Unexpected risk

When a cargo on board a vessel is lost or destroyed because the vessel and all its cargo caught fire and sank, is the common carrier or vessel owner liable? This is the question answered in this case of a foreign shipping company, DSRS Lines, and its local shipping agent, CFS Inc.

The shipment in this case consisted of 632 units of artificial trees exported by BP Inc. to AIM Int’l. (consignee) in Riyadh, Saudi Arabia. Upon receipt of said trees in Manila for transportation and delivery to the consignee in Port Dammam, CFS issued International Bill of Lading for the cargo. The cargo was insured by FPA Company against all risk in the amount of P941,429.61.

The cargo was loaded on board one of the vessels of DSRS bound for Saudi Arabia. It was discharged and reloaded on board another vessel of DSRS in Khor Fakkan Port bound for its final destination at Port Dammam. However, while in transit between the two ports, the vessel and all its cargo was gutted by fire and sank.

DSRS formally notified the shipper or owner, BP Inc. of the loss of its trees. Subsequently, its agent, CFS issued a certificate to that effect. So FPA Insurance paid BP Inc. the sum of P941,429.61 corresponding to the amount of insurance for the cargo. In turn BP Inc. signed in its favor a "Subrogation Receipt".

On the basis of this subrogation receipt, FPA Ins. demanded payment of the amount of P941,429.61 from CFS and DSRS. But the latter denied any liability on the ground that such liability was extinguished when the vessel carrying the cargo was gutted by fire.

Were CFS and DSRS correct?

No.

Under Article 1734 of the Civil Code common carriers are liable for loss or destruction of the goods unless the same is due to: (1) flood storm, earthquake, lightning or other natural disaster or calamity; (2) act of public enemy in civil or international war; (3) act or omission of the shipper or owner of the goods; (4) the character of the goods or defects in the packing or in the containers; and (5) order or act of competent public authority. The peril of fire is not comprehend within the above exceptions that will exempt the common carrier from liability for loss or destruction of the cargo.

Even if fire were to be considered a natural disaster within the purview of article 1734, it is required by article 1739 of the same code that the natural disaster must have been the proximate and only cause of the loss and that the carrier has exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster.

The requisite diligence in the shipment of the goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation, until delivered to or until the lapse of reasonable time for their acceptance by the person entitled to receive them. When the goods shipped are either lost or arrive in damaged condition, a presumption arise against the carrier of its failure to observe the diligence and there need not be a finding of negligence to hold it liable. In this case, CFS and DSRS failed to overcome this presumption by sufficient proof of extraordinary diligence. So it must reimburse FPA P941,429.61 plus 6 percent interest per annum from demand until finality of this decision and 12 percent per annum from demand until finality of the decision and 12 percent per annum from finality of the decision until full payment (DSR-Senator Lines et al. vs. Federal Phoenix Insurance G.R. 135377, October 7, 2003).

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