International Trade

Summary: Carrier wrongly shipped two groups of cargoes from the same shipper, which should be shipped to two different destination ports, to the contrary ports; and the cargoes are constructive loss. The shipper asked compensation of the loss of cargoes and other losses from the carrier; the carrier counterclaim, asking the shipper to pay the freight. The court holds that the carrier shall bear the liability of wrongly shipping the cargoes and indemnify the losses of the shipper’s cargoes, but the shipper’s obligation of paying the freight cannot be released by the wrongly shipping. 

  [Facts of the Case]
  Plaintiff (defendant of counterclaim): Guangzhou NanHuaXi Co., Ltd (hereinafter referred to as NHC )
  Defendant (plaintiff of counterclaim): Guangdong HongKong Macau Shipping Co., Ltd (hereinafter referred to as HMC)
  On February 14th, 1995, NHC consigned a bound of polythene rope to HMC. The shipping bill noticed that: Quantity-3, 367 pieces, and Net Weight/ Piece 5.94kg; Specs are 16MM and 18MM; in a container of 40 feet; Loading Harbor-Guangzhou, Switch Harbor-Hongkong and Destination Harbor-Damman; all charges, 2,850USD total, prepaid; and No. of Contract-94-ND—0009. After accepting the cargoes, HMC issued the B/L of No. PCKG941195. On February 16th, NHC consigned another bound of polythene rope to HMC. The shipping bill noticed that: Quantity-3, 145 pieces, and Net Weight/ Piece 6.36kg and Gross Weight-6.38kg, totally 20,065.10kg ; Specs are 2, 3, 4, 5, 6, 7, 8 and 10MM; No. of Contract-94-ND—00010; in a container of 40 feet and Loading Harbor-Guangzhou, Switch Harbor-Hongkong and Destination Harbor-Jeddah; all charges, 2,600USD total, prepaid. HMC issued the B/L of PCKG941194. After receiving the B/L, NHC submitted the B/L to Industrial and Commercial Bank of China, Guangzhou Branch, asking negotiating to loan, however, the documents were not in compliance with the terms of the Credit; thus, the Issuing Bank refused to pay. Based on the requirement of NHC, China Commercial and Industrial Bank, Guangzhou Branch returned the whole set original bills to NHC on May 4th, 1995. 
  On April 1st, 1995, NHC received a fax from its client at Damman Port and knew that the cargoes had been shipped to the wrong place. The container under items of Credit No. PCKG941195, which should be shipped to Damman Harbor, had been shipped to Jeddah Harbor and the container under items of Credit No. PCKG941194, which should be shipped to Jeddah Harbor, had been shipped to Damman Harbor. NHC immediately contacted HMC, stating that its client in Jeddah agreed to accept both containers after the one that wrongly shipped to Damman Harbor shipping back to Jeddah, it also asked HMC to ship the container, which was shipped to Damman, back to Jeddah. HMC admitted the fact of wrongly shipping and agreed to ship the container to Jeddah and bear the freight, however, it also asked NHC to returned the B/L so that it could notice the second carrier to release the cargoes to the client of NHC and then the client could go to handle the procedure of delivering, shut-outs and transferring. On April 11th, NHC noticed HMC “Please telex the client as soon as possible to notice the receiving before we get the B/L returned from the Bank. We promise to lay back in time after we receives the returning old B/L. ” On April 25th, NHC, again, faxed to HMC, noticing “Due to our client in Jeddah will take a long vocation since 1st of May, in cases the client is able to receive the cargoes and avoid unnecessary losses, we truly hope that you can give us great support and corporation to phone the client on the receiving. At the mean time, we promise to return the old B/L to you before 1st of May. Nevertheless, HMC insisted to receive the B/L returned by HNC first and then it would notice to receive. On 9th of May, NHC returned the B/L to HMC. On 12th of May, HMC noticed the second carrier to receive by fax, whereas, no one came to pick up the cargoes thereafter and the cargoes had not been shipped to Jeddah. On 29th of June, NHC noticed HMC, stating: “Up till now, you have not shipped the container of 40’on Damman to Jeddah. Due to the long delay and the high warehouse rent charges, now the client informed us formally to refuse to receive the cargoes ” and asking HMC to indemnify the losses. On 25th of September, HMC sent a correspondence to NHC, noticing: “The container, 2X40’, which you entrusted us to carry, has already arrived the destination on April 3rd, 1995. The consignee refused to pick up the cargoes on the reason that he did not show the original B/L. Then we telex the consignee on delivering on 11th of May in according to your direction, however, up till now, still no one has come to pick up the cargoes. Thus the warehouse rent charges and the container leasing charges are caused at the destination. Please take some measures to handle the cargoes within the three days of the letter sent, otherwise, you will be regarded as waiving your rights of possession and disposition on your own behave on the cargoes mentioned above.” In the trail of the case, HNC stated that it had no idea whether the two containers mentioned above were existed or not. 
  The cost price of the polythene ropes consigned by NHC is 10,800RMB/ton, totally 432,000RMB.
  NHC did not pay HMC the shipping expenses, 5,450USD, the dock charge at the port of landing, 2.200RMB, and the storage charge, 2,475RMB. Part of the cargoes which NHC carried to the landing port of landing did not be laded, but was carried away by NHC. Charges of storage and safekeeping, totally 1931.90RMB have not been paid by NHC. 
NHC brought a complain to the Maritime Court on January 28th, 1996, asking the court to order HMC to indemnify the loss of goods, 373,500RMB, the losses of settlement of foreign exchange and drawback, 51,692.81RMB, the compensation claimed by foreign merchants, 42,869.50RMB, and the loss of interest, 46,656RMB, totally 514,717.81RMB.  
HMC defended, then brought a counterclaim, holding that: it had already fulfilled its responsibility to safely ship the cargoes to the destination port and released the cargoes to the consignee in Jeddah, based on the direction of NHC. However, due to the dispute occurred in the sales relationship of HNC and the consignee, the consignee did not transact the delivery procedure, which made a huge loss on warehouse rent charges. HMC had no negligence and all the losses occurred should be borne by NHC. NHC had returned the whole set original B/L to HMC, who had telegraphed the second ship-owner, indicating the ship-owner to deliver the cargoes to the consignee at the destination port. On the reason that NHC no longer held the B/L, it should not have litigious right. After fulfilling the shipping obligation, HMC showed NHC the invoices of collection freight and other expenses in according to facts; however, NHC did not pay. Claiming the court to order NHC pay the freight 5,450USD, warehouse rent charges 4,201.7RMB, dock charge 2,405.2 and the interest 5,598RMB.

