Condensate damage – carrier’s liability

10.04.2015 r.

Condensate damage – carrier’s liability

On 5 March 2015, the England and Wales High Court has issued a verdict in the case Volcafe & others v CSAV that may prove influential in how claims for condensation damage to cargo are being resolved between cargo interests, shipowners and their underwriters.

In this action, the High Court was asked to adjudicate on claims for condensate damage to a consignment of Colombian green coffee beans transported by the defendant COMPANIA SUD AMERICANA DE VAPORES SA, trading as "CSAV” ("the carrier"), in dry and unventilated 20 ft containers.
The first leg of the sea-carriage, from Buenaventura to Balboa, was on deck; the on-carriage to Europe under deck; and the further carriage from Rotterdam to Hamburg on deck.

Before stuffing, the bare corrugated steel of the container was lined by the stevedores with Kraft paper. The Kraft paper was affixed to the walls with adhesive tape to a height just short of the roof. There was some discussion as to the gauge or weight of the Kraft paper, with claims that it was “thin Kraft paper”, although it was ascertained that it was also of a double-layer type.

On outturn however, the consignments transported in the containers were found to have suffered some degree of damage from condensation – moisture in warm air had condensed on contact with the cold roof of the container, fallen on to bags at the top of the cargo, and also run down the sides of the container wetting bags on the outside of the stow.

It should be noted that this occurrence is not uncommon in transport, when commodities such as coffee beans, grains or rice are carried in steel containers subjected to significant changes in external ambient temperature.

The Hague-Visby Rules applied to the carriage and it was effected on LCL/FCL terms. The core of the dispute was whether or to what extent were the carrier’s responsibilities properly effected in order to prevent the threat of damage through condensation, whether the carrier was liable for any consequent damage.

The High Court based its decision largely on the wording of Article III (2) of the Hague Rules, which provides that “subject to the provisions of Article IV (of the HVR), the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried."

As indicated by Deputy High Court Judge David Donaldson, the expression "properly" in Article III (2) HVR has been construed, on the basis of its natural and ordinary meaning, as "in accordance with a sound system" (Albacora SRL v. Westcott & Laurance Line Ltd [1966] 2 Lloyds Rep. 58 following G.H.Renton v Palmyra Trading Corporation, [1957] A.C. 149 at 166 per Lord Kilmuir L.C.).

He added that the “soundness” of the system needs to be ascertained without reference to any "weaknesses and idiosyncrasies of a particular cargo" (Albacora at 62 per Lord Pearce), since these are not matters of which a carrier ought normally to be aware.

In the present case, the fact that the carrier dressed the containers with Kraft paper reflected an industry awareness of condensate damage as a general and significant risk in unventilated containerised carriage of coffee beans.

Having noted the above, the judge applied res ipsa loquitur rule, a doctrine in tort law, where the elements of duty of care, breach, and causation are inferred from an injury that does not ordinarily occur without negligence.

The onus of proof was therefore on the carrier to demonstrate that the consignment was properly and carefully cared for, i.e. they had to demonstrate that by applying Kraft paper insulation, they had employed a “sound system”.

In the High Court’s eyes, the defendants failed to prove this contention. What is of significance is that the judge not only dismissed the measures taken by the carrier as insufficient but, in addition, held that 'since the "soundness" relates to the prevention of damage to a normal cargo from the risks reasonably to be expected during the contracted carriage, it is no answer to an allegation of breach of that obligation to say that, since such damage is always unavoidable, no such system exists'.

In other words, the carrier cannot use to their defence an argument that no system that could be employed by them is efficient enough to prevent damage to the cargo.
The judge added that there must exist a minimum of a rational, adequate and reliable basis for concluding that the applied “sound system” will prevent the otherwise threatened damage.

As the carrier was unable to demonstrate that it had adopted a sound system, the court awarded in favour of the claimants.

The above discussed court decision may have significant implications in how cargo claims are resolved between the shipowners and cargo interests. It points to the fact that the burden of proof that the measures undertaken to protect the cargo from damage through condensation were sufficient, or “sound”, lays with the carrier. In some instances, this might prove a difficult task.

The risks related therewith can be mitigated by careful drafting of the wording of charterparties, with particular attention paid to the rights and obligations of both the carrier and the charterer during the transport of the consignment from the port of loading to the port of discharge.