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Australia: Deteriorated Seafood Claim Leads to Issues of Due Diligence in a Latent Defect Defence: Trade and Transport Bulletin

09 July 2010 Article by Andrew Tulloch http://www.mondaq.com/australia/article.asp?articleid=104964 The recent decision of Justice Ryan in the Federal Court of Australia in Seafood Imports Pty Ltd v ANL Singapore Pte Ltd (2010) FCA 702, confirmed and followed the approach of the High Court of Australia in Great China Metal Industries Co Limited v Malaysian International Shipping Corporation Berhad (the 'Bunga Seroja') 1998 196 CLR 161, in a case involving heating damage to a consignment of frozen seafood.

BACKGROUND
In November 2005, a refrigerated container of seafood was shipped from Yokahama, Japan to Melbourne on the vessel 'CSCL Yantai' and was delivered in Melbourne with evidence of having sustained thaw damage. Seafood Imports Pty Ltd, being the consignee, brought proceedings against ANL Singapore Pte Ltd as bill of lading carrier maintaining that there had been a breach of the carrier's obligations under the Hague Visby Rules which applied to the bill of lading. After reviewing the available evidence, Justice Ryan was satisfied that the goods were in good order and condition when stuffed into the container and delivered to the ship at the terminal in Yokahama. He found that the damage observed at out-turn had occurred during the voyage and possibly also after the goods had been discharged at the terminal in Melbourne. He accepted evidence that the damage was sustained when incompatible software in the refrigerated container led to an extended defrost cycle.

APPLICABLE LAW AND BURDEN OF PROOF


The judge noted that the view previously expressed in Gamlen Chemical Co (A/sia) Pty Ltd v Shipping Corporation of India Limited (1978) 2 NSWLR 12 to the effect that the cargo interest only had only to prove the contract of carriage and the non delivery of goods, or the delivery in a damaged condition and the burden then shifted to the carrier to prove that the loss or damage arose from one or other of the matters specified in Article IV Rule 2 of the Hague-Visby Rules had been rejected in the High Court in the Bunga Seroja decision. He quoted with approval the comments of Justice McHugh in that case, who said: 'The words "arising or resulting from" which appear at the very beginning of Article IV Rule 2, indicate that the loss or damage must be caused by one or more of the matters enumerated in paragraphs (a) to (q) before the carrier can escape liability. If it results or arises from any other cause such as the negligence of the carrier, the carrier is liable. The

presence of Rule 2 (a) which creates a limited but separate exemption for the carrier for damage resulting from the negligence of its master or servants in relation to the navigation or management of the ship is a further textural indication of this interpretation.' Justice Ryan also noted that in his earlier joint judgment with Justice Dowsett in CV cheepvaartonderneming Ankergracht v Stemcor A/sia Pty Ltd (2007) 160 FCR 342 at 361, he had said that: 'The proper course is to identify negligence (usually a breach of Article III Rule 2) before considering the availability of exceptions pursuant to Article IV Rule 2 and ... the mere occurrence of loss or damage may not be sufficient to prove a breach of the former rule.' A similar approach was to be adopted in this case.

WAS THERE A BREACH OF ARTICLE III RULE 1 OR 2?


Article III Rule 1 of the Hague-Visby Rules provides: 1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to a. Make the ship seaworthy; b. Properly man, equip and supply the ship; c. Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. Justice Ryan considered it is unnecessary in this case to express a concluded view on whether the liability for loss or damage arising from unseaworthiness attached when a container was supplied which had a controller fitted with incompatible software. It was unnecessary as the facts raised the inference that there had been a breach of Article III Rule 2 which provides:Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.' Circumstantial evidence was sufficient to raise the inference of a breach of Article III Rule 2.

LATENT DEFECT
The carrier maintained that it was exempted from liability as the damage was caused by a latent defect in the container, being one that could not have been discoverable using due diligence. Justice Ryan concluded on the balance of probabilities that the damage had been caused by the container having been stuck in defrost mode for an extended period of approximately three days, probably as a result of the incompatibility between the container's controller and the software with which it was fitted. But that was not the Immediate cause of the plaintiff's loss. Rather the loss was caused by the continuous

running of the container in defrost mode, an event which could have been detected and rectified had the carrier's employees carried out appropriate monitoring and inspection of the container and kept proper records, including notations of apparent anomalies. Accordingly, he found that there had been a lack of due diligence such that a latent defect defence was not open to the carrier.

THE 'TACKLE TO TACKLE' ARGUMENT


Justice Ryan rejected a submission from the carrier that the Hague-Visby Rules apply only in the 'tackle to tackle' period from loading to discharge from the ship. He considered instead that the obligation on the carrier to 'properly and carefully discharge' extended to ensuring that the container in which goods had been carried did not have a propensity to be stuck in defrost while at the port terminal and before the goods could reasonably be expected to be removed from the container. In all the circumstances judgment was given for the plaintiff for the full extent of the loss or damage to the goods after salvage which had been agreed at $130,192.40, together with interest and costs.

CONCLUSION
The case is a relatively straight forward example of the Hague-Visby regime at work. While it establishes no new law it does include some interesting comments regarding the extent of the carrier's obligations in relation to damage which might have occurred after discharge and a brief analysis of the burden of proof and analysis of a latent defect defence. DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances. Specific Questions relating to this article should be addressed directly to the author.