[Trial]
   The Maritime Court holds that:
   After obtaining the B/L, NHC did not transfer it to any other persons, that is, it is still the lawful holder of the B/L. Although NHC returned the B/L to HMC, it did not get the cargoes delivered by HMC, thus it has right to claim its right to the carrier and HMC’s claim that NHC has no litigious right cannot be sustained. HMC shipped the cargoes to the wrong destination port, thus it shall ship the cargoes back to the destination port on the B/L without consideration. NHC asked HMC to ship the container, which was wrongly shipped to Damman Port, back to Jeddah Port only on the reason that the client in Jeddah agreed to accept two containers when the wrongly-shipped cargoes arrived Jeddah Port. Thereby, it is reasonable requirement, asking the defaulting party of the contract to take remedial measures, which was agreed by HMC as well. HMC shall positively take measures to transfer the cargoes as soon as practicable. Due to the wrong shipment, the cargoes did not declare the import to the customs, thus the ground that NHC cannot handle the transferring unless it returned the B/L to transact the procedures of pick-up and shut-outs cannot be sustained. The reason that NHC’s client refused to take delivery of cargoes is that HMC was slowly in transferring the cargoes, which occurred the losses and HMC shall bear the indemnity liability. HMC has not transferred the cargoes to the agreed port since the wrong shipment a year ago. Further, it is hard to know whether the cargoes are still existing or not, which shall be treated the cargoes as lost and HMC shall indemnifies the loss on the cargoes of NHC. In case the cargoes still exist, HMC can take the transaction. The compensation sum of the loss of the cargoes shall be calculated on price the cargoes loaded, plus the freight and the insurance cost; whereas, the insurance cost was not paid by NHC, thus the compensation sum shall be calculated on the price the cargoes loaded, plus the freight. Due to lacking facts basis, NHC’s claim on the losses of settlement of foreign exchange and the compensation claimed by the foreign merchant will not be supported.         
  Advanced freight was agreed on the B/L, thus NHC has the obligation to pay the freight, which would not be relieved by the wrong shipment of the cargoes. It is unreasonable for NHC to refused to pay the freight and extras, thus HMC’s counterclaim shall be supported.
  Based on Article 111and Article 112, Paragraph 1of GENERAL PRINCIPLES OF THE CIVIL LAW OF THE PEOPLE'S REPUBLIC OFCHINA and Article 55 of MARITIME LAW OF THE CIVIL LAW OF THE PEOPLE'S REPUBLIC OFCHINA, the Maritime Court judges as follows:
  1. HMC indemnified NHC the economical loss of 436,675RMB and 5450USD and the interests of the items mentioned above.
 
