February 02 2011
In February 2002 PICC Wuxi Branch issued two insurance policies against all risks and war risks for a batch of cocoa beans imported by Zhongqing Commodity Import and Export Co Ltd.
The carrier, Pacific International Lines (Pte) Ltd, issued 10 sets of clean combined bills of lading. However, it claimed that the vessel carrying the goods was twice hit by large waves while at anchor in Cape Town, South Africa. As a result, 14 containers fell into the sea and a further 18 containers were damaged. The damaged containers were unloaded onto the dock. Pacific International later replaced the containers and shipped some of the salvaged containers and the unloaded containers to Zhangjiagang, China on two other vessels. Meanwhile, in order to facilitate the import of the goods, the original sets of bills of lading were exchanged for four new bills of lading with the same legal effect.
The goods arrived at Zhangjiagang between April and June 2002. When they were examined, it was found that apart from the 14 missing containers, other parts of the batch of goods were short or spoiled or had damaged packaging. The economic losses were significant. PICC Wuxi Branch paid full compensation of over Rmb3.4 million (around $516,000) under the policies in question and obtained the right of subrogation according to the relevant legal provisions. When PICC Wuxi Branch sought to exercise its right of recovery, Pacific International raised several objections and refused to pay. The parties were unable to negotiate a settlement and PICC Wuxi Branch took legal action against Pacific International, claiming for economic loss.
The defendant objected to the jurisdiction of the Wuhan Maritime Court. It argued that the case involved a dispute arising from a contract for carriage of goods by sea, and that the terms and conditions on the relevant bill of lading constituted the only contract. A provision on the back of the bill of lading stated that "any claim or dispute arising under the present bill of lading must be decided by the Singapore courts". Thus, the defendant argued that - by the agreement of both parties - the Singapore courts had exclusive jurisdiction.
However, the claimant argued that on the basis of maritime law and civil procedure, a dispute regarding transport by sea falls within the jurisdiction of the court at the place of departure, arrival or transshipment or the place where the defendant is domiciled. In this case, since the place of transshipment was Shanghai and the destination was Zhangjiagang, the case should be heard by either the Shanghai Maritime Court or the Wuhan Maritime Court.
Entitlement to right of subrogation
Once the issue of jurisdiction had been settled, the defendant sought to defeat the claim by challenging the plaintiff's right to bring it. The defendant argued that the assignee in the letter of subrogation was PICC, not PICC Wuxi Branch. The two companies were independent entities for the purpose of litigation and the plaintiff had not submitted evidence to show that PICC had designated the plaintiff to file the legal action or had entrusted it with responsibility for doing so. Meanwhile, without notifying the defendant or obtaining its consent, the plaintiff had paid full compensation to a party that was not involved in the case, rather than to Zhongqing, which was the insured listed in the policies. Therefore, the plaintiff was not entitled to demand compensation.
The plaintiff argued that in accordance with the law and the Supreme Court's judicial interpretations, a pay order for insurance compensation constitutes legal evidence which proves the insurer's right of subrogation. In this case the pay order and the compensation receipt both stated that PICC Wuxi Branch was the party that had paid full insurance compensation. Hence, the plaintiff was exclusively entitled to claim compensation against the defendant. On the issue of duty of notice, the plaintiff presented evidence of power of attorney issued by Zhongqing, thereby proving that the right of claim had been transferred by Zhongqing and had the plaintiff's approval. The plaintiff argued that on the basis of the relevant legal provisions, no duty of notice applied in respect of the transfer of right of claim in any case.
Pacific International's liability
The key question was whether the defendant could be exempt from its responsibility - an issue which related directly to the question of whether the plaintiff could exercise its right of subrogation and obtain the corresponding indemnity. Both parties submitted evidence in support of their arguments.
The defendant presented, among other things, the testimonies issued by the captain and the technical manager of the shipping company. They stated that the vessel was seaworthy, by the exercise of due care, before and during the navigation. It was argued that the loss or damage arose for a variety of reasons, including an act of God, perils and accidents of the sea and negligence of the crew. The defendant therefore argued that the carrier was not liable under Article 51 of the Maritime Law.
The plaintiff drew different conclusions from the same testimony. The inspection report that accompanied the technical manager's testimony stated that the guide pillars in the vessel's cargo hold had been partly damaged, and that there was a risk of a certain number of containers falling into the sea from this damaged point. The plaintiff also demonstrated that the captain's testimony indicated that there had been breakage, bending, loss or damage to several components which might lead to containers falling from the middle and lower cargo areas of the vessel. These indications were compelling evidence that the vessel was unseaworthy (or was at least exposed to the risk of becoming so).
It was argued that on the basis of Article 51, the carrier bears the burden of proof, although it is not liable for loss of, or damage to, goods if such loss or damage is the fault of crew members in the course of navigation or the result of force majeure or perils and accidents of the sea. The defendant provided evidence on the subject. However, the witness was directly related to the case and the documents were copies that could not be corroborated. As a result, the evidence was inadmissible. Moreover, it was argued that the carrier's failure to exercise due diligence had led to the shortage and spoiling of the goods. According to Article 48 of the law, a carrier must properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried. The bills of lading issued by the carrier before sailing were all clean, but the shortage and damage had existed before their discharge, as evidenced by the inspection certificate issued by PICC Wuxi Branch. Therefore, the loss and damage occurred while the goods were in the care of the carrier, which consequently bore full responsibility for providing compensation.
The court held that the terms printed on the back of the bill of lading were standard terms and conditions. They had been prepared and provided unilaterally and the defendant could not prove that it had obtained consent from the holder of the bills of lading in respect thereof; nor had the defendant applied reasonable measures to give notice of the terms to the opposite party. Therefore, the terms were ineffective. The court dismissed the defendant's objection to the court's jurisdiction because the court had jurisdiction over cases arising from events occurring in Zhangjiagang, as this was the destination or the place of the accident.
The court also held that Zhongqing had acted legally in transferring its right of claim to the plaintiff, and that the plaintiff had recognised and approved the transfer; therefore, it was not required to give notice to the claimant. The plaintiff was not an independent legal entity; rather, it was part of PICC and, having paid compensation to the insured, it had lawfully acquired the right of subrogation with the original letter of subrogation from the insured. In adddition, there was no conclusive evidence that the defendant had exercised due diligence in its management of the goods. As a result, the defendant was not exempt from liability.
The defendant appealed to the Hubei High Court, which upheld the original decision on jurisdiction and dismissed the appeal. The appellate court oversaw a settlement process whereby the defendant agreed to pay the plaintiff over Rmb2.2 million (around $335,000), including interest and expenses.
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