Cosco v. Tokio F&M

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DMC/SandT/24/02
COSCO Bulk Carrier Co. Ltd v. Tokio Marine & Fire Ins. Co. Ltd
New York Arbitration: Nigel J. Hawkins, James J. Warfield and Klaus C.J. Mordhorst, arbitrators: 12 April 2002
CARRIAGE OF US YELLOW CORN: CLEAN BILLS OF LADING: DAMAGE ON OUTTURN: WHETHER PRIMA FACIE CASE AGAINST CARRIER: APPARENT ORDER AND CONDITION: INHERENT VICE: HIGH MOISTURE CONTENT: RELEVANCE OF NCB CERTIFICATE: BURDEN OF PROOF
Summary
In an unanimous award, New York arbitrators held that, in a case of heat and/or sweat damage to US yellow corn, clean bills of lading were evidence only of the apparent order and condition of the cargo. As the moisture content of the cargo could not be established from an external examination, clean bills were not sufficient to raise a prima facie case against the carrier. In the circumstances of this case, the evidence also established that the cargo was damaged by its own inherent vice.

Facts
Under a voyage charter on the Baltimore Berth Grain Charter Party (Form C, adapted 1990), dated November 4, 1996, COSCO Bulk Carriers chartered its ship, the ‘Teng Fei Hai, to charterers Continental Grain for the carriage of 54,722 tonnes of US grade yellow corn from the US Gulf to ports in Japan. The cargo was loaded at Westwego, Louisiana, in late December 1996. All the ship’s holds were passed and certified by the United States Department of Agriculture and the National Cargo Bureau (‘NCB’) as fit to carry the cargo. Clean bills of lading were issued on the Baltimore Form C Berth Terms Grain form and the cargo was covered by an NCB Certificate of Quality.

After an uneventful voyage, the ship discharged the cargo first at Kashima and then in Kobe between 6 and 14 February 1997. On discharge, some 4,332 tonnes were found to be heat/or sweat damaged and had to be sold for salvage at a loss to the Japanese receivers. The exact amount of this claim was not, however, quantified in the arbitration.

The cargo interests, through their insurers, the Tokio Marine & Fire Insurance Company, commenced arbitration proceedings in New York, pursuant to the arbitration clause of the charterparty incorporated into the bills of lading. The bills of lading contained in addition, an US Clause Paramount, incorporating the terms of the US Carriage of Goods by Sea Act of 1936 (‘USCOGSA’). Cargo interests claimed that, where a cargo was delivered in good order and condition at the port of loading and arrived in a damaged condition at the port of discharge, a prima facie [presumed] case against the carrier has been established. The carrier then has the burden of proving that the damage was caused by an excepted peril under USCOGSA. To establish the good condition of the cargo on loading, the cargo interests relied on the Certificate of Quality issued by the NCB.

The owners did not dispute the applicability of the USCOGSA requirements as regards the burden of proof but maintained simply that the cargo interests had failed to establish a prima facie case against them. The owners further argued that the cargo damage in this case had resulted from the inherent vice of the cargo itself, namely too high a moisture content on loading. The owners relied on the judgment in the 1994 case of Hershey Foods Corp. v. Waterman Shipping Corp. to the effect that clean bills of lading relating to goods "whose condition cannot be ascertained by external inspection…merely attest to the apparent good condition of the cargo based on its external appearance." The Hershey case established that "Where cargo damage may have resulted from a hidden defect, the burden is on the shipper to establish that the cargo was delivered [to the ship] in good condition." No such proof had, the owners contended, been proffered, despite their repeated requests. In these circumstances, the owners maintained that, as moisture content was not ascertainable from external inspection, the clean bills of lading issued in this case gave evidence only of apparent good condition and were not sufficient to establish a prima facie case against them. Cargo interests’ reliance on the NCB Certificate as proof of the cargo’s integrity was, in the owners’ view, equally flawed, as this certificate merely identified the grade specifications particular to this type of cargo, without offering any additional qualifications as to its good order or condition.

Award
The panel held that whether or not they agreed with owners’ contention that no valid prima facie case had been made against them became secondary to a thorough evaluation of the factual evidence produced during the arbitration proceedings. In this regard, the panel relied in particular on the discharge report prepared by the surveyors instructed by the owners’ P&I Club. The panel noted the random pattern of the damage found in the various holds of the ship and the fact that, between September 1996 and February 1997, these surveyors had attended seven other vessels, all of which had experienced similar heating damage to consignments of US corn carried from US ports to Japan.

After its review of the evidence and the various arguments advanced, the panel unanimously found:

1. that the cargo interests had failed to establish a prima facie case against the owners;
2. the factual evidence made it quite apparent that heat and/or sweat damage to cargoes of US corn was by no means particular to the alleged events involving the Teng Fei Hai. Rather is it a problem which relates more obviously to the type of cargo than to the carrying ship.

The cargo interests’ claim therefore failed.

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