China National Light Industrial Products Import & Export Corp (the appellant) was the purchaser and consignee of 25,000 mt of wood pulp. The purchase contract required the seller to arrange ocean transportation from Chile to China and to inform the appellant of the transhipment details. The seller contracted with Cia Chilena de Navegacion Interoceanica SA (CCNI), a Chilean shipping line, which chartered space on board the M/V Damodar Tanabe under an agreement with Atlas Shipping Co (Atlas). Atlas in turn sub-chartered the vessel under a time charter for this voyage from Gerrard Chartering Co A/S (Gerrard), which had previously time chartered the vessel from Damodar Bulk Carriers Ltd (DBC). The head charter agreement between DBC and Gerrard stated that the ship did not have a fixed carbon dioxide (CO₂) firefighting system, but this provision, omitted from the Gerrard-Atlas sub-charter, was never communicated to the appellant.

A clean bill of lading was issued acknowledging the receipt of the cargo in apparent good condition prior to the sailing. However, the receipt of the ship's mate noted that the stowage of the wood pulp was improper, and the problem was never corrected. During the voyage, the M/V Damodar Tanabe caught fire and most of the wood pulp was destroyed. The ship set a course for Honolulu as a refuge port. The master discharged the rest of the wood pulp in Hawaii and sold it for salvage. Accordingly, the appellant brought a suit in admiralty against CCNI, Atlas and DBC (the appellees).

The District Court held that the wood pulp as loaded constituted a high-risk cargo, and that the ship was unseaworthy to carry the wood pulp without a fixed CO₂ firefighting system in the cargo holds to control fires. In addition, the District Court determined that the appellant had the burden of proving that the unseaworthiness (the lack of the CO₂ system) caused the damage under COGSA/the Hague Rules. The District Court found that the appellant failed to prove that the unseaworthiness was the cause of the damage and therefore held that the appellees were not liable. Finally, the District Court ruled in favour of appellees' counterclaim for a general average contribution from the appellant.

On appeal, the appellant argued that the District Court erred in the allocation of the burden of proof.

Held: Appeal allowed in part, reversed in part.

The bill of lading provided a contractual basis for applying COGSA/the Hague Rules. Therefore, the District Court was correct in its application of COGSA.

The Court allocated the burden of proof as follows:

First, the appellant had the burden of proving a prima facie case against the carrier by showing that the cargo was delivered in good condition to the carrier but was discharged in a damaged condition. In addition, the appellant had the burden of proving that unseaworthiness caused the damage in order to prevent the carriers' from being exempted under art 4.2 of COGSA/the Hague Rules. The Court found that the appellant failed to carry its burden of proof to show that unseaworthiness had caused the loss.

Then, the burden of proof shifted to the carrier to establish that the loss came under the fire exception to COGSA/the Hague Rules. The Court found that the appellees successfully bore this burden.

Third, the burden returned to the appellant to prove that the fire was 'caused by the actual fault or privity of the carrier'. The Court found that the appellant failed to meet this burden.

Therefore, the fire exception under COGSA/the Hague Rules applied.

With respect to the general average claim, Rule E of the York-Antwerp Rules 1974 places the burden of proof on the party claiming the general average. Thus, the appellees had the burden of showing that the accident constituted a general average act under Rule A of the York-Antwerp Rules 1974, and the losses for which contribution was sought directly resulted from the general average act. The appellees met this burden and the Court affirmed the District Court's award of general average to the appellees.

In addition, according to Rule 11 of the York-Antwerp Rules 1974, interest shall be allowed on expenditure, sacrifices and allowances in general average at the rate of 7% per annum until the date of the general average statement. Therefore, the Court vacated the District Court's award of 7% interest for the time period after the general average statement and awarded the appellees post-statement interest at a rate of 9.17% per annum.