  2. NHC pays HMC the freight and extras 5,450USD and 6,606.9RMB, plus the interests of the tow items mention above.
   HMC, taking exception to the Judgment rendered by Maritime Court, brought an appeal, holding that the liability that the cargoes did not arrive Damman and transfer to Jeddah in time was mainly on NHC. Although HMC has responsibility on the wrong shipment of the two containers, both parties have reached the agreement on the settlement in April 1995, in which agreed that the B/L was drawn back by HMC who must telex to release the cargoes, then the client of NHC applies to the customs for receiving the cargoes by himself. HMC only bears the fee of shipping the cargoes from Damman to Jeddah. However, NHC had not returned the B/L to HMC until May 9th, 1995. After telexing the release by HMC, the consignee did not handle the procedure of applying to the customs for receiving the cargoes, thus, the cargoes did not be shipped to Jeddah. Based on the knowledge of HMC, the two containers were still at the port, thus, NHC has still had liability to take back the cargoes. Most the liability on occurring the loss of storage cost shall be borne by NHC. The Judgment of the first trail is inappropriate, thus HMC asks the court of the second trail to withdraw the Judgment and make a new disposal in according to law.    
  NHC defends: the wrong shipment of the cargoes leads to the inability of the consignees at the two destination ports to receive the cargoes. In order to reduce the loss, by the attempt of NHC, the consignee at Jeddah has agreed to accept these two containers after the cargoes at Damman shipped to Jeddah. However, HMC had not hitherto shipped the container at Damman to Jeddah, and then the consignee at Jeddah expressed the unwillingness to receive the cargoes and claimed for compensation to NHC, which incurred huge economical loss of NHC. Thereby, HMC shall bear the liability of wrong shipment. The facts found in the first trail is clear, the law applied and the disposal is appropriate. NHC asks the court of the second trail to maintain the original Judgment.  
The court of the second trail holds: this case is a contractual dispute over affreightment, in which the shipper is NHC and the carrier is HMC.
  HMC issued the B/Ls with the number of PCKG941194 and PCKG941195 after accepting the cargoes of NHC. As the carrier, HMC has liability to safely ship the cargoes to the destination port and deliver the cargoes to the consignee in time. Nevertheless, HMC shipped the container under the items of No. PCKG941194 B/L, whose destination port is Damman, to Jeddah Port and shipped the container under the items of No. PCKG941195, whose destination port is Jeddah, to Damman. Withal, HMC shall bear the entire responsibility and has liability to ship the cargoes back to the destination port written in the B/L without further payment. After the occurring the wrong shipment, both parties agreed, by negotiating, that the container, which had been wrongly shipped to Damman, should be shipped back to Jeddah by HMC, which was the real expression of will. HMC shall positively take measures to transfer the cargoes as soon as practicable, however, it has not hitherto transferred them. The stating of HMC, in which the reason that the cargoes did not be shipped back to Jeddah is that the consignee did not handle the procedure of declaration to the customs for lacks the basic of facts and shall not be supported, which lacks the basic of facts and will not be supported. The cargoes shall be regarded as loss, on the reason that HMC has not shipped the cargoes, which had been wrongly shipped since two years ago, to the agreed destination port; further the cargoes were stated to doubt the existence during the first trail and the stating of confirming the existence in the second trail lacks the evidence. Thereby, HMC shall indemnify the cargo loss of NHC. The indemnity sum of the loss shall be calculated on the cargoes price when landing, plus the freight and the insurance fees. Due to the insurance fees are not paid by NHC, the indemnity sum shall be calculated on the cargoes price when landing, plus the freight. In the original trail, the facts are clear and the applied law is correct, further the judgment is appropriate; thus, it shall be supported.  
  Based on Article 153, Paragraph 1(1) of CIVIL PROCEDURE LAW OF THE PEOPLE’S REPUBLIC OF CHINA, the second court adjudged as follows:
Reject the appeal of HMC and maintain the original judgment.

[Analysis]
  This case is a dispute over contracts, in which the shipper claims the indemnity to the carrier, based on the reason of the constructive loss of the cargoes which was caused by the wrong shipment of the carrier. It is the liability for breach of contract NHC investigates HMC. The contractual relationship of freightage by sea exists between NHC, as the shipper, and HMC, the carrier. HMC wrongly shipped the two groups of cargoes with different destination ports of each on incorrect performing the contract, which occurred the loss of NHC; doubtlessly, NHC has right to suit HMC. Whether NHC had the B/L while bringing up the complain is only the factual evidence to the actual loss and has no effect to the litigious right. It is unnecessary to use the B/L as the evidence in respect that shipping contractual relationship between NHC and HMC had been established when the delivery was brought and been accepted. Moreover, NHC had had the B/L and it gave the B/L to HMC simply to help HMC transfer the cargoes, not to transfer the B/L to HMC or any other person. Thereby, obviously, it cannot be sustained that HMC claimed that HNC had no litigious right based on the reason that NHC did not hold the B/L while bring up a complain.  
  The fact that HMC wrongly shipped the cargoes has been confirmed and HMC admits it as well. The liability of wrong shipment of the carrier shall be transporting the cargoes to the destination port agreed in the contract at the carrier’s own expense and indemnifying the loss of the shipper or the consignee (the B/L has already been transferred to the consignee) occurred by the wrong shipment. After the fact of wrong shipment in this case occurred, NHC negotiated with HMC that the cargoes which had been wrongly shipped to Damman Port would be shipped by HMC to the Jeddah Port, the original port agreed. The problem is whether NHC has liabilities to help the transportation at that moment and how to handle the transporting procedure. HMC claims: NHC shall return the B/L to the shipper in order to notice the second shipper to release the cargoes, then the import party handles the procedure of picking-up, customs clearance and transporting. The liability of making the cargoes unable to transport lies on NHC in according that NHC did not return the B/L in time. The claiming cannot be sustained. Wrong shipment occurred means that the cargoes are conform to the recordation on the B/L and the landing bill, thus it is impossible for the consignee to pick up the cargoes and declare at customs under this situation. It is thus evident that it is impossible and unnecessary to ask NHC to return the B/L and the import party to handle the procedure of picking-up, declaring at customs and transporting. The carrier can transport the cargoes by self-action. The liability that the cargoes shipped to Damman has not been transported and the liability that the cargoes in Jeddah cannot be picked up lie on HMC. As regards to the B/L of NHC which has not been transferred and not been returned in the period asked by HMC, it has no directly consequence with the loss of the cargoes. Thereby, it is correct for the first and the second court to adjudged HMC to bear the liabilities.  
  There is no objection in this case regarding to the counterclaim of HMC, asking NHC to pay the freight and extra fees. The B/L issued by HMC is prepaid freight B/L, of which the obligor to pay the freight is the shipper, NHC. As to the prepaid freight B/L, as a rule, the shipper pays the freight before issuing the B/L, however, in practice, the agreement always happened between the carrier and the shipper that to pay in a certain period after issuing the B/L. The carrier has the right ask for the payment if he can prove the shipper does not practically pay the freight. The carrier will not lost the right of asking for the freight on the reason that the B/L notices to prepay the freight. As to the wrong shipment of the cargoes, the carrier shall bear relevant liabilities, yet the shipper’s obligation to pay the freight will not be released on this reason. 

  [Relevant Laws, Regulations and judicial interpretation]
   GENERAL PRINCIPLES OF THE CIVIL LAW OF THE PEOPLE’S REPUBLIC OF CHINA
  Article 111 If a party fails to fulfil its contractual obligations or violates the term of a contract while fulfilling the obligations, the other party shall have the right to demand fulfillment or the taking of remedial measures and claim compensation for its losses.
Article 112, Paragraph1 The parties may specify in a contract that if one party breaches the contract it shall pay the other party a certain amount of breach of contract damages; the may also specify in the contract the method pf assessing the compensation for any losses resulting from a breach of contract.

  MARITIME LAW OF PEOPLE’S REPUBLIC OF CHINA
  Article 55 The indemnity sum of cargo losses is calculated on the actual value of the cargoes; the indemnity sum of cargo damage is calculated on the balance of the actual values of the cargoes before and after the damage.
  The actual value of the cargoes is calculated on the price while landing, plus insurance fees and freight. 
  Indemnifying the actual value of the cargoes stipulated in the above paragraph shall reduce relevant costs undercharged or free in according to the losses or the damage of the cargoes.
  Article 69 The shipper shall pay the freight to the carrier in accordance with the agreement.
The shipper and the carrier can agree on the freight paid by the consignee; however, this agreement shall be written clearly in the transporting bills.

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