The six claimants were the owners and bill of lading holders for nine consignments of Columbian green coffee beans. The consignments were shipped from Buenaventura in Columbia on various vessels between 14 January and 6 April 2012 on various vessels owned by Compania Sud Americana De Vapores SA (the defendant). The coffee beans were stowed in 20 unventilated 20 foot containers. They were transshipped at Balboa in Panama and discharged at Rotterdam, Hamburg or Bremerhaven for on-carriage to Bremen.

The bills of lading were subject to English law and jurisdiction and incorporated the Hague Rules. The carrier was responsible for preparing and stuffing the containers. As coffee is a hygroscopic cargo (it absorbs, stores and emits moisture) when it is transported from warm to cooler climates it emits moisture and creates condensation in the container. Therefore it is necessary to line the container with absorbent material such as cardboard, or as in this case, Kraft paper. When the containers were opened in Bremen the contents of 18 of the containers were found to have suffered water damage from condensation.

The claimants pleaded that the carrier was in breach of its duty as bailee as it failed to deliver the cargoes in the same good order and condition as recorded on the bills of lading. Alternatively, they pleaded the defendant carrier breached art 3.2 of the Hague Rules by failing to properly and carefully load, handle, stow, carry, keep, care for and discharge the cargoes and that the defendant was negligent for failing to use adequate or sufficient Kraft paper. The defendant pleaded inherent vice on the ground that the coffee beans were unable to withstand ordinary levels of condensation during voyages from warm to cool climates. The claimants replied that any inherent characteristic of the cargo which resulted in damage, only did so because the defendant was negligent by failing to take proper measures for its protection.

The case was tried in the London Mercantile Court by David Donaldson QC sitting as a deputy High Court judge (see CMI2). The deputy judge held that there was no legal burden on the defendant to prove that the damage to the cargo was caused without negligence. Rather, there was a factual presumption that the damage was due to negligence. In finding for the claimants, the deputy judge concluded that:

1. Bagged coffee is routinely carried in unventilated containers without damage provided the container is lined with a sufficient thickness or number of layers of Kraft paper.
2. The evidence did not establish what weight of paper was used, nor did it establish the number of layers used.
3. There was no evidence to show what thickness of paper ought to be used for a given number of layers in order to avoid condensation damage.
4. There was no generally accepted practice on point 3.

The defendant successfully appealed to the Court of Appeal (see CMI38). Flaux LJ (with Gloster and King LJJ agreeing) held that the cargo owner had the legal burden of proving that damage was due to a breach of art 3.2 but there was an evidential inference from the mere fact of damage that a breach had occurred. The carrier would have to point to evidence to rebut the inference. Once a breach of art 3.2 had been established, the carrier had the legal burden of establishing a ‘prima facie’ case for the application of one of the exceptions in art 4.2. Once the carrier established that an art 4.2 exception existed at the relevant time, the cargo owner had the legal burden of showing that it only resulted in damage to the cargo because the carrier failed to take reasonable care of it. Starting from the proposition that the carrier’s obligation under art 3.2 is to care for and carry the goods in accordance with a ‘sound system’, Flaux LJ found that the deputy judge had misdirected himself that this meant ‘in accordance with a system that would prevent damage’, and that inherent vice could be demonstrated only if damage was inevitable. The claimants appealed to the Supreme Court.

Held: Appeal allowed. The delivery of goods for carriage by sea is a bailment for reward. A bailee’s duty is limited to taking reasonable care of the goods. At common law, the bailee bears the legal burden of proving the absence of negligence. Nothing in the Hague Rules alters the status of a contract of carriage by sea as a species of bailment for reward on terms.

Under the Hague Rules, art 3.2 imposes on the carrier a general duty to take reasonable care of the cargo. However, the Hague Rules are not concerned with the incidence of the burden of proof save in limited respects. The common law of bailment places the duty to take reasonable care and the corresponding burden of disproving negligence on the bailee. The Hague Rules assume the carrier does have the burden of disproving negligence without imposing it in those terms. This is because of the relationship between art 3 and art 4. Article 3.2 is expressly subject to art 4. A number of the exceptions in art 4 cover negligent acts or omissions of the carrier which would otherwise constitute breaches of art 3.2; for example, arts 4.1 and 4.2.a. It is common ground that a carrier has to prove facts that bring it within one of the exceptions and arts 4.1 and 4.2.q expressly provide this. It would be incoherent for the law to impose the burden of proving the same fact on the carrier for the purposes of art 3.2. The true rule is that the carrier must show either that the damage occurred without fault in the various respects covered by art 3.2, or that it was caused by an excepted peril. If the carrier can show that the loss or damage occurred without a breach of its duty of care under art 3.2, it does not need to rely on an excepted peril.

The carrier also has the burden of proof when bringing itself within the exceptions in art 4.2, although art 4.2.q is the only provision that expressly imposes the burden. The defendant argued that, once the carrier has proved the cargo suffered from an inherent vice (art 4.2.m), the cargo-owner must positively prove that it was only because of the carrier’s negligence that the cargo’s ‘vicious propensities’ resulted in damage. This is not the case. As summarised in Scrutton on Charterparties and Bills of Lading, inherent vice ‘is the unfitness of the goods to withstand the ordinary incidents of the voyage, given the degree of care which the shipowner is required by the contract to exercise in relation to the goods’. If the carrier could and should have taken precautions to prevent some inherent characteristic of the cargo from resulting in damage, that characteristic is not inherent vice. In order to rely on the exception, the carrier must show either that it took reasonable care of the cargo but the damage occurred nonetheless, or that whatever reasonable steps might have been taken to protect the cargo from damage would have failed due to the cargo’s inherent propensities.

In the absence of evidence regarding the lining of the containers, it follows that the carrier has failed to prove the containers were properly dressed. The order of the deputy judge is restored.