Volcafe v CSAV: Who must prove due diligence?

Buenaventura, early 2012. At the terminal, batch by batch, twenty 20-foot dry containers are being prepared without ventilation. The carrier's stevedores line the walls and roof with kraft paper and then load the jute bags of coffee: 275 bags per container, 70 kilograms each. Inside is washed green Colombian coffee. There are nine batches, each covered by a single bill of lading.

The containers sail to Balboa, Panama, where they are transferred to another ship and continue on to Rotterdam, Hamburg, or Bremerhaven. The final leg is Bremen. When the containers are opened, eighteen out of the twenty show coffee damaged by condensation.

No one later claimed that water had entered the containers from the outside. The coffee was damaged by moisture it had released itself. The case went through three court levels, but not because the cause needed to be determined. The dispute concerned who must prove that the damage occurred despite the exercise of due diligence. In this case, the carrier's duties also included the preparation and loading of the containers.

Small claim, big case

The claims amounted to approximately 62,500 USD, or 2.6% of the cargo value. Despite the small value of the damage, the dispute was treated as a test case.

The parties were Volcafe, representing the cargo interests, and the Chilean shipping line Compañía Sud Americana de Vapores (CSAV). The bills of lading were subject to English law and jurisdiction and, through a paramount clause, incorporated the Hague Rules.

More important than the names is the notation on the bills of lading: LCL/FCL. It meant that the carrier accepted the bags of coffee and was responsible for the preparation and loading of the containers. In this case, it was CSAV's stevedores who lined the containers with paper and stacked the bags.

Condensation, which no one disputed

Coffee is hygroscopic: it absorbs and releases moisture. When it travels from a warm climate to a cold one, moisture condenses on the cold steel of the container and drips onto the bags. Both parties admitted in court that condensation is inevitable on such a journey.

Industry guides recommended ventilated containers for coffee. In practice, unventilated containers lined with paper were commonly used. The paper is intended to absorb the condensation before it reaches the bags.

Conflicting evidence was presented in court. Some spoke of one layer of paper, others of two, and the weight of the paper was also unclear. The court of first instance found that neither the number of layers nor the thickness of the paper had been proven.

From that moment on, the outcome depended on one question: who bears the burden of this uncertainty.

Three instances, three answers

First instance ([2015] EWHC 516 (Comm), Mr. Justice David Donaldson QC) ruled in favor of the cargo owners. The court also found that there was no generally accepted practice for securing coffee in containers. Therefore, the carrier could not defend itself by claiming it had acted just like everyone else.

Court of Appeal On November 10, 2016 (Gloster LJ, King LJ, Flaux J), the court overturned the judgment in favor of the carrier. According to the court, the burden of proving negligence lay with the cargo owner. The court also established what the practice was in 2012: two layers of paper with a basis weight of at least 80 g/m² or one layer of at least 125 g/m². However, the cargo owners failed to prove that the carrier had not met this standard.

UK Supreme Court On December 5, 2018, it unanimously reinstated the first-instance judgment. It is the carrier who must prove that it exercised due diligence, even when the damage results from the hygroscopic nature of the cargo. Since the carrier did not demonstrate how much paper it used, it is liable for the damage.

The basic sequence of the transport was undisputed in all instances: the same bags, the same containers, the same condensation. The courts differed, however, in their assessment of the evidence and the burden of proof.

Inherent vice, but with a condition

The Hague Rules exempt the carrier from liability for damage resulting from the inherent vice of the goods. Coffee, which naturally releases moisture, seems like a textbook example.

The Supreme Court adopted a narrower interpretation. The hygroscopic nature of coffee is an inherent vice that exempts the carrier only if reasonable diligence could not have prevented the damage. The property of the cargo alone is not enough. The carrier must demonstrate that it exercised due diligence and the damage occurred regardless, or that no reasonable protective measures could have prevented it.

The carrier could also have argued that loading the container is not its duty under the Rules, but an additional service. The courts decided otherwise: under LCL/FCL terms, loading into a container undertaken by the carrier falls within the concept of “loading” as understood by the Rules. Since the carrier performed the loading, it was responsible for how it loaded.

Whoever prepares the container enters the dispute with evidence in hand

In this case, the carrier prepared the container. The carrier lost not because it did something wrong, as no one established that. It lost because it could not show what it had done. According to the Court of Appeal, the practice was known and measurable: the number of layers and the basis weight.

For an importer of coffee, cocoa, or any other moisture-sensitive cargo, the conclusion from Volcafe is simple. If the carrier loads the container under LCL/FCL terms, an English court will require the carrier to demonstrate due diligence, and the inherent vice of the cargo alone will not exempt it.

For an exporter who loads and secures the container themselves, the judgment does not provide a simple answer. With FCL loaded by the shipper, it must be determined separately who was responsible for securing the goods and what caused the damage. In Volcafe, the carrier lost because it did not conclusively demonstrate how many layers of paper and of what basis weight it had used.

Article 165 of the Polish Maritime Code adopts a structure similar to the Hague Rules. The carrier is liable for the loss of or damage to cargo from the time it is accepted for transport until it is delivered to the consignee (§ 1). It is exempted from liability by the circumstances listed in § 2, including hidden defects, natural properties, or the inherent vice of the cargo (point 10).

The provision does not explicitly link this point to due diligence. However, a carrier invoking it must prove that the damage occurred precisely due to the properties of the cargo, and not, for example, due to improper container preparation. The Volcafe judgment was decided under English law and is not binding on a Polish court. It does, however, show where the burden lies in such disputes: in the evidence regarding how the container was secured.

The cargo, the cause of the damage, and the positions of the parties remained the same in all three instances. The coffee got wet from its own moisture, and the outcome was decided by the question of who must prove that the damage occurred despite due diligence. The Supreme Court's answer was: the carrier.

Sources

UK Supreme Court, Volcafe Ltd and others v Compania Sud Americana de Vapores SA [2018] UKSC 61, judgment of Dec 5, 2018: supremecourt.uk
The same judgment via Quadrant Chambers: www.quadrantchambers.com
Court of Appeal, Volcafe Ltd v CSAV [2016] EWCA Civ 1103, judgment of Nov 10, 2016
High Court, Volcafe Ltd v CSAV [2015] EWHC 516 (Comm), Justice David Donaldson QC
HFW, "Volcafe Ltd v Compania Sud Americana de Vapores SA", December 2016: www.hfw.com
CMI Database: cmlcmidatabase.org, Volcafe case summary
Lexology, summary of judgment [2016] EWCA Civ 1103
DMC, Volcafe case summary
Justice Stewart, Federal Court of Australia, presentation of Oct 24, 2019
Sean O’Sullivan QC, presentation on the Volcafe case
BDM Law, Volcafe case summary
Maritime Code, Art. 165, text of the act (egospodarka)

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Volcafe: coffee ruined by its own moisture. Who had to prove it? Dark Stories #21