Temporal Scope of the Hague Rules Confirmed

Volcafe Ltd v Compania Sud Americana de Vapores SA (“CSAV”) [2016] EWCA Civ 1103.

This case involves condensation damage to nine consignments of coffee, which were transported in unventilated containers from Colombia to Germany. The bills of lading provided for the carrier’s liability throughout the transportation from the port of loading to the port of discharge, as well as for the applicability of the Hague Rules to carriage by sea.  Moreover, the carriage was agreed on LCL terms and therefore, the carrier provided and filled in the containers with the coffee bags.

At first instance, Donaldson QC considered inter alia whether the  loading of the coffee bags inland by the carrier into its containers fell outside the scope of the Hague Rules. If the answer were in affirmative, then the carrier would have been entitled to rely on the exemptions included in the bill of lading. The trial judge held that the initial stuffing of the coffee bags into the carrier’s containers and the subsequent loading of the container onto the vessel were to be regarded as part of a single loading process. Alternatively, he ruled that the parties had anyway exercised their freedom to agree on an extended scope of loading for the purposes of art.1(e) (relying on Pyrene v Scindia  [1954] 2 QB 402). In other words, the carrier’s undertaking to stuff its own containers were to be interpreted as an agreement that the initial stuffing of coffee bags into the carrier’s containers formed part of loading of the cargo under the contract of carriage by sea.

The CA (Gloster and King LJJ and Flaux J, sitting in the Court of Appeal) allowed the carrier’s appeal in respect of his defences of inherent vice but confirmed the trial judge’s decision of the temporal scope of the Hague Rules.

Flaux J., who delivered the leading judgement of the CA, relied on the relevant passage in the judgment of Devlin J in Pyrene v Scindia  [1954] 2 QB 402, 417-8, as approved by the House of Lords in Renton v Palmyra [1957] A.C. 149, to conclude that, having exercised their freedom to define the scope of the acts that fall within the scope of “loading”, for which the carrier assumes responsibility, the parties had agreed that the loading services included lining and stuffing the containers. Thus, these operations were governed by the Hague Rules and the carrier was under an obligation to perform those services “properly and carefully” under art. III, r. 2.

Flaux J. also rejected the argument brought forward by the carrier that  such an interpretation would result in a conflict of two international transport conventions, namely the Hague Rules and the CMR, if for example, the stuffing of the containers were followed by road carriage. He found that the CMR does not apply whilst the containers were being dressed and stuffed, since they were stuffed at the container terminal and not on board a vehicle. Furthermore, he held that the better view would seem to be that the CMR ceases to apply as soon as “loading” within the Hague Rules begins: see Clarke: International Carriage of Goods by Road (6th edition 2014) at pp 40-42.

Inherent Vice: Who proves what and how?

Volcafe Ltd v Compania Sud Americana de Vapores SA (“CSAV”) [2016] EWCA Civ 1103.

It’s indeed a good day for carriers as the CA has now restored the balance between carriers’ and cargo owners’ interests by reversing the controversial first instance judgement in Volcafe Ltd  v CSAV [2015] EWHC 516 (Comm).

This case arose out of condensate damage to nine consignments of coffee, which were carried in unventilated containers from Buanaventura in Colombia to destinations in North Germany. The High Court (Mr David Donaldson) rendered a judgement in favour of the cargo owners on the basis that, although the cargo damage was attributed to inherent vice of the goods carried, the carrier had not disproved his negligence. The carrier had failed to establish that he had adopted a sound system as underpinned by a theoretical calculation or empirical study.

The CA (Lady Justice Gloster, Lady Justice King and Mr Justice Flaux, sitting in the Court of Appeal) allowed the carrier’s appeal in respect of his defences of inherent vice.

Flaux J, who delivered the leading judgement, ruled that that once the carrier had established the inherent vice exception, the burden of proof shifted to the cargo owners to show that there had been negligence on the part of the carrier. He further held that such an approach is consistent with the weight of the authorities, which have applied the principles enunciated in The Glendarroch, even where the contract of carriage is governed by the Hague Rules, as well as with the principle that “he who alleges must prove”. In addition, he found that the adopted approach is supported by the wording of the “catch all exception” which is the only excepted peril that expressly requires the carrier to disprove his negligence before relying on this exception.

In addition, Flaux J rejected trial judge’s analysis of ‘complete circularity’ between Hague Rules, art. III, r.2 and art. IV, r. 2(m) because this approach deprives the exception in paragraph (m) of its force and that it has been long recognised as an excepted peril. Furthermore, he rejected trial judge’s approach to a “sound system” and in particular his requirement for a scientific calculation or empirical study. He held that such an interpretation imposes a standard beyond what the law requires. He also reiterated the well-established position that one of the indicia of a sound system is that it is in accordance with general industry practice.

The CA decision in Volcafe is welcome not only because it strikes a fair balance between carriers’ and cargo owners’ competing interests but also because it promotes the uniform application of the Hague and in turn the Hague-Visby Rules. In particular, the CA decision brings English case law in line with authorities in the United States and New Zealand who have held that, in case of inherent vice or other excepted perils (excluding the q defence), it is the shipper who bears the burden of showing that the damage resulted from negligence or fault caused by the carrier (See for example, Quaker Oats Co. v. M/V TORVANGER, 734 F.2d 238, 1984 AMC 2943 (5th Cir. 1984), U.S. v. Ocean Bulk Ships, Inc. 248 F.3d 331 (5th Cir. 2001), Terman Foods, Inc.v. Omega Lines 707 F.2d 1225 (11th Cir. 1983) and Shaw Savill & Albion Company Ltd v Powley & Co [1949] N.Z.L.R. 668).

As a final remark, one should not underestimate the impact of Volcafe on the approach to the burden of proof in all of the defences (except from the “catchall exception”) enumerated in Hague and Hague-Visby Rules, art. IV, r.2. Flaux J found the wording of the “catchall exception” as supporting the analysis that, in the case of all other exceptions, the carrier’s reliance on any excepted peril is not dependent upon the carrier disproving his negligence.

Hague-Visby, gold sovereigns and the reasonable businessman

In a welcome decision on clauses paramount in bills of lading, the Court of Appeal yesterday sent a clear message that it preferred commercial common sense over clever but convoluted construction. In Yemgas FZCO & Ors v Superior Pescadores SA [2016] EWCA Civ 101 machinery was damaged to the tune of $3.6 million while being carried from Antwerp to Yemen under a Congenbill clone. The point in issue was the limit of liability. The bill of lading contained in effect the standard Congenbill clause paramount, like so:

“The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.”

One might have thought it obvious, as the carriers’ P & I club did, that since Belgium was a party to Hague-Visby the Hague-Visby limitation applied by force of law. But cargo had a trick up its sleeve. Fastening on the reference to the “Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment”, it argued that this referred exclusively to the old Hague Rules, including the original £100 gold limitation, which yielded a much higher figure than Hague-Visby. The parties had therefore, it said, agreed – as they were entirely free to do – on a higher figure than that provided for in Hague-Visby.

Males J agreed that the reference to the Hague Rules was indeed a reference to the old rules. He nevertheless rejected cargo’s somewhat implausible argument, on the basis that the mere inclusion of a reference to the 1924 Hague Rules in a case otherwise governed compulsorily by Hague-Visby did not amount to an implicit rejection of the Hague-Visby limits.

The Court of Appeal dismissed cargo’s appeal, but on a wider ground. Longmore LJ found Males J’s holding on intention highly plausible. But he did not have to pronounce finally on it, since he thought, like the other members of the Court, that on a reasonable businessman’s reading the reference to the “Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment” was a reference to Hague or Hague-Visby, as the case might be according to legislation currently in force in the state of shipment.

With respect, this seems entirely right. With its robust reference to the understanding of people in the shipping market rather then minute exegesis, It will also (one suspects) avoid a great deal of pettifogging argument of the kind that can lead shippers and others to despair of the ability of English courts to reach commercially sensible results.

There is only one qualification. Some bespoke forms of bill of lading (and charters), having incorporated in the clause paramount the reference in question to the “Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment”, then explicitly go on to refer separately to trades where Hague-Visby is applicable as a matter of mandatory law. In such a case, Tomlinson LJ is presumably right to suggest that, in situations where Hague-Visby is not compulsorily applicable, the reference can only be to the old rules (as was held to be the case in The Happy Ranger [2003] 1 C.L.C. 122).

Temporal scope of Hague Rules

Volcafe v CSAV [2015] EWHC 516 (Comm); [2015] 1 Lloyd’s Rep 639.

Loading of a cargo of coffee inland by the carrier into its containers has been held to fall within the temporal scope of the Hague Rules. This may seem somewhat surprising in the light of Article 1 (e) of the Rules which provides: “(e) “Carriage of goods” covers the period from the time when the goods are loaded on to the time they are discharged from the ship.” However, David Donaldson QC in the London Mercantile Court has held that the initial loading into the carrier’s containers and the subsequent loading of the container onto the vessel were to be regarded as part of a single loading process. Even if this were not the case, the parties had exercised their freedom to agree what constituted loading under art 1. (e) which they had done by providing that the carrier would stuff the cargo into its own containers.

Simon Baughen