This case involved carriage of phenol by sea. The bill of lading stated that the goods were 'shipped in apparent good order and condition'. The colour index of the three samples extracted from the tank inside the vessel immediately after loading was 5, which is normal (under the carriage contract, the maximum index considered normal was 20). However, the sample colour index extracted from the tank inside the vessel immediately before discharging was 26, beyond the maximum degree permitted under the contract. Samsung Corp, the consignee, sold the phenol at a low price, because it could not be used for the purpose of the original importation. The plaintiff insurer paid out the difference under the insurance policy and sought indemnification from the defendant carrier.

The Court below held that the second set of samples was stored at a temperature lower than freezing point (40.8˚C) from 2-9 April 2001, and that the phenol in this case was manufactured by the cumene peroxidation method. Phenol manufactured using that method might contain an extremely small amount of very unstable matter such as radicals, in which case, unpredictable impurities could additionally be generated without an increase in the temperature, which could change its colour. The Court held that phenol is a substance which can possibly change its colour because of the by-products generated in its manufacturing process; that it did not seem possible that a foreign substance could have been added in the process of the phenol being loaded from the ground tank, through the pipeline, directly to the tank inside the vessel; and that the phenol in this case did not seem to have changed its colour because of residues of the sulphur that was previously carried in the ship's tank. The samples did not change their colours until discharging, but did so afterwards, which means that the reason why their colour had not changed beforehand seems to be that it was stored at a temperature lower than the freezing point. Therefore, it was reasonable to hold that the colour of the phenol changed because of its unique characteristics or hidden defects, such as the existence of by-products generated in the manufacturing process, and that this colour change was something that can occur in the usual course of events due to these unique characteristics or hidden defects. The plaintiff insurer appealed.

Held: Appeal dismissed.

Article 788(1) of the Commercial Code provides: 'If a carrier fails to prove that he or the crew or other employee of a ship exercised his duty of care in reception, loading, stowage, carriage, keeping, discharging and delivering of the goods, he shall be liable to compensate for damages caused by loss, damage or delay of the goods.'

Article 789(2) of the Commercial Code provides:

The carrier shall be relieved of the liability for compensation, if he has proved that any fact of the following subparagraphs existed and that any damage of the goods might usually be caused by such fact: Provided, That the same shall not apply if it was proved that he has failed to exercise due diligence notwithstanding the fact that he could have avoided such damage if he had exercised the due diligence mentioned in Articles 787 and 788(1): [amended by Act No 4470, 31 December 1991]

1. Perils or accidents of the sea and other navigable waters;
2. Act of God;
3. War, riots, or civil commotions;
4. Piracy and other similar acts;
5. Judicial seizure, quarantine restrictions and other restrictions by public authorities;
6. Act of the shipper or the owner of the goods or his employees;
7. Strikes, restraint of labour or lockouts;
8. Saving life or property at sea or any deviation in saving life or property at sea or any reasonable deviation;
9. Insufficiency of packing of the goods or insufficiency or inadequacy of marks;
10. Particular nature or latent defects of the goods; and
11. Latent defects of the ship.

Unless the maritime carrier proves that it, the crew or other employee of a ship exercised its duty of care in receiving, loading, stowing, carrying, keeping, discharging, and delivering the goods, it shall be held liable to compensate for damages due to the loss, damage or delay of the carried goods, but is exempted from the liability to compensate for them in the event that the carrier proves that the goods had unique characteristics or hidden defects and that the damages on the goods can normally be done due to such a fact (arts 788 and 789(2) Item 10 of the Commercial Code). It is reasonable that the Court below accepted the defendant carrier's plea for exemption from responsibility and dismissed the plaintiff's claim, and since the original decision seems to contain the purport of recognising the fact that the change of the colour of the phenol is something that can usually occur due to its unique characteristics or hidden defects, there is no violation of law or misunderstanding of the legal reasoning concerning the reasons for exemption from responsibility of the carrier stipulated in art 789(2) of the Commercial Code, or misunderstanding of the facts through insufficient deliberation.