need to disprove negligence to rely upon the exception. On the contrary, the fact that, in the case of the “catchall” exception in rule 2 (q), it provides expressly that the burden of proof is on the carrier to disprove, inter alia, fault or neglect, is a strong pointer to the correct analysis being that, in the case of the other exceptions, including rule 2(m), the application of the exception is not dependent upon the carrier disproving negligence.

As for the point made in Carver, which was echoed by Mr Russell QC’s submissions, that this presents the cargo claimant with the difficulty of proving negligence, when it is the carrier rather than the cargo claimant which has the knowledge of what has occurred on board the vessel during the voyage, it seems to me that that difficulty is more apparent than real. The issue of whether the carrier is entitled to rely upon the exception under Article 4 rule 2(m) or precluded from doing so, because the loss was caused by its negligence or breach of Article III rule 2, will be being decided at trial when all the evidence is available and in circumstances where, as Lord Pearson pointed out, even though the burden of proof is not on the carrier, it will want, so far as it is able to do so, to put in evidence that it was not negligent.

Furthermore, it is worth pointing out that the number of cases where the result turns upon the shifting burden of proof in the three (or four) stage analysis, as opposed to the evidence demonstrating one way or the other whether the carrier is liable, must be limited. The burden of proof is only of significance in the present case because of what is, on one view, the failure of the judge to make clear findings of fact in relation to the issue of negligence. Accordingly, the question whether the burden was on the carrier to disprove negligence, in order to establish an entitlement to rely upon the exception or upon the claimants to prove negligence of the carrier, in order to negative the application of the exception, became of critical relevance in this case in a way which is atypical.

I turn to the second issue set out at [22] above, which is whether the judge erred in concluding at [16] of his judgment that there was “complete circularity” between Article III rule 2 and Article IV rule 2 so that, as he put it, rule 2(m): “is not in any real sense…an excepted peril…but no more than a category of case in which the breach of the Article III rule 2 obligations is necessarily negatived”. I agree with Mr Bryan QC that, applying the principles in relation to the burden of proof which I have endorsed in the previous section of this judgment, the question whether there was some inherent defect, quality or vice in the cargo (on which the burden of proof is on the carrier) is anterior to the question whether there was negligence on the part of the carrier or breach of the duty to properly and carefully care for and carry the cargo (on which the burden is on the claimant to disprove the operation of the exception).

The problem with the judge’s analysis of complete circularity is twofold. First, the judge’s analysis deprived the exception in rule 2(m) of most, if not all, of its force and failed to appreciate that inherent vice has been long recognised as an excepted peril, even where the carrier was under an otherwise absolute liability as a common carrier at common law. The second problem with the judge’s analysis is that, by conflating the issues of whether there was some inherent defect, quality or vice in the cargo and whether the carrier properly and carefully cared for and carried the cargo, it encourages the erroneous approach that the carrier cannot rely upon the exception unless it can disprove negligence. That erroneous approach infects much of the analysis of the judge in this case.

I accept that there is inevitably a degree of overlap, if not of circularity, given the definition of inherent vice, in the sense that one is focussing on the ability of the cargo to withstand the ordinary incidents of carriage, pursuant to obligations of the carrier under the contract of carriage, so that if the carrier has not complied with those obligations, the exception will not apply. However, the burden of proof lies on the claimants to establish that the carrier was negligent or otherwise did not comply with its obligations under Article III rule 2. As I have said, the danger with the judge’s analysis is that it ignores that burden of proof.

Furthermore, I agree with Mr Bryan QC that the judge seems to have incorrectly proceeded on the basis that the carrier could not rely on the Article IV rule 2(m) exception, in the case of a “normal” cargo of coffee beans, since in the section of the judgment where he deals with sound system, at [47] he says: “while a sound system is not required to take account of the peculiarities of an individual cargo, these coffee beans were entirely typical of an extensively carried commodity”. He also appears to have conflated inherent vice with inevitability of damage. At [45(a)] of his judgment, he said:

“A carrier is obliged under Article III (2) to employ a sound system. Since the "soundness" relates to the prevention of damage to a normal cargo from the risks reasonably to be expected during the contracted carriage, it is no answer to an allegation of breach of that obligation to say that, since such damage is always unavoidable, no such system exists.”

Of course, that passage demonstrates clearly his erroneous approach to the question of what a “sound system” requires, where he seems to have thought that it was required to prevent damage, an issue with which I deal in the next section of this judgment. However, the judge’s analysis, that the carrier will only have a defence if it employs a sound system to prevent damage to “normal” cargoes of coffee beans, but damage nonetheless occurs, not only sets the bar too high as regards Article III rule 2, but does seem to suggest that the inherent vice exception could not arise in the case of a “normal” cargo, unless the carrier could show that damage was inevitable.

That analysis not only effectively prevents the defence of inherent vice from arising, but is wrong as a matter of law. That an inherent vice exception will include inherent qualities of an otherwise normal cargo, and that inherent vice and inevitability of damage are not the same, is clear from two cases, which were both marine insurance cases rather than cases where the Hague Rules applied. However, I consider that it is appropriate that the concepts of “inherent vice” and “inevitability of damage” should be treated similarly, in the context of both carriage by sea and marine insurance. As Donaldson LJ said in the first case, Soya G.m.b.H v White [1982] 2 Lloyd’s Rep 136 at 149 rhc:

“Turning now to inherent vice, I would adapt the ‘definition’ [e]nunciated by Lord Sumner in Gaunt's case and quoted by Lord Justice Scrutton in Sassoon's case (1923) 16 Ll. L. Rep 129 at p. 132 so that it read:

A loss by inherent vice is one which is proximately caused by the natural behaviour of the subject matter insured, being what it is, in the circumstances in which it was expected to be carried. 

This is in line with the common understanding of the exception of inherent vice in a contract of affreightment as-

. . . the unfitness of the goods to withstand the ordinary incidence of the voyage, given the degree of care which the shipowner is required by the contract to exercise in relation to the goods [see Scrutton on Charterparties 18th ed., art. 107.]. 

It seems to me to be both right and natural that the concept should be treated similarly in the context of both carriage by sea and marine insurance, and in this respect I disagree with the learned editors of Arnould.”

Donaldson LJ had said, earlier on the same page of his judgment, that; “inevitability of loss and inherent vice are quite separate and distinct concepts”. He made the same point again at 150 rhc:

“As I have said, in my judgment a loss is proximately caused by inherent vice if the natural behaviour of the goods is such that they suffer a loss in the circumstances in which they are expected to be carried. This is the test under a contract of affreightment and the shipowner in this case could have pleaded inherent vice in answer to a claim for damage to the cargo. In holding that inherent vice is only proved if the soya beans could not withstand any normal voyage of that duration, the judge was introducing a different concept, namely that of certainty of loss. That is quite different defence.”

The appeal of the defendant underwriter to the House of Lords in that case was dismissed: [1983] 1 Lloyd’s Rep 122. At 126 lhc, Lord Diplock said:

“[Inherent vice] refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.” 

The second case is the decision of the Court of Appeal in Noten B.V. v Harding [1990] 2 Lloyd’s Rep 283. That case concerned consignments of gloves carried in containers, which had suffered moisture damage during the transit. The trial judge found that the moisture came from the gloves themselves, not from the air inside the containers at the time they were stuffed, but that the moisture had condensed on the roof of the containers during the carriage and dropped onto the cargo. The judge held that the damage was caused by an insured peril, the dropping of water from an external source onto the goods. That decision was reversed by the Court of Appeal, which found that the proximate cause of the damage was inherent vice, an excepted peril. At 287 lhc, Bingham LJ said:

“If, then, the damage complained of was proximately caused by the excessively moist condition of the gloves when shipped, given the conditions in which they were and were expected to be carried, was that cause an insured peril under the policies or does it fall within the excepted peril of inherent vice or nature of the goods? Taken alone, the expression "inherent vice" may be capable of misleading, since it may suggest some defect in the goods and these goods were not in any ordinary sense defective. It is helpful to read the whole phrase "inherent vice or nature of the subject-matter insured" which appears in these policies, as also in s. 55(2) (c) of the Marine Insurance Act 1906, as a whole.”

He then cited Lord Diplock’s definition of inherent vice in Soya v White and continued at 287 rhc:

“The suggestion has sometimes been made that inherent vice means the same thing as damage that must inevitably happen, but this is not so. The distinction is between damage caused by any external occurrence, and damage resulting solely from the nature of the thing itself. Damage from inherent vice may be just as capricious in its incidence as damage caused by perils of the seas.”

It follows that, to the extent that the judge in the present case considered that inherent vice was to be equated with inevitability of damage, or that the inherent vice exception would not be available in relation to “normal” cargoes of coffee beans, such as the present consignments, he was wrong as a matter of law. Since it was common ground between the experts that the damage to the cargoes was due to condensation and that the source of the condensation was the coffee beans themselves, as with the gloves in Noten B.V. v Harding, and since the judge accepted Dr Jonas’ evidence about the process by which the condensation occurred once the containers arrived in Northern Europe in preference to that of Dr Wild (see [39] of the judgment), I consider that the judge should have concluded that the carrier had made out a sustainable defence within Article IV rule 2(m). Had he reached that conclusion and then analysed the burden of proof correctly, he should have gone on to consider whether the exception was negatived, because the carrier had not employed a sound system in the carriage of the goods and, had it done so, the damage would not have occurred, an issue on which the legal burden was on the claimants.

As I have already noted at [16] above, 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 is that the obligation under Article III rule 2 does not require the carrier to employ a system which would prevent damage. This emerges clearly from the decision of the House of Lords in Albacora [1966] 2 Lloyd’s Rep 53, to which I have already referred. That case concerned a consignment of 1,200 cases of wet salted ling fillets carried on board the carrier’s vessel in unrefrigerated holds from Glasgow to Genoa. The fish were found on discharge to have suffered a form of bacterial contamination. Other consignments had previously been carried safely without refrigeration, but what emerged after those consignments were discharged in a damaged condition, was that above 41°F the bacteria developed in the fish so that the cargo could only be safely carried on the voyage at the relevant time of year in refrigerated holds. However, no one had appreciated that at the time. The carrier relied upon the exception for inherent vice in Article IV rule 2(m). The cargo claimants, who were the appellants in the House of Lords, contended that the carrier was in breach of Article III rule 2 in that “properly” meant “in an appropriate manner”, which there meant under refrigeration.

The House of Lords rejected that contention in trenchant terms. At 58 rhc, Lord Reid said:

“The argument is that in this Rule “properly” means in the appropriate manner looking to the actual nature of the consignment, and that it is irrelevant that the shipowner and ship's officers neither knew nor could have discovered that special treatment was necessary. The obligation under the Rule is to carry the goods properly and if that is not done there is a breach of contract. So it is argued that in the present case it is proved that the only proper way to carry this consignment on this voyage was in a refrigerated hold, and that the obligation of the respondents was to do that, even if the appellants' agents, who were parties to the contract, were aware that there was no refrigeration in this ship.

This construction of the word “properly” leads to such an unreasonable result that I would not adopt it if the word can properly be construed in any other sense. The appellants argue that, because the Rule uses the word “properly” as well as “carefully,” the word “properly” must mean something more than carefully. Tautology is not unknown even in international conventions, but I think that “properly” in this context has a meaning slightly different from “carefully.” I agree with Lord Kilmuir, L.C., that here “properly” means in accordance with a sound system and that may mean more than carrying the goods carefully. But the question remains by what criteria it is to be judged whether the system was sound.

In my opinion the obligation is to adopt a system which is sound in light of all the knowledge which the carrier has or ought to have about the nature of the goods. And if that is right then the respondents did adopt a sound system. They had no reason to suppose that the goods required any different treatment from that which the goods in fact received.”

Likewise at 62, Lord Pearce refuted the claimants’ argument:

“A sound system does not mean a system suited to all the weaknesses and idiosyncrasies of a particular cargo, but a sound system under all the circumstances in relation to the general practice of carriage of goods by sea. It is tantamount, I think, to efficiency. To accept the pursuers' contention would be to import into the Hague Rules a revolutionary departure from the scheme of the common law. Lord Sumner said in Bradley & Sons Ltd. v. Federal Steam Navigation Ltd (1927) 27 Ll. L. Rep 395 at p 399:

‘When the common law makes the ship bear the risks of the voyage and of all that may happen to the cargo in the course of it but excepts the Act of God, the King's enemies and inherent vice, the scheme is evident. Neither party can wholly guard against the Act of God or the King's enemies, so the loss lies where it falls. For the rest the carrier answers for his ship and men, the cargo owner for his cargo. The carrier has at least some means of controlling his crew and has full opportunity of making his ship seaworthy, but of the cargo he knows little or nothing and, as the shipper has the advantage over him in this respect, he must bear the risks belonging to the cargo.’

Was it intended that the Hague Rules should make a radical departure from the common law, and impose on the ship an obligation to use the best possible means of carriage, suited to the weakness of the cargo, even if those means were not within the competence of the ship? Was it intended that if a cargo had only the strength to endure a quick passage in the Queen Mary, but not the slower and rougher passage in a tramp steamer, then the tramp steamer, which without any prior information as to its weakness agreed to carry it, was automatically liable for its deterioration during the voyage? Such an intention would produce a novel and unfair result. And such an intention would certainly have been expressed in clear language. It would not have been left in ambiguity dependent on the one word “properly.””

Lord Pearson said at 63-64:

“The convenient first step is to ascertain what is the prima facie obligation under Article III, Rule 2. It is not an obligation to achieve the desired result, i.e. the arrival of the goods in an undamaged condition at their destination. It is an obligation to carry out certain operations properly and carefully. The fact that goods, acknowledged in the bill of lading to have been received on board in apparent good order and condition, arrived at the destination in a damaged condition does not in itself constitute a breach of the obligation, though it may well be in many cases sufficient to raise an inference of a breach of the obligation.

…

…the question is whether the respondents carried out the operations in respect of the appellants' goods “properly,” that is to say, in an appropriate manner. In my view, the appropriate manner was the manner appropriate to be adopted by the respondents in all the circumstances of the case. In the circumstances of this case, as the respondents had no reason to know of or suspect the special risks attending the carriage of this fish in warm weather, they were entitled to carry it in the ordinary way, as they did.

The word “properly” adds something to “carefully,” if “carefully” has a narrow meaning of merely taking care. The element of skill or sound system is required in addition to taking care.”

In the light of those clear statements as to what “properly” and a sound system require, I am in no doubt that the judge misdirected himself as to the law in relation to Article III rule 2, and overstated to a considerable extent what was required for a sound system. Mr Russell QC made a valiant effort in his submissions to maintain that, in the passages in the judgment at [47]-[49] which I have cited at [16] to [18] above, the judge was not saying that the system adopted had to guarantee that no damage would occur. He referred to the judge’s written reasons for dismissing the carrier’s application for permission to appeal, where the judge himself suggested that he was not saying that the system had to guarantee that damage would not occur. I was not assisted by the judge’s view in that regard and, in any event, the passage in [45] of his judgment, which I quoted at [56] above, makes it quite clear that he was saying that a sound system had to prevent damage to a normal cargo such as the consignments in the present case. The judge sought to impose on the carrier an obligation under Article III rule 2 which went way beyond what the law requires.

That overly rigorous approach also appears from his conclusions that (i) the system employed could not be sound unless underpinned by some scientific theoretical calculation or empirical study, as to what weight or type of kraft paper or cardboard would absorb most moisture; and (ii) that the carrier could not rely upon the general industry practice as regards lining of containers, because that practice too was not underpinned by some scientific calculation or study. These conclusions by the judge are surprising, since the claimants did not allege at trial that such scientific calculation or study should have been carried out. Nor was there any evidence, expert or otherwise, that such calculation or study should have been carried out, let alone that it would have been possible or reasonably practicable to do so. It seems to me that there would be real practical difficulties in carrying out any such calculation or empirical study.

The need for such a calculation or study was thus a requirement the judge himself imposed, which was not supported by the evidence. Indeed, it flew in the face of the evidence. When the judge asked Dr Jonas whether any such research had been done, Dr Jonas confirmed that it had not been, but stated that research carried out by the International Cocoa Organisation “came to the conclusion that the risk of condensation is inherent in the trade and therefore all cocoa shipments should be done in ventilated containers.” His undisputed evidence was that cocoa beans have similar hygroscopic properties to coffee beans. Of course, the claimants could have elected for carriage of these consignments in ventilated containers, but that would have involved payment of additional freight. As I noted at [9] above, the experts were agreed that carriage in ventilated containers was preferable, but the carriage of bags of coffee beans in lined, unventilated containers is widespread commercial practice.

None of the various publications exhibited by the experts to their reports, which evidenced that widespread commercial practice of carrying coffee beans in unventilated containers lined with kraft paper, spoke of the need for scientific calculation or study to ascertain the absorption rate of the kraft paper used. Accordingly, the judge’s requirement for such a calculation or study went beyond the general practice in the container industry. This was to impose a counsel of perfection on carriers and their masters and officers, which went way beyond what a sound system required. As Roskill J said in The Flowergate [1967] 1 Lloyd’s Rep 1 at 44-45:

“It is clear from the mass of evidence to which I have listened that the problems concerning ventilation of parcels of cocoa are many, that these problems have not been the subject of extensive research and are scientifically very much greater than those in charge of the day-to-day carriage of cocoa can have been expected to know. Masters, chief officers and supercargoes are neither mathematicians nor scientists, and much which was said in evidence no doubt came as a surprise to them.”

Thus, in my judgment, in concluding that a sound system had to be underpinned by a theoretical calculation or empirical study, the judge erred in law in imposing a standard beyond what the law requires. Furthermore, because he considered that general industry practice could not render a system sound, unless it was underpinned by this theoretical calculation or empirical study, the judge essentially discounted general industry practice. In that regard, he also erred in law. It is well-established that one of the indicia of a sound system is that it is in accordance with general industry practice.

This emerges from the passage in the speech of Lord Pearce in Albacora cited at [66] above and also from the judgment of Bingham J in The Rio Sun [1985] 1 Lloyd’s Rep 350. In that case, upon discharge of a cargo of crude oil, a high percentage of the cargo was found to have formed a hard, waxy, unpumpable residue in the bottom of the vessel’s tanks. The cargo claimants contended that the carrier was in breach of its obligations under Article III rule 2 in failing to heat the cargo. The judge rejected that contention, on the basis that there was no general industry practice to heat crude oil cargoes of that particular blend. Having cited Albacora and The Flowergate, he held at 365 lhc:

“Whether Panatlantic can avail themselves of the principles laid down in these cases depends on whether they can establish facts similar to those on which the cases turned. This involves consideration of whether Panatlantic were or should have been alive to the danger which here eventuated; whether they omitted any reasonable or proper precaution; whether the methods they adopted were sound in the light of such knowledge as they had or should have had; and whether the R.O.B. formed because the goods could not stand the treatment which the contract of carriage authorized or required. I readily accept that owners cannot escape liability by appointing a stupid or ignorant master and then relying on his unawareness of the risks involved. It is what they know or ought to know which matters. But even applying that test I am satisfied that Panatlantic did not act carelessly or inconsistently with standard practice in failing to heat the cargo at the beginning of this voyage. It is not general practice to heat crude oil cargoes. If the cargo had been of a crude known to be abnormally heavy and viscous, the position might be different, but the Belayim blend was not generally known or believed to give rise to problems of this kind. Panatlantic omitted no reasonable precaution which any ordinary owner would have taken, particularly where the charterer required no heat. The excessive R.O.B. formed because, for reasons not foreseen or apprehended by Panatlantic, the cargo would not survive a voyage of this length at this time of year without heat. There was, in my judgment, no breach of art. III, r. 2, but in any event Panatlantic are entitled to rely on art. IV, r. 2 (m).”

Mr Russell QC sought to counter Mr Bryan QC’s submission, that the judge in the present case had failed to take sufficient account of the fact that the method of dressing the containers employed by the carrier was in accordance with container industry practice, by submitting that, at [49], the judge had found that there was no general industry practice and that this was a finding of fact, with which this Court should not interfere. He referred to recent authorities which emphasise the limited circumstances in which an appellate court should interfere with findings of fact by the trial judge, specifically the decisions of the Supreme Court in Henderson v Foxworth Investments Ltd [2014] UKSC 41; [2014] 1 WLR 2600 and of the Privy Council in Beacon Insurance v Maharaj Bookstore Ltd [2014] UKPC 21; [2014] 4 All ER 418. In Henderson, at [67] Lord Reed JSC summarised the circumstances in which an appellate court can interfere with findings of fact as follows:

“It follows that, in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.”

In Beacon Insurance at [17] Lord Hodge, giving the judgment of the Board, cited Lord Bridge of Harwich’s speech in Whitehouse v Jordan [1981] 1WLR 246 at 269-270 which spoke of a wide spectrum from cases where there is a conflict of evidence between witnesses and credibility is crucial, in which case the appellate court will hardly ever interfere to cases where an inference is drawn from undisputed primary facts, in which case the appellate court is in as good a position as the trial judge to assess the evidence. Lord Hodge went on to say:

“Where the honesty of a witness is a central issue in the case, one is close to the former end of the spectrum as the advantage which the trial judge has had in assessing the credibility and reliability of oral evidence is not available to the appellate court. Where a trial judge is able to make his findings of fact based entirely or almost entirely on undisputed documents, one will be close to the latter end of the spectrum.”

Applying those principles here, it seems to me that the judge’s conclusion at [49] that: “I am unable to regard these documents [the publications exhibited to the expert reports] as recording or even evidencing any general practice in this regard, let alone one operative in 2012”, is essentially an inference he has drawn from consideration of undisputed material, so that this Court is in as good a position as he was, to determine whether there was a container industry practice at the time in 2012 to line unventilated containers, to be used to carry bags of coffee beans, with kraft paper. Furthermore, I consider that there are two serious problems with the judge’s conclusion about the absence of any general practice. The first is the one I have already alluded to, that his conclusion was clearly influenced by his erroneous view that no general practice would be effective to demonstrate a sound system, unless it was underpinned by a theoretical calculation or empirical study. The second is that his conclusion is simply against the weight of the evidence, specifically it completely ignores the common ground between the experts, set out in the Joint Memorandum, by reference to the industry publications they had exhibited that: (i) carriage of coffee beans in bags in lined non-ventilated containers is widespread commercial practice; (ii) although corrugated cardboard is preferable to kraft paper, kraft paper is common commercial practice and covered by the industry recommendations; (iii) two of the guides specifically recommend using double layers of kraft paper but the others are silent on the point; and (iv) the industry recommendations did not specify a particular grade or thickness of kraft paper, but some mention “good quality” and “sufficiently strong” kraft paper.

The judge also seems to have overlooked Mr Williamson’s evidence in cross-examination, that his experience as a cargo surveyor in 2012 was that it was usual to see bagged coffee shipped in containers lined with only one layer of 125 g/sq.m Kraft paper. The use of 250 g/sq.m Kraft paper only became customary after 2012. Its use in 2012 would have been exceptional. He also agreed that in 2012, he would not have regarded a container dressed with a double layer of even 80 g/sq.m Kraft paper as insufficiently prepared. Dr Jonas confirmed in cross-examination that Kraft paper of 80 g/sq.m “is a customary grade to be used as dunnage worldwide in shipping and I have seen it many times”.

Accordingly, in my judgment, the judge was wrong to conclude that, at the time that these consignments were shipped in 2012, there was no general container industry practice in relation to dressing of unventilated containers, in preparation for the carriage of bagged coffee beans. He should have concluded on the basis of the expert evidence, which was essentially agreed, that there was a practice of lining container surfaces with corrugated cardboard or kraft paper. Where kraft paper was used, one layer of 125 g/sq.m would suffice, but if kraft paper of only 80 g/sq.m was used, two layers should be applied.

Notwithstanding the errors in the judge’s approach, in his submissions before this Court, Mr Russell QC maintained that on the judge’s findings, the carrier could not demonstrate that its method of dressing the containers was a sound system. There were two principal and related difficulties with those submissions. First, as I have held, once the carrier had established, as it did, a sustainable defence of inherent vice, the burden of proof was on the claimants, not the carrier, to negative the operation of the exception, by proving that the carrier was negligent and did not adopt a sound system. Second, such findings of fact as the judge made do not assist the claimants in discharging that burden.

To begin with, the judge’s finding referred to in [12(3)] above was that, save in the case of one container where the lining did not reach the top of the container, the effect of which was negligible, the carrier’s stevedores had fully lined the surfaces of the containers. Whilst he does not expressly say so, that must amount to a finding that the carrier was not negligent in relation to lining the surfaces of the containers.

In relation to the question whether the stevedores had used two layers of kraft paper or only one, Mr Russell QC maintained that the judge had made a finding at [23]-[24], based on his assessment of the photographs and the important evidence of Captain Tanke, (who had surveyed all but one of the consignments), that only one layer of kraft paper had been used. As with the judge’s finding that there was no general industry practice, Mr Russell QC submitted that this Court should not interfere with that finding. The difficulty with those submissions is that, as I see it, a clear finding that only one layer of kraft paper was used cannot really be spelt out of those two paragraphs of the judgment. The highest it can be put is that the judge said that, to his eye, the photographs indicated that the paper was not doubled in any normal sense of the word, scarcely a clear finding that only one layer was used. Furthermore, although Mr Russell QC referred to Captain Tanke’s witness evidence that only one layer was used as important, the judge does not in fact refer to that evidence at all, probably because he discounted it, having concluded, earlier in his judgment, that Captain Tanke had little recollection of the consignments beyond what was in his survey reports, which did not mention that only one layer of kraft paper was used.

However, even if Mr Russell QC is right that the judge did make a finding that only one layer of kraft paper was used, this is an example of a finding based on documents and photographs and not really on contested oral evidence, save to the limited extent that Mr Missas said that two layers of kraft paper were used in all the containers and the judge seems to have doubted that evidence, based on his own assessment of the photographs and the fact that Captain Tanke, who the judge found had little recollection beyond his survey reports, said only one layer was used. I consider that the evidence about how many layers of kraft paper were used is at the end of the spectrum where the Court of Appeal is in as good a position as the judge to evaluate that evidence.

I have examined the photographs of the inside of the containers, specifically those from the load port, for myself, and consider that they do appear to show that two layers of kraft paper were used. If they were the only evidence to that effect, I might be reluctant to reach a conclusion which, on the hypothesis that he did make a finding that only one layer was used, would be contrary to the judge’s finding. However, the photographs are not the only evidence that two layers of kraft paper were used. Apart from Mr Missas’ evidence, in relation to which it can legitimately be said that it was not tested in cross-examination, there was contemporaneous documentary evidence which pointed strongly to two layers having been used.

There were spreadsheets produced by T.C. Buen, the stevedores at Buenaventura, headed (in translation from the Spanish): “Packing instructions for coffee CSAV Line”. For these consignments the column headed “Instruction” reads “Doble Capa Kraft” (“Double kraft paper”). The judge was somewhat disparaging about these, saying that “unhelpfully” they gave no indication of “the source of this information”. That seems to me a misplaced criticism, since these are clearly contemporaneous records of the dressing instructions from the carrier. It is striking in that context that, for other consignments bound for Baltimore for Louis Dreyfus, the instruction was “Papel Corrugado”. This supports Mr Missas’ evidence in his statement that, if special packing instructions were received from the shippers, the materials could be provided, albeit at an increased freight rate.

The carrier also produced packing lists for the first two consignments where there were crosses in the boxes for “papel kraft” and “doble”. There was also a contemporaneous email from the carrier’s Group Agency Administration dated 1 March 2012 headed: “Coffee bags loaded under LCL or FCL condition at all WCSA P.O.L. (presumably West Coast South America Ports of Loading) which read:

“With effect as of 1 March 2012, all shipments of the referenced commodity and/or quotations to be effected by CSAV will include/comprise of lining of containers with a minimum of two layers of kraft paper. Should a customer not accept this method of preparation for proper and safe carriage of the goods, the shipment will not be accepted. Under very special circumstances, which are to be first approved solely by Trade Manager WCSA will a different method of preparation/stowage be admitted. In such a case, the customer, without exception, shall sign a LOI in the form attached hereto and the face of the relevant bill of lading will be claused…”

No explanation was provided as to why this email was sent and, although it seems likely it was prompted by some problem with consignments of coffee beans, it cannot have been the consignments the subject of the present claims, since the first of these was not surveyed by Captain Tanke at outturn in Hamburg until 19 April 2012. As the judge recorded at [23] of his judgment, the majority of the shipments the subject of the present claims took place after 1 March 2012. However, he seems to have considered that the email was of little value, in determining whether two layers of kraft paper had been used, because there was no “documentation establishing that the relevant quotations were after that date.” However, that statement overlooks that the instructions in the email referred, not only to quotations, but to not accepting goods for shipment. Given that the majority of the shipments were after 1 March 2012, it seems inherently unlikely that they would have been accepted on any other basis than that the shippers would pay for a double layer of kraft paper to be used.

Thus, the email is further evidence that two layers of kraft paper were used in dressing the containers. There is also a letter from T.C. Buen dated 9 January 2013, in relation to two of the containers shipped on 27 March 2012, which referred to a double layer of kraft paper having been used in accordance with the shipowner’s and client’s instructions.

The judge referred to most of this evidence at [23] of his judgment, but effectively discounted it. In my judgment, he was wrong to do so. There was no basis for concluding that this evidence was fabricated and it follows that he should have concluded that it was contemporaneous documentary evidence that two layers of kraft paper were used, which, although there were gaps in that evidence, was strongly supportive of Mr Missas’ evidence to that effect. Such contrary material as there was, was of limited evidential value: Captain Tanke’s witness evidence that only one layer was used, which the judge discounted anyway and which was not reflected in his survey reports, and the judge’s own assessment of the photographs, which was inevitably subjective. In my judgment, the weight of the evidence points to two layers of kraft paper having been used and, to the extent that the judge made a contrary finding, it was against the weight of that evidence.

However, even if only one layer of kraft paper was used, the judge did not make any finding which would support the claimants’ case that the carrier was negligent. Given that, as set out above, the expert evidence was that, if one layer was used, a thickness of 125 g/sq.m would suffice and that the judge found, at [22], that Captain Tanke’s estimate that the thickness shown in the photographs was 80 g/sq.m: “probably understates the weight, even significantly”, the claimants simply cannot establish that, if only one layer was used, its thickness and weight was less than 125 g/sq.m.

In answer to Gloster LJ, during the course of argument, as to what the claimants said should have been done to procure a sound system which had not been done, Mr Russell QC said that the carrier should have lined the containers with corrugated cardboard, although he was unable to say what thickness should have been employed. Alternatively, he said the carrier should have used corrugated paper of sufficient weight. He contended that this carrier was exceptional in not using corrugated paper. There are three obvious problems with those contentions. First, the judge did not make a finding that the carrier should have used corrugated paper, let alone corrugated cardboard and certainly did not find that it was negligent not to have done so. Second, as Mr Bryan QC pointed out, the allegation is contrary to the claimants’ own pleaded case, which was that it was customary and/or good practice to line the containers with “strong corrugated paper, thick kraft paper or several layers of thin kraft paper”, in other words, that to maintain a sound system, it was not necessary to use corrugated paper, let alone corrugated cardboard. Third, the evidence about this from Mr Missas was that it was up to the shippers what lining was used. If they wanted special lining such as corrugated cardboard, they could ask for it and it would be provided, but at an increased freight rate. This was borne out by the contemporaneous records. In the present case, there is no evidence that the shippers ever asked for corrugated cardboard or paper to be used.

Mr Russell QC also sought to suggest that the carrier had failed to employ a sound system, because the carrier had failed to line the containers all the way to the top, but the problem with that contention is that, as the judge found in footnote 12 of his judgment, that complaint related to only one container and its effect on the development of condensation was negligible.

Accordingly, in my judgment, if the judge had applied the law in relation to what constitutes a sound system and the burden of proof correctly, he would have concluded that the claimants had failed to establish that the carrier’s system of lining the containers was not a sound system and that, in those circumstances, the carrier’s defence under Article IV rule 2(m) succeeded. I would allow the appeal on this ground.

The carrier’s alternative defence, which was also rejected by the judge, was that the damage to the consignments was inevitable. Before this Court, Mr Bryan QC relied upon a number of aspects of the evidence, in support of his case that the judge had been wrong to reject this defence. He relied upon the contemporaneous correspondence from the cargo underwriters, to the effect that an abnormally high level of moisture damage per container would be more than 80 bags (i.e. more than one third of a container load of 275 bags), and the evidence of Mr Diegner, the witness called by the claimants from the underwriters that they would not incur the cost of a survey unless the quantity of bags damaged was greater than 80 per container. Mr Bryan QC also relied upon the evidence of the claimants’ own expert, Mr Williamson, in cross-examination that: “you cannot guarantee no condensation damage”. The evidence of Captain Tanke was that in the previous two years, he had conducted some 200 to 300 coffee damage surveys, equivalent to 2-3 a week. On the basis of this evidence, Mr Bryan QC submitted that minor condensation damage was endemic when coffee in bags was carried in unventilated containers, adopting the normal industry practice of lining the containers with kraft paper.

Accordingly, Mr Bryan QC submitted that, as a matter of causation, the damage here, which was essentially minor condensation damage, was not caused by any breach by the carrier of Article III rule 2, but because damage of this kind was inevitable. The judge had wrongly rejected this defence, on the basis that the carrier had not produced any evidence derived from a scientific study of the rate of absorption of moisture by different thicknesses of kraft paper or card, to show that if sufficient thickness and quality had been used, damage would still have been inevitable. Mr Bryan QC submitted that this approach involved the same error as the judge’s approach to the defence of inherent vice, that it was for the carrier to adopt a system which would prevent damage. The carrier had adopted the general practice of the container trade of lining the containers with two layers of kraft paper and if damage still occurred, that was not caused by the carrier’s breach, since it was not for the carrier to guarantee that minor condensation damage would not occur.

Mr Bryan QC relied upon the judgment of McNair J in The Westerdok [1962] 1 Lloyd’s Rep 180, which, although it was a case where the allegation was of breach of Article III rule 1, the seaworthiness obligation, rather than of Article III rule 2, contained statements and dicta of some relevance to the present case. The case concerned carriage of bagged potatoes from Malta to the United Kingdom pursuant to a regular trade. There was evidence in that case that a certain amount of moisture damage was inevitable. At 185 rhc, the judge recorded this:

“…it is quite clear from the evidence that I have heard that there is inevitably a certain degree of damage in the sense of staining damage, and possible disintegration of bags from moisture in this trade, however well the cargo may be stowed and however well it may be ventilated, and that customarily that amount of damage is accepted by receivers without complaint, it being recognized that a cargo of this nature carried on small ships of this kind cannot be expected to arrive in identically the same condition as when shipped.” 

The judge went on to consider whether the vessel was unseaworthy, in the sense that the shipowner should not have sent the vessel to sea with this cargo. Having referred to Bradley, he held at 186 lhc:

“It is not a question here of whether the shipowner has failed to adopt some new practice, but whether he is in breach in adopting a practice commonly adopted by other persons in the trade.

The test in a case of this kind, of course, is not absolute: you do not test it by absolute perfection or by absolute guarantee of successful carriage. It has to be looked at realistically, and the most common test is: Would a prudent shipowner, if he had known of the defect, have sent the ship to sea in that condition? 

It seems to me that, using that test, the shipowner who knows that in the ordinary way cargoes of this kind will inevitably suffer some minor damage by way of condensation staining or wasting of a few bags would not hesitate to send this ship to sea even though he knew that, if the ship had a bit of bad luck, she might run into some weather which involved rather longer periods of closing the hatches than would have been involved on another voyage.”

Mr Bryan QC submitted that if the judge had adopted that approach in the present case, he would have concluded that some minor condensation damage was inevitable with carriage in unventilated containers, whatever thickness of lining was used and that the fact that such condensation damage had occurred in the case of the present consignments did not put the carrier in breach of its obligation under Article III rule 2.

Mr Russell QC submitted, in response, that the suggestion that some condensation damage was endemic was a false premise. There was no evidence that condensation developing within the containers inevitably led to some moisture damage to the bags of coffee. Indeed, the judge’s observation at [43] was to the contrary:

“The proposition that damage during such carriage cannot be prevented by any form of paper or card lining must also confront historical experience. If correct, one might have expected it to have engendered long since and still continuing an industry-wide spate of claims and litigation, of which the carrier produced no evidence.”

He submitted that there was no evidence that minor condensation damage was inevitable. Although Captain Tanke had said that he conducted about six coffee damage surveys a month, he had not said how many of these related to condensation damage and he had not been asked about this in cross-examination. His evidence had been that you would not always find damaged bags on outturn. The only evidence of damage other than to these consignments was of earlier consignments he had surveyed, which were all carried by this carrier. His evidence was that most other carriers lined containers with corrugated paper. Mr Williamson’s evidence, to which the judge referred in a footnote, was that he had surveyed about 50 containers of coffee in the past year where the thickness of paper or card used was between 150 and 250 g/sq.m, but no claim for condensation damage had been made. Dr Jonas had only ever conducted three surveys of cargoes of coffee in containers, so he simply did not have Mr Williamson’s experience. Mr Russell QC submitted that the email from the cargo underwriters about only surveying cargoes where more than 80 bags were damaged was simply making the point that it was not economic to conduct a survey, not that minor condensation damage was endemic.

I was not convinced by these points made by Mr Russell QC. As regards Captain Tanke’s evidence about the number of damage surveys of coffee in containers he had conducted, the context was clearly the discovery on outturn of condensation damage, not some other kind of damage. As Mr Bryan QC pointed out in relation to the email, the very fact that they were only conducting surveys when more than 80 bags were found moisture damaged, must mean that there were clearly many other cargoes, where less than 80 bags were found moisture damaged. Since Captain Tanke was only surveying where more than 80 bags were found moisture damaged, there was no basis for his assertion that moisture damage was not always found on outturn, other than conceivably the two containers forming part of these consignments where damage was not found. Furthermore, his evidence was that there was nothing unusual about the moisture damage found here. It was also not correct that the only other containers where moisture damage was found on discharge in Northern Germany were ones where the carrier was CSAV. Captain Tanke accepted in cross-examination that his six surveys a month were not all consignments carried by CSAV, but involved other container lines.

In relation to the judge’s point about confronting historical experience, upon which Mr Russell QC placed considerable emphasis, given that cargoes were only being surveyed where more than 80 bags were found moisture damaged on outturn, those where less than 80 bags were damaged were not being surveyed and therefore, by definition were not leading to litigation, so that the judge was simply wrong that endemic minor condensation damage would have led to a spate of claims.

