Felipe Arizon, Arizon Abogados SLP, Spain

Ref: MV UGLJAN, damage to bulk cargo of soybeans; whether carriers were responsible for the damages suffered by the Argentinian soybeans arrived in Malaga caked, dark, and hardened, or whether the damages were to be attributed to the inherent vice of the goods.

The Malaga Commercial Court has recently handed down a judgment, of 21 December 2021, where it has dealt with a very interesting dispute as to whether the sea carriers were liable for the damages suffered by a cargo of soybean that arrived in Málaga in 2017 (Spain) from San Lorenzo (Argentina).

This has been a very unusual lengthy proceedings before the Commercial Court in Malaga that commenced in 2018 and were interrupted by the Covid and some other circumstances.

The total cargo shipped in Argentina was of 30.635 mts of soybeans. The cargo was shipped clean on board at the port of San Lorenzo in Argentina. Most of the cargo arrived in sound condition, however, a smaller part of the goods arrived caked, hardened, stoned, very dark; some of the damaged cargo could not be broken down with manual equipment or even with iron bars.

The damages suffered by the cargo were found in some lots discharged from holds number 3 and 5 of the bulk carrier MV UGLJAN. The discharge of the cargo caused many stoppages in the unloading operations as the goods did not pass through the hoppers. As a result, an important part of the goods coming from holds 3 and 5 were segregated and had to undergo a treatment before it could be sold in the market. After the salvage operation only a total of 116,30 mts had to be sent out for destruction.

Following months of negotiations, the issuance of a LOU subject to Spanish law, the receivers, an international commodity house, found no alternative but to sue the carriers in Spain as the offer made by the carriers at that time was ridiculously low.

Thus, the cargo receivers commenced proceedings against the carriers before the Commercial Courts of Málaga claiming, inter alia, the costs of the cargo treatment, warehouse, removal, trimming of the goods, as well as the losses of those fewer tones that had to be sent out for destruction. The total amount of the claim was about 100.000 EUR plus interest and legal costs.

In response to the receivers’ claim, the carriers argued that the caked cargo was reversible and that in any case the cause of the goods deterioration was the humidity of the goods, which in their view entitled them to enjoy a defense based on the inherent vice of the goods under section 4.2 of the Hague Visby Rules (HVR). In addition, the carriers contended that the stevedores negligent work at the port of discharge resulted in an increase of damages to the goods and therefore that fact had to be considered to reduce the receivers’ claim.

Spanish law incorporates the Hague Visby Rules into its legal system to regulate the rights, obligations, and liabilities for the parties to an international carriage of goods under a bill of lading. The crux of the matter before the Malaga Commercial Court in this case was whether the carrier was responsible under the HVR for the damages and losses occurred, or whether the carrier should be afforded protection under inherent vice exception of section 4.2 of the Hague Visby Rules. In this front, the carriers had a significant problem to overcome. They contended that the goods had been loaded with too high humidity and that that was the cause that provoked the deterioration of the cargo during the voyage from Argentina to Spain. However, only a minor part of the cargo resulted damaged, and all the damaged cargo was concentrated at holds 3 and 5 of the ship.

During the litigation, the receivers presented to the Commercial Court a copy of the English Supreme Court judgment of December 2018 in Volcafe Ltd and others (Appellants) v Compania Sud Americana De Vapores SA (Respondent). In that case the English Supreme Court held that the carrier had the legal burden of proving that he took due care to protect the goods from damage, including due care to protect the cargo from damage arising from inherent characteristics such as its hygroscopic character. The carriers contested the introduction of the English judgment into the Spanish proceedings, and an interim judge ruled against such introduction. This was protested by the cargo receivers.

During the litigation various sources of expert evidence were produced before the Court. At the port of discharge several cargo surveying companies had intervened. For example, Messrs. Inspectorate noted in his report that about 200 mts of soybeans coming from hold 3 were compacted, very hard, and that this could be related to the fact that hold 3 was located adjacent to the vessel tanks to store the ship’s bunkers. Once no amicable settlement became possible with the carriers, the receivers decided to hire the services of a Master Mariner.

The Master Mariner concluded that the cause of the damage was the heat coming to the cargo from the double hull tanks and from engine room, part of that heat was produced by the fact that the bunkers had to be warmed for its use and that was the reason that only the cargo on holds number 3 and 5 were affected by the heat. The Master Mariner explained how and why the bunkers had to be warmed and how that affected the temperature of the adjacent holds. He also concluded that the carriers could not keep control the holds’ temperature as the holds were not equipped with registries to enable such control and manual control was not sufficient to keep control of the temperature at the holds.

On the other hand, the carriers’ experts run the argument of self-combustion of the soybean resulting from an excess of humidity in the goods. However, the trial judge concluded that there was no evidence to sustain the carriers’ argument of high humidity at loading in San Lorenzo and that accordingly section 4.2. of the HVR was not available for the carriers as a defense. The learned judge considered that the expert evidence presented by the receivers was in many senses much more reliable and accurate than the evidence presented by the carriers.

In addition, the judge held that the work of the stevedores was adequate during the discharge operations and that the claimants were entitled to their claim in full, including both the price of the goods sent out for destruction as well as the costs of trimming, warehousing, removal, and carriage of the goods initially damaged but that were finally recovered, together with interest and legal costs.

In this case, it is submitted that the carriers had an initial high hand in addressing the cargo dispute as they enjoy the advantage of knowing well his vessel functioning and having all the vessel evidence at their disposal. This should and could have enabled them to settle the claim at a reasonable figure, but the offer made to the receivers was simply too low. On the other hand, while the cargo receivers had not such initial complete information, their appointment of a very experienced Master Mariner to further investigate the matter and determine the cause of the damages changed their position significantly, thus their initial disadvantage vanished, and the odds changed against the carrier.

Once it was clear that the dispute had to be resolved in litigation the receivers made a proper investment to defend their case both legally and technically. The result is a judgment where the trial judge endorsed squarely both the technical evidence produced by the receivers and the arguments run by their lawyers.

While the carriers presented an appeal before the Court of Appeal in Málaga, after the appeal was contested in writing by the receivers on very consistent terms, the carriers wisely invited the receivers to enter a negotiation that has recently ended up in a fair settlement of the dispute while the proceedings before the Court of Appeal have been brought to an end.

Ed Note: Arizon Abogados SLP represented the cargo claimants in this matter.