American Home Assurance Co (the plaintiff), acting under an assignment of rights, claimed for damage to cargoes of fruit carried from the United States to Hong Kong by American President Lines Ltd (APL). The consignee reported that the shipments suffered partial freeze damage. The District Court found that the evidence proved that the cargo arrived damaged at its destination, and held APL liable, and unable to avoid liability under any of the COGSA exceptions. APL appealed to the Court of Appeals, Ninth Circuit.

Held: The District Court judgment is affirmed.

To recover under COGSA, the plaintiff bears the burden of proving that the cargo was damaged in transit: Complaint of Damodar Bulk Carriers Ltd 903 F 2d 675, 683 (9th Cir 1990) (CMI742). To establish a prima facie case, the plaintiff has to prove that the fruit was delivered to APL in good condition and was delivered damaged: Quaker Oats Co v M/V Torvanger 734 F 2d 238, 240 (5th Cir 1984), cert denied, 469 US 1189, 105 S Ct 959, 83 L Ed 2d 965 (1985). The parties stipulated that the cargo was delivered to APL in good condition. Hence, the plaintiff only needed to prove that the cargo was delivered damaged at its destination. The plaintiff met this requirement.

APL alleged that it was entitled to relief under one of the COGSA's exceptions to liability. Once the plaintiff has proven that the cargo arrived damaged, the burden under COGSA shifts to the carrier to prove any exception: Damodar 683. APL must prove either that the damage occurred because of an exempted cause or that it exercised due diligence to make the ship seaworthy and properly stowed and cared for the cargo. See Sunkist Growers Inc v Adelaide Shipping Lines 603 F 2d 1327 1341 (9th Cir 1979) cert denied 444 US 1012, 100 S Ct 659, 62 L Ed 2d 640 (1980); States Marine Corp of Delaware v Producers Co-op Packing Co 310 F 2d 206, 212 (9th Cir 1962). APL bears the burden of explaining the cause of the damage, because it was in control of the cargo and therefore had exclusive knowledge of what happened to it: Schnell v The Vallescura 293 US 296, 304, 55 S Ct 194, 196, 79 L Ed 373 (1934). APL did not meet this burden because it did not offer any evidence of what caused the damage. That APL inspected the containers and found no defects in the refrigeration equipment only proved that it acted diligently to avoid damage which a defect in the machinery might have caused. There are several possible causes for freeze damage, such as temperature fluctuations, excess of humidity, uncontrollable temperature changes within the container caused by changing weather conditions, or improper location of the refrigeration unit within the ship: Pueblo Int'l Inc v Puerto Rico Marine Management 1989 AMC 466, 468-69 (DPR 1988). It is not possible to assess whether APL exercised due diligence to prevent this particular loss if the cause of the loss has not been identified.

APL could have been exonerated by proving that the damage resulted from an unseaworthy condition that was not caused by its own lack of diligence (COGSA §§ 1303(1), 1304(1)). However, APL did not offer any evidence of which unseaworthiness condition caused the damage. APL relied on the logical inference that the only possible cause was the malfunctioning of the refrigeration equipment. This inference was not sufficient to establish that an unseaworthy condition caused the damage. Without knowing what the unseaworthy condition was, it was impossible to evaluate whether APL practised sufficient due diligence to prevent that condition. As APL failed to provide evidence of the actual cause, it is not entitled to the exoneration under the unseaworthiness exception. APL also argued by inference that the only possible cause of damage was a latent defect not discoverable by practising due diligence. As it inspected the equipment without finding any defect, the defect would have been latent (COGSA § 1304(2)(p)). However, APL did not meet the burden of proving that the damage resulted from a latent defect. Likewise, APL failed to prove the 'catch-all clause' exception of § 1304(2)(q) because, without proving what caused the damage, it cannot prove that it was free from any fault whatsoever in contributing to the damage. The carrier did not produce any direct or compelling evidence of what caused the loss, and, therefore, it cannot escape from liability under this exception.

APL's final argument was that the plaintiff claim was too speculative to allow recovery. The proper measure of damage under COGSA is the difference between the fair market value of the cargo in sound condition and the fair value of the cargo in its damaged state: Daido Line v Thomas P Gonzalez Corp 299 F 2d 669 (9th Cir 1962). APL did not dispute that the value of the fruit was the invoice price. Therefore, the only issue to determine was whether the depreciation allowances stated in the surveys constituted sufficient proof of the fair market value of the cargo in its damaged condition. APL contended that the only proper proof of the value of the damaged fruit is the evidence of the actual price obtained in the Hong Kong market or from the destruction certificates. Citing Weirton Steel Co v Isbrandtsen-Moller Co 126 F 2d 593 (2d Cir 1942), APL stated that nothing short of evidence of the price actually realised in a resale could properly constitute the basis for the calculation of the damage. The Court rejected this argument because the cargo in this case was not reconditioned, as it was in Weirton. Moreover, APL did not introduce any evidence that the values of the survey report were inaccurate. In the absence of contrary evidence, the survey report's depreciation allowances were adequate to show actual damage: Van Der Salm Bulb Farms Inc v Hapag Lloyd 818 F 2d 699, 700 (9th Cir 1987).