Yu-Lai Jin June 22 2022 How covid-19 affects carriers' liabilities KaiRong Law Firm | Shipping & Transport - China Yu-Lai Jin Shipping & Transport IntroductionFactsDecisionCommentIntroductionSince the beginning of 2020, the covid-19 pandemic has broken out in many Chinese cities from time to time and the Chinese authorities have adopted corresponding pandemic prevention and control measures, which may affect normal waterway transport. In this context, whether the covid-19 pandemic and the relevant authorities' measures could constitute force majeure and exempt carriers from liability is a matter of concern to carriers operating waterway transport.Recently, the Shanghai Maritime Court published 10 Selected Maritime Cases of 2021, one of which answers this concern.FactsOn 5 January 2020, a shipper entrusted a contractual carrier to transport a cargo of sorghum from Shanghai port to Jingzhou port in Hubei province through the waterway. The shipowner of the carrying vessel, Mr Zhang, issued the waybill for this transport.On 9 January 2020, the carrying vessel was loaded with sorghum and departed from Shanghai port.On 16 January 2020, the vessel arrived at Wuhan port. At this port, the shipowner disembarked on 19 January 2020 to take a personal vacation for the Chinese spring festival, then returned and embarked the vessel on 28 January 2020. Due to the outbreak of the covid-19 pandemic, Wuhan had been under lockdown since 23 January 2020, so the vessel had to wait at Wuhan port.On 11 February 2020, the vessel left Wuhan port and arrived at Jingzhou port on 14 February 2020. Due to the outbreak of the covid-19 pandemic, Jingzhou had been under lockdown since 24 January 2020.With regard to the weather conditions during transport, it had been rainy in Wuhan on 5 and 6 February 2020 and it had also been rainy in Jingzhou on 14 and 15 February 2020.Later, on 25 February 2020, it was found that a leak in the waterproof cