Recovery: making the right claim - International Law Office

In July 2007 Sanyo Electric Co Ltd insured a batch of cameras against air cargo transportation risks with Mitsui Sumitomo Insurance Co. The goods were subsequently carried from Hong Kong to Shanghai by Nippon Express (Hong Kong) Co Ltd. On delivery at Shanghai airport, the goods were temporarily in the custody of Nippon Express (Shanghai) Co Ltd, which acted as the ground agent of Nippon Express Hong Kong. Unfortunately, the goods were damaged when a pipe burst in the warehouse. The total loss exceeded $80,000.

After the accident, Mitsui Sumitomo compensated Sanyo and obtained a letter of subrogation. Mitsui Sumitomo subsequently took legal action against Nippon Express Hong Kong and Nippon Express Shanghai for recovery.

It was found that although Mitsui Sumitomo had simultaneously sued Nippon Express Hong Kong and Nippon Express Shanghai, it had failed to specify the basis of its claim. Therefore, an objection could be raised in respect of the legal relationship on which the claim for recovery was based. If Mitsui Sumitomo claimed for recovery on the basis of the air cargo transportation contract, Nippon Express Shanghai was not the relevant party.

Unexpectedly, Mitsui Sumitomo claimed against Nippon Express Shanghai on the basis of the freight forwarding contract, but withdrew its claim against Nippon Express Hong Kong. This allowed Nippon Express Hong Kong to avoid liability and resulted in a claim being wrongly made against an innocent party.

Mitsui Sumitomo chose to base its claim on the freight forwarding contract because it maintained that once the goods had been discharged at the airport and delivered to the warehouse, the insured (ie, Sanyo) had established a de facto freight forwarding contract relationship with Nippon Express Shanghai. Therefore, Mitsui Sumitomo considered that it, rather than Sanyo, was entitled to claim compensation against Nippon Express Shanghai. However, this argument was clearly untenable. Nippon Express Shanghai had not signed an agreement with Sanyo in respect of freight forwarding and had merely stored goods for Sanyo as Nippon Express Hong Kong's destination agent; therefore, Nippon Express Hong Kong should bear the legal consequences. Moreover, the goods had been damaged before being delivered to Sanyo. As they were still within the period of cargo transportation by Nippon Express Hong Kong at the relevant time, the relevant contract was the air transportation contract, not the freight forwarding contract.

The court held that Sanyo had not established a freight forwarding contract relationship with Nippon Express Shanghai. Therefore, the basis of Mitsui Sumitomo's claim for recovery was invalid and its claim was rejected.

Identifying the relevant legal relationship on which to base a claim is vital when an insurer seeks to exercise its right of subrogation in respect of a third party; failure to do so may influence the outcome of the case. Particularly in the context of cargo transportation by air, freight forwarding companies sometimes act as carriers and sometimes merely as agents. If an insurer fails to identify the role that such a company performed in a given case, it may jeopardise its ability to exercise its right of subrogation.

For further information on this topic please contact Jin Yu-Lai at Shanghai Kai-Rong Law Firm by telephone (+86 21 5396 1065), fax (+86 21 5396 1204) or email (jinyulai@skrlf.com).