I consider that Mr Bryan QC is right that the weight of the evidence points to minor condensation damage to coffee in bags carried in unventilated containers, whatever lining is used pursuant to the general practice of the container trade. The judge essentially rejected this defence because he sought to impose on the carrier an obligation as regards employing a sound system which went beyond the general practice of the trade and, as with the inherent vice defence, his approach was erroneous. I would also allow the appeal on this ground.

The judge dealt with the issue whether the Hague Rules applied to the stuffing of the containers by the carrier’s stevedores at the container yard in Buenaventura at [9] of his judgment, which I have quoted at [20] above. Mr Bryan QC submitted that the judge’s conclusion that the Hague Rules applied to the stuffing of the containers ashore was inconsistent with:

Mr Bryan QC submitted that the judgment of Devlin J in Pyrene v Scindia [1954] 2 QB 402 had effected only a very modest extension of the “tackle-to-tackle” rule, so that, in cases where the goods were lifted from the quayside by the vessel’s own cranes, the Hague Rules extended to the entire loading operation, not just that part which took place once the goods had crossed the vessel’s rail.

He also submitted that the judge had failed to give proper weight to the fact that the containers were stuffed at the container terminal, up to eleven days prior to shipment, before being transported to the export area of the port, then subsequently loaded on board the relevant vessel. He pointed out that, if in any given case, stuffing of the containers were followed by road carriage, a situation could arise in jurisdictions where the CMR Convention was applicable that two international conventions were applicable simultaneously, which would be undesirable.

On behalf of the claimants, Mr Russell QC emphasised that, as I observed in [21] above, since there is no appeal against the judge’s findings that the carrier’s bill of lading terms were inapplicable in any event, this ground of appeal is academic. However, he submitted that the judge’s analysis that the Hague Rules applied to the stuffing of the containers was clearly correct. The parties can agree that the carrier’s role extends beyond merely placing cargo on board the vessel and, where they do so, Article III rule 2 will apply to the functions which the carrier has agreed to perform. He cited the judgment of Devlin J in Pyrene v Scindia in support of that proposition. As for the point about the CMR Convention, Mr Russell QC submitted that that was a false point. The CMR only applies when the containers are on a vehicle, which they were not when they were being stuffed, and the CMR expressly provides that it does not apply to loss or damage occurring during carriage by another means of transport, such as carriage by sea.

I agree with Mr Russell QC that the judge’s analysis of the temporal scope of the Hague Rules is correct. The relevant passage in the judgment of Devlin J in Pyrene v Scindia is at 417-8:

“The phrase "shall properly and carefully load" may mean that the carrier shall load and that he shall do it properly and carefully: or that he shall do whatever loading he does properly and carefully. The former interpretation perhaps fits the language more closely, but the latter may be more consistent with the object of the rules. Their object as it is put, I think, correctly in Carver's Carriage of Goods by Sea, 9th ed. (1952), p. 186, is to define not the scope of the contract service but the terms on which that service is to be performed. The extent to which the carrier has to undertake the loading of the vessel may depend not only upon different systems of law but upon the custom and practice of the port and the nature of the cargo. It is difficult to believe that the rules were intended to impose a universal rigidity in this respect, or to deny freedom of contract to the carrier. The carrier is practically bound to play some part in the loading and discharging, so that both operations are naturally included in those covered by the contract of carriage. But I see no reason why the rules should not leave the parties free to determine by their own contract the part which each has to play. On this view the whole contract of carriage is subject to the rules, but the extent to which loading and discharging are brought within the carrier's obligations is left to the parties themselves to decide.”

The parties are free to determine what acts or services fall within the operation of “loading”, for which the carrier assumes responsibility. Here they agreed that the services included lining and stuffing the containers. The effect of the analysis by Devlin J is that, whatever services do fall within the operation of loading, the Hague Rules will apply to them and the carrier will be under an obligation to perform those services “properly and carefully” under Article III rule 2. That analysis is not open to challenge, since it was expressly approved and applied by the House of Lords in Renton v Palmyra [1957] A.C. 149. In the present case, the effect of the shipments being on LCL/FCL terms was that the carrier assumed responsibility for the dressing and stuffing of the containers, so that those services formed part of the operation of “loading”, to which the Hague Rules applied.

The arguments raised by Mr Bryan QC about the scope of “carriage by sea” and the tackle-to-tackle rule very much echo similar arguments which Devlin J rejected in Pyrene v Scindia at 418-421. The judge’s conclusion in the present case that, if the carrier is responsible for dressing and stuffing the containers which are subsequently loaded on its vessel, it would be “unrealistic to treat this as anything other than a single loading process” not only accords with commercial common-sense, but is entirely consistent with the well-known passage in the judgment of Devlin J at 419:

“…the division of loading into two parts is suited to more antiquated methods of loading than are now generally adopted and the ship's rail has lost much of its nineteenth-century significance. Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship's rail.”

I also agree with Mr Russell QC that the concerns raised by Mr Bryan QC, about the parallel application of the CMR and the Hague Rules, are more apparent than real. The CMR could not apply whilst the containers were being dressed and stuffed, since they were not at that stage on board a vehicle. Furthermore, the better view would seem to be that the CMR ceases to apply as soon as “loading” within the Hague Rules begins: see Clarke: International Carriage of Goods by Road (6^th edition 2014) at pp 40-42. In the circumstances, I consider that the judge’s analysis of the temporal scope of the Hague Rules was correct.

It follows that, in respect of the judge’s rejection of the defences of inherent vice and inevitability of damage, I would allow the carrier’s appeal, but in relation to the judge’s conclusion as to the temporal scope of the Hague Rules, I would dismiss the appeal.