The National Dignity, a vessel owned and operated by National Shipping Corp of Philippines (the appellant), carried goods owned by Calavan Foods Inc (the respondent). A container with the respondent's cargo of 2,160 cartons of hoisin sauce was loaded in Hong Kong on 21 October 1989. The container was loaded in the lower hold as the bottom container in a stack of three containers.

It was undisputed that when the cargo arrived in Oakland, California, it was a total loss. The respondent brought an action against the appellant in the Municipal Court for damage to its cargo, seeking USD 23,509.38 plus interest and costs of suit. The Trial Court found that the respondent was entitled to recover USD 22,180.00, plus USD 4,045.57 interest, and costs. The Trial Court did not issue a statement of decision. The appellant appealed from the judgment.

Both parties agreed that this action was governed by the United States 46 USC 1300 (COGSA). The Hague Rules were ratified in the United States in 1937 and were given effect by COGSA. COGSA provided that it applied to all contracts for carriage of goods by sea to or from ports of the United States in foreign trade. At trial, both parties stipulated that the respondent met its prima facie case under COGSA. The appellant relied on two defences: (1) whether the typhoon Forrest constituted a 'peril of the sea', one of the COGSA exceptions from liability; and (2) the applicability of the 'q clause' defence that the damage occurred without the actual fault of the carrier.

Held: Judgment for the appellant.

There was no bright-line test to determine whether the cargo was lost due to a 'peril of the sea'. The validity of this defence depended on the nature and cause of the loss on the particular facts of a case. Some of the factors to be considered were wind velocity, nature and extent of the damage to the ship, and cross-seas.

In this case, there were wind forces up to nine on the Beaufort scale, and there was a question whether this wind force was sufficient to constitute a peril of the sea when considered with the other relevant factors. The Court found that it was within the province of the Trial Court to decide that the appellant was not entitled to assert the peril of the sea defence, based on the relevant factors. The winds never exceeded nine on the Beaufort scale, and there was only minimal damage to the vessel in the form of some broken shoe guides in another hold. Thus, the Trial Court might have based its decision on the inapplicability of the peril of the sea defence.

The COGSA 'q clause', a separate defence, was considered as the most demanding burden under maritime law for exoneration from liability for cargo loss. It provided that a carrier was exonerated from liability for loss resulting from 'any other cause arising without the actual fault and privity of the carrier', where the carrier bore the burden of establishing its own freedom from contributing fault.

The defence required the carrier to prove that it was free from any fault whatsoever contributing to the damage to the goods entrusted to its care. The Court found substantial evidence supporting a conclusion that the appellant was free from fault. The evidence showed that the appellant took all reasonable steps to safeguard the cargo. The container which carried the respondent’s cargo was properly loaded and secured in the hold. There was substantial evidence that the appellant followed the routeing recommendations of a recognised worldwide vessel routeing service. Moreover, there was no substantial evidence of the failure of the shoe guides securing the container to the hold of the vessel. Furthermore, the appellant met its burden of showing the damage's 'other cause'. There was substantial evidence to indicate that the most persuasive and likely explanation for the loss of the cargo was the unpredicted change of course of typhoon Forrest, as well as its 'explosive deepening' which doubled the radius of the storm, notwithstanding the fact that it needed not necessarily have risen to the level of the 'peril of the sea' defence.

The fact that the Trial Court apparently did not consider typhoon Forrest to constitute a 'peril of the sea', which would have made it an absolute defence, did not prevent the shipper from showing, as it did, that the typhoon was nevertheless the actual cause of the damage under the 'q clause' defence. Since the appellant met its burden to prove the stringent requirements of the 'q clause' defence, the Trial Court’s judgment for the respondent was reversed.