Yu-Lai Jin July 8 2015 Loss mitigation in demurrage and detention KaiRong Law Firm | Shipping & Transport - China Yu-Lai Jin Shipping & Transport FactsIssuesCommentFactsIn March and May 2006 the plaintiff shipper entered into contracts for the carriage of goods by sea with the defendant carrier, obliging the defendant carrier to carry 60 containers of waste paper from Long Beach, United States to Qingdao, China. The contracts stipulated that the shipper would be responsible for all costs incurred from the consignee's refusal to take delivery at the destination port, including demurrage and detention. In April and May 2006 the shipper made bookings with the carrier and the carrier issued bills of lading, which listed the shipper, the carrier and the consignee. Both the shipper and the consignee were the merchants designated in the bills of lading. The bills of lading stipulated that the merchants were responsible for all losses, damages, costs and liabilities arising from refusal to take delivery. After the containers arrived in Qingdao Port, the shipper paid the freight, the carrier notified the shipper to take delivery and the shipper in turn notified the consignee to take delivery. However, the consignee did not take delivery.In November 2006 the carrier filed suit against the shipper before the US District Court for the Central District of California for demurrage of the 60 containers. During the litigation, written testimony by an employee of the carrier was submitted to the court. This described the stagnation of the 60 containers in Qingdao Port. The court upheld the carrier's claims. The shipper's appeal was overruled and it paid around $140,000 to the carrier.In 2012 the shipper filed suit against the carrier's employee before the Shanghai Pudong New Area People's Court, claiming that the employee had committed perjury and caused the shipper's loss. The Pudong court held that the testimony was consistent with the facts and the US court judgments were not based solely on the testimony. The Pudong court dismissed the shipper's claims.In January 2011 the shipper filed two suits before the Qingdao Intermediate People's Court. The first was against the carrier and a Qingdao container terminal company. The second was against the carrier and its Shandong branch.In the first case, the shipper requested the court to order the carrier and the container terminal company to:compensate the shipper for Rmb4,094,968.5, including for the demurrage of $142,124.01 already paid by the shipper, lost income, travel expenses, legal fees and other losses; andprovide documentation for the 60 containers regarding communications, the containers' gate-in and gate-out, devanning, storage and gate-in of the empty containers between the carrier and the consignee, Customs and the container terminal company.In the second case, the shipper requested the court to order the carrier and its Shandong branch to:compensate the shipper for Rmb233,089.3 for investigation costs; andprovide the documentation for the 60 containers regarding communications, the containers' gate-in and gate-out, devanning, storage and the gate-in of the empty containers between the carrier's Shandong branch and the consignee, Customs and the container terminal company.IssuesDemurrage – did the carrier and the container terminal company infringe the shipper's interests?The shipper alleged that the carrier and the container terminal company had detained the containers for more than two years and increased the loss; the carrier had never negotiated with the shipper about returning these containers. The shipper also contended that the carrier had provided false testimony to the US courts that the containers were detained by Chinese Customs and the Qingdao Port Authority, and that this resulted in the shipper's loss. The carrier refuted these allegations on the following grounds:The carrier's actions to mitigate loss – the contracts between the carrier and the shipper stipulated that the shipper, as a merchant, would be responsible for all costs incurred from the consignee's refusal to take delivery at the destination port, including demurrage and detention. After the containers' arrival in Qingdao Port, the consignee never took delivery. The carrier notified the shipper of this matter. However, no one took delivery and the containers remained in the custody of Qingdao Customs. The carrier took several measures to mitigate loss, including negotiating with the consignee and the shipper about reducing the demurrage, negotiating with Qingdao Customs about retrieving the containers, applying to Customs to auction some cargoes and filing suit against the consignee. As the consignee failed to compensate the carrier because of its distressed financial status, it was alleged that the shipper should bear the demurrage according to the contracts.The shipper's interpretation of the word 'custody' was a misrepresentation and the carrier had not committed perjury – the phrase in the testimony was "taken into custody of". The shipper translated this as '扣押' ('detain'), but the correct translation should have been '监管' ('custody'). The definition of 'custody' in Black's Law Dictionary (ninth edition) is "the care and control of a thing or person for inspection, preservation or security". According to the Customs Law, no party should move or dispose of goods which have not been cleared; a container containing goods is also subject to this rule. As a result, the testimony of the carrier was a correct description of the status of the containers.There were no legal grounds to require the carrier to compensate for demurrage, lost income, travel expenses, legal fees and other losses – according to the bills of lading, the shipper, as both shipper and merchant, was responsible for the losses incurred from the consignee's refusal to take delivery. When the consignee failed to take delivery, the carrier promptly notified the shipper and took measures to mitigate loss. The shipper had no grounds to reduce the demurrage. Besides, the shipper had just paid about $140,000 pursuant to the US court judgment.The court ruled in favour of the carrier's contentions in this regard.Was the shipper entitled to original documentation of the carrier and its Shandong branch?The shipper purported that the carrier and its Shandong branch had refused to provide original documentation and committed perjury. The carrier and its Shandong branch refuted this allegation on the following grounds:The documentation required was recorded or generated by the carrier or its Shandong branch. As the owners of the documentation, the carrier and its Shandong branch could control and dispose of it as they saw fit. Refusing the shipper's claim thus did not infringe its interests and the claimant's contention that the documentation had been disposed of after the retention period was acceptable.The effect of the carrier's refusal of the US court judgments was to be assessed by a US court according to US procedural law and other applicable law. The Pudong court had found that the testimony was consistent with the facts and the US court judgments were not based solely on the testimony. The shipper's allegation was thus groundless.The shipper had failed to prove that the contracts of carriage of goods by sea required the carrier or its Shandong branch to provide the required documentation.The court accepted all of these contentions. All of the shipper's claims were thus dismissed.CommentIn container transport, the issue of demurrage and detention may arise if the container is provided by the carrier. Demurrage is the charge that the merchant pays for the carrier's container when held beyond the time stipulated by the carrier for taking delivery of goods in the port. Detention is the charge that the merchant pays for detaining the carrier's container outside the port beyond the stipulated time.In the cases at hand, the consignee failed to take delivery on time and the shipper had to bear the demurrage, because of the bills of lading. It can be concluded from these two cases that if a carrier pleads with a court for demurrage and detention, the court will consider whether the carrier has taken reasonable steps to mitigate loss (eg, negotiating with the merchants, negotiating with Customs to retrieve the container and applying to auction the goods).When a dispute over demurrage and detention arises, the carrier must preserve evidence to prove that it has taken reasonable measures to mitigate loss since the attachment of the demurrage and detention. On the merchant's side, the shipper or the consignee must procure evidence to show that the carrier was indolent in reducing the losses. This may reduce the compensation granted by the court.For further information on this topic please contact Jin Yu-Lai at Shanghai Kai-Rong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The Shanghai Kai-Rong Law Firm website can be accessed at www.skrlf.com.