Goods shortage and good-faith purchaser - International Law Office

Facts
Issues
Result

Facts

Between September 2001 and April 2002 China Grains & Oils Group Corporation concluded three sales contracts with an overseas vendor, respectively importing 19,000 tons and 2,000 tons of young soybean oil. The contracts provided that if the vendor so wished, the weight of the goods could be 5% greater than the specified amount.

The Chinese company subsequently insured the goods with PICC Property and Casualty Company Limited Jiangsu Branch. The insurer issued three policies in June 2002 for young soybean oil (for 9,975 tons, 9,975 tons and 2,050 tons, respectively). The goods were insured against all risks and war risk, including short weight risk of over 0.3% of the total weight.

The cargo vessel's agent also issued bills of lading for this quantity of goods, stating the actual shipping quantity as 22,000 tons and Mora Shipping Inc as the carrier.

In July 2002 the cargo vessel arrived at its destination port, Zhangjiagang. The Entry and Exit Inspection and Quarantine Bureau conducted a weight inspection and China Certification and Inspection Group conducted a damage survey and quality inspection. The goods were found to be around 273 tons short and to be partly contaminated by seawater. Therefore, the net loss of the goods was around 53 tons. The inspection fee was Rmb30,447.

Under the relevant provisions of the policies, the insurer paid the cargo owner the entire premium and obtained right of subrogation. When it sought to exercise its right, the carrier argued that there was a substantial difference between the shortages of the goods indicated by the insurer and the actual weight that it had carried. Thus, it argued that it should bear no responsibility for the shortage. As the two parties could not agree to negotiate, the insurer took legal action against the carrier before the Wuhan Maritime Court.

Issues

Actual weight of goods
The litigation was mainly based on the disagreement between carrier and purchaser over the quantity of goods. In order to prove the quantity in question, both parties had collected evidence meticulously.

The carrier submitted the certificate of weight issued by the loading port's inspection agency, which recorded the quantity of loaded goods as 21,795 tons. It argued that in comparison with the quantity of 21,780 tons of goods at the destination identified by the Zhangjiagang Commodities Inspection Corporation - which also issued a certificate for an empty tank - it should bear responsibility for the shortage of goods and should be liable only for the actual loss of around 15 tons.

However, another version of the weight certificate was presented to the court, as issued by the inspection agency at the loading port. A sale of foreign exchange notice, issued by the Bank of China, and a sale of goods contract and commercial invoice were also presented. All of these showed that the purchaser had made full payment for 22,000 tons of goods under this version of the weight certificate. On this basis, it was argued that irrespective of the reasons for the two different versions of the certificate, the purchaser had already paid for the goods and the insurer had provided compensation. It was argued that since the defendant could not prove that the certificate submitted by the claimant was invalid or defective, it should be responsible for the damages that had arisen during transportation.

Good-faith purchaser
The defendant believed that the consignee had been aware of the shortage before making payment. Accordingly, in line with the relevant contractual provisions, the purchaser could be deemed to have given tacit consent to the short weight and to have made payment based only on the certificate of weight. Meanwhile, the defendant argued that the purchaser should have been aware of the short weight of the goods, as the vessel's captain had submitted the statement of shortage when finding that the actual loading quantity was inconsistent with that on the bill of lading.

Two arguments were brought in response to claims that the purchaser was not a good-faith party.

First, the defendant claimed that the purchaser should refer to the certificate issued by a first-class independent examiner, who was selected and paid by the vendor. The purchaser had made payment in light of the weight certificate. In addition, the defendant could not show that the certificate in question was invalid or defective; therefore, the purchaser's payments had not been wrongful.

Second, the defendant declared that the captain had submitted a statement of shortage of actual loading quantity, but was unable to show that the plaintiff had been informed of the statement - this reduced the effect of the evidence. Therefore, it was argued that as it could not prove that both purchaser and plaintiff were good-faith parties, the defendant should be liable for compensation.

Result

Both parties stood by their positions and had sufficient evidence to support them. Eventually, they reached a negotiated settlement. The defendant agreed to pay the plaintiff $60,000 on condition that such compensation would not affect the plaintiff's rights to:

• claim exemption;
• enjoy limitation of liability or any defence in other disputes or litigations arising from the dispute; and
• retain the right of recovery against relevant responsible parties.

On the other hand, the plaintiff irrevocably guaranteed the legality of its right to claim for the goods under the bills of lading.

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).