The appellant carrier undertook carriage for Samherji hf of 23 pallets of caviar in a 40-foot container on the Arnarfell from Reykjavík to Rotterdam and then on to Le Havre. According to the bill of lading, the caviar was to be transported at 0° C. From Akureyri to Reykjavík, the goods were transported by refrigerated trucks and, according to the delivery notes, they came into the appellant's custody on 3 February 2000. The appellant's employees arranged the pallets in the container, which was connected to the electrical system of the Arnarfell and registered in its control system on 4 February. The ship arrived in Rotterdam on 8 February. On arrival, the temperature of the return air that came out of the container was 13° C, and the container’s temperature recording device was not working.

Samherji hf contacted its French consignee and reported the matter, and the latter decided to reject the product. It stated:

Storage conditions listed on the container units and on the boxes indicate 0-4° C and the health certificate requires that storage and transport conditions be 0° C. There is no guarantee that these conditions were met during the transport of this container. We remind you that a break in refrigeration may not have immediate and visible consequences in terms of appearance, but will inevitably lead to discoloration of the eggs after some time and before the best before date marked on the jars.

Samherji hf received a settlement payment of ISK 7,792,002 from the respondent insurer, who sought recourse from the appellant carrier.

The respondent claimed that the appellant, as a carrier, was liable for its damage: see arts 21 and 68.1 of the Shipping Act/Siglingalög No 34/1985 (the Act) [cp arts 1.a and 3.2 of the Hague-Visby Rules]. The appellant had undertaken to transport the caviar at 0° C. The appellant had failed to keep that promise. The manufacturer investigated whether there were grounds for recycling the caviar and reselling it and thus trying to reduce the damage, but the conclusion was that this was not justified. Therefore, there was no other option than to dispose of the caviar.

The appellant's employees did not check the container's temperature recorder or digital thermometer before or after loading it into the container in Reykjavík to see if it was working properly. If they had done so, they would have realised that the temperature recorder was not working, and that the thermometer was showing a higher temperature than the shipping instructions required. The container was unseaworthy at the start of the voyage and the damage was a direct result of that fact, for which the appellant was unequivocally liable under the Act.

The appellant argued that the burden of proof that the cargo in question was damaged while in the appellant's custody rested with the respondent. It had never been established that the condition of the cargo was other than that it was in good condition, completely undamaged and completely present in the container in Rotterdam.

The Reykjavík District Court found that the loss occurred because the container, which the appellant provided for the transport of caviar, was not fit for transport at the start of the voyage, as the container's temperature recording device was not working. As a result, it was not possible to demonstrate that the agreed temperature had been maintained in the container. This was due to the negligence of the appellant's employees. The appellant was therefore liable for the loss pursuant to art 68.1 of the Act. The value of the goods (art 70.1 of the Act [cp art 4.5.b of the Hague-Visby Rules]), was the amount of the invoice, and no valuation was necessary. The respondent's claims for consequential damage, which related to the reimbursement of the costs of storage and disposal of the goods, were supported by sufficient evidence. The appellant was ordered to pay the respondent ISK 7,824,741.

The appellant carrier appealed to the Supreme Court.

Held: Appeal dismissed.

It must be agreed with the respondent that the French consignee was right to refuse to accept the cargo due to the risk that its quality would be inadequate due to the aforementioned uncertainty that the required temperature had been maintained during transport. It must be considered that, in relation to the parties to that purchase, the cargo was thus damaged within the meaning of art 68.1 of the Act in the custody of the appellant, even if it has not been shown that the goods have for this reason became unfit for human consumption or their shelf life had deteriorated from what was expected. Accordingly, the District Court's conclusion that the appellant is liable for the damage resulting from this is confirmed.

According to art 70.1 of the Act, compensation shall be determined according to the value that the goods would have had if they were undamaged and when delivered at the right place and time. It is undisputed that the value of the consignment according to the invoice amounted to ISK 7,083,655. Article 70.1 of the Act cannot be considered to prevent the carrier from being required to pay compensation for other verifiable damage that directly results from its breach of contract pursuant to art 68.1 of the Act. The items totalling ISK 741,086 relate to the costs of handling the consignment after it had been damaged in the custody of the appellant. In light of the principle that the person causing the damage must compensate for damage resulting from his or her culpable act or omission, there is no other option but to also take these claims of the respondent into consideration.