This case is an appeal from the High Court decision in Volcafe Ltd v Compania Sud Americana de Vapores SA (CMI2). Green coffee beans were shipped by the defendant carrier on LCL/FCL terms from Colombia to Germany in 20 unventilated containers lined with kraft paper. It was established that the use of such containers is common industry practice. The bills of lading recorded the cargo as being in apparent good order and condition. The cargo was typical with regards to its moisture content as well as any other aspects. On arrival, the claimant cargo consignees found condensation damage in all but two of the containers. The bill of lading incorporated the Hague Rules.

On appeal, five issues arose for decision:

(1) In relation to the burden of proof in cargo claims governed by the Hague Rules, whether:

(i) When the cargo claimant establishes that the goods were received by the carrier in good order and condition but delivered in a damaged condition, that establishes a sustainable cause of action for breach of the carrier's obligation to redeliver the goods in the same order and condition as when shipped (as the claimants contend) or merely leads to an inference of breach by the carrier of its obligations under art 3.2?

(ii) If, once delivery in damaged condition is established, there is a sustainable cause of action, is there then a legal burden on the carrier to prove on a balance of probabilities either that the damage was caused by inherent vice or that it was not in breach of its duty under art 3.2 or that damage was inevitable in any event (the claimants' case) or merely an evidential burden to raise a prima facie case of inherent vice (the carrier's case)?

(iii) If establishing delivery in damaged condition only raises an inference of breach of art 3.2 or if the carrier's analysis at (ii) is correct, what does the carrier have to establish to raise a prima facie case of inherent vice?

(iv) If reliance on inherent vice or other exceptions under art 4.2 can be negatived by negligence or failure to properly and carefully carry the goods, upon which party does the burden of proof lie?

(2) Did the judge err in law in concluding that there was 'complete circularity' between art 4.2.m and art 3.2, such that art4.2.m was not a 'true exception'?

(3) Did the judge err in law in concluding that a 'sound system' has (i) to 'prevent damage'; (ii) has to be based on a 'theoretical calculation' or an 'empirical study'; (iii) could not be demonstrated by showing that the containers had been dressed consistently with industry practice recommended and in common use at the time of shipment?

(4) Did the judge err in law in concluding that the defence of inevitability of damage failed for similar reasons as those he gave for rejecting the inherent vice defence?

(5) Did the judge err in law in concluding that the Hague Rules applied to cover the act of preparing the containers for shipment?

Held:

1) (i) Where the cargo claimant establishes that the goods were received by the carrier in good order and condition but delivered in a damaged condition, that establishes a sustainable cause of action for breach of the carrier’s obligation to redeliver the goods in the same order and condition as when shipped.

(ii) Once delivery in a damaged condition is established and there is a sustainable cause of action, there is a legal burden on the carrier to prove on the balance of probabilities either that the damage was caused by inherent vice, or that it was not a breach of its duty under art 3.2, or that the damage was inevitable.

(iii) It follows from the answer to sub-questions (i) and (ii) that sub-question (iii) did not have to be considered.

(iv) The burden of proof is on the cargo interest to show negligence or failure to properly and carefully carry the goods in order to negative reliance on inherent vice or other exceptions under art 4.2.

2) The analysis of arts 3.2 and 4.2.m at first instance was erroneous. The carrier did make out a sustainable defence within art 4.2.m.

3) A ‘sound system’ does not need to prevent damage and to be based on a theoretical calculation or an empirical study. A sound system can be demonstrated by showing consistency with industry practice recommended and in common use at the time of shipment.

4) The analysis of the defence of inevitability of damage was erroneous at first instance and it should not have been rejected.

5) The temporal scope of the Hague Rules has been identified at first instance correctly. On LCL/FCL terms, the carrier assumes responsibility for the dressing and stuffing of the containers, so these services form part of the loading operation to which the Hague Rules apply.