Maritime Law

The Supreme People’s Court of PRC has promulgated ‘The Provisions on Some Issues Concerning the Trial of Cases of Application of laws over Delivery of Goods without Original Bill of Lading” (‘the Provisions’ or DGWOBL) that came into effect on March 5, 2009.

As a law practitioner in international trade and maritime law, I have handled many cases involving claims against carriers for misdelivery of goods. I expect that the Provisions will be well received by carriers and shippers and their lawyers. They will bring uniformity to the rulings of the Chinese maritime courts on the issue, and guide parties how to proceed when faced with a problem concerning the delivery of goods without an original B/L. Here are my comments on the Provisions, which I trust readers will find helpful.
Applicable laws

The foreword explains that the Provisions are based on the Maritime Law, Contract Law, and the General Principles of Civil Law (‘the civil law‘).These laws will govern disputes over DGWOBL cases. If a bill of lading contains a choice of law or a Paramount Clause, a China court applying principles of freedom of contract would respect the choice of law made by the parties.

In 1998, the Supreme Court decided the case of Feida vs. GB Lighting Supplier, The Supreme Court held that the US Carriage of Goods by Sea Act 1936 applied, so the carrier was not liable for delivery of cargo without obtaining surrender of a straight bill of lading. Yet in a case decided in 2004, the Shanghai High Court ruled in an appellate decision that the choice by the parties of US COGSA as the applicable law should be respected provided it was not contrary to Article 44 of the Maritime Law of China. In the result the Shanghai High Court ruled against the defendant carrier and decided that China Maritime Law should apply. The case shows that a choice of US COGSA 1936 as the law applicable to claims on a bill of lading may not be automatically accepted by China Courts. The Provisions fail to clarify this matter in more detail. Perhaps this controversy will remain.
Original B/L Categories

The Provisions define original bills of lading to include the three well-known classes of this document, namely straight, “to order”, and blank bills of lading. If a carrier delivers goods without surrender of an original B/L, a holder is entitled to claim against the carrier for damages. Previously there had been disagreement whether a carrier should be liable where it delivered goods without first obtaining a straight bill of lading from the consignee. Now these Provisions officially confirm the consensus reached at the Thirteenth National Seminar on Maritime Adjudication held in Qing Dao city in September 2004. Where the Maritime Law of the Peoples Republic of China applies, delivery of cargo under straight bills of lading can be made only against surrender of an original bill of lading, whether straight or negotiable.
Breach of Contract or Tort?

The Maritime Law of China generally applies to DGWOBL cases, but if the Maritime Law does not contain a specific provision covering the events giving rise to a claim, other laws such as the Contract Law (breach of contract) and the Civil Laws (tort) may apply. According to the Provisions, a holder’s claim may be based on either breach of contract or tort. A holder who is a party to the contract evidenced by the B/L may base the claim in tort to avoid a carrier’s defense of unit limitation of liability or one year time bar. The Provisions adopted the regulations of coincidence of liability found in Article 122 of the Contract Law which reads:

“In case the breach of contract by one party infringes upon the other party’s personal or property rights, the aggrieved party shall be entitled to choose to claim against a violating and infringing party for breach of contract according to this Law, or to claim against a violating and infringing party for infringement of other laws.” (Office Translation)

Limitation of Liability?

The unit limitation of carrier’s liability stipulated in Article 56 of the Maritime Law does not apply in DGWOBL cases. A carrier who is held liable for wrongful delivery cannot invoke Article 56 to limit liability. The result is that a carrier will have to fully compensate the holder, which generally means paying the full value of the goods.

Who must bear the risk of a counterfeit B/L?

A carrier who delivers goods against a forged or counterfeit B/L is liable for the losses of the holder of original B/L. This means the carrier and not the holder must confirm the validity of the B/L and assume the risk whether the document tendered by a party seeking delivery is genuine. In short, the carrier is liable to the holder in B/L fraud cases.

Amount of Indemnity

The amount of indemnity for a loss caused by delivery without an original B/L should be the value of the goods at the time of shipment plus insurance and freight. This article is in line with stipulations in Article 55 of Maritime Law.

Exceptions to the carrier’s liability for Non-Delivery

In the following circumstances, the carrier is exempt from liability for losses suffered by the holder of original B/L resulting from delivery to another party:

A) If goods are compulsorily delivered to the customs or port authorities pursuant to the local laws at the agreed discharge port; or

B) Where no party makes declaration for the goods to the customs office within the time limit described by laws at the discharge port, and the goods are confiscated and sold according to law by the Customs office, or

C) A court orders that the goods be sold by auction pursuant to a lien exercised by the carrier;

D) Where a shipper named in a straight B/L exercises its right of stoppage in transit, and directs the carrier to return the goods, to alter the destination or to deliver them to another consignee;

E) Several original bills of lading have been signed and one is accomplished by the delivery of goods to the consignee.

Joint and Several liability

A holder of an original B/L may claim on a joint and several liability basis against both a carrier who delivers the goods without presentation of original B/L and a receiver who takes the goods from the carrier.

Status of FOB Shipper is settled

Some previous cases have treated an FOB seller as shipper who is entitled to claim even though not named does in the B/L as shipper. Yet other cases did not regard this seller as the shipper in law and so rejected claims for loss or damage to the goods. The Provisions now stipulate that the shipper who actually consigns the goods to the carrier and becomes the holder of an order B/L, is entitled to claim against the carrier for losses caused by wrongful delivery, even though not named as shipper in the B/L.

Payment agreement is no longer a barrier to a Misdelivery claim

Where a carrier wrongfully delivered goods, the seller and holder of an original B/L often negotiated a payment agreement with the receiver for part payment of the sale price, leaving the holder free to make a claim against the carrier for the balance. The Guanghozu Maritime Court ruled that the carrier was not liable for the balance, because the holder had made a claim under the contract of sale and concluded a commercial arrangement with the receiver.

By these actions the holder gave up rights under the B/L which is a document of title to the goods. Because of the ruling in this case, holders did not risk making claims directly against the receiver that would require a holder to sign a payment agreement. Now the Provisions stipulate that where goods has been wrongfully delivered, and a payment agreement is concluded between the holder of original B/L and the receiver, the holder is entitled to claim against the carrier for wrongful delivery as long as the holder has not been paid in the full amount. The Provisions resolve this issue in favour of a holder so that a payment agreement is no longer an obstacle to claims against a carrier.

Time limit for claim

The Limitation period for claims against a carrier with regard to the delivery without an original B/L is one year, counting from the day on which the goods should have been delivered by the carrier. This time limitation also applies to a claim in tort made against both a carrier and receiver.
For claims against a carrier for misdelivery, Article 267 of Maritime Law applies to suspend the operation of a time limitation. This Article reads as follows:

“The limitation of time shall be discontinued as a result of bringing an action or submitting the case for arbitration by the claimant or the admission of liability by the person against whom the claim was presented. However, the limitation of time shall not be discontinued if the claimant withdraws his action or his submission for arbitration, or his action has been rejected by a decision of the court.” (Office Translation)

Where the claimant makes a claim for the arrest of a ship, the limitation of time shall be discontinued from the day on which the claim is made. The limitation period shall be counted anew from the time of discontinuance.”

If the claim is made against both the carrier and the receiver on the ground of tort, the suspension of time limitation applies to the claims against both these parties.

This INSIGHT piece was produced for the Shippers’ Voice by George Wang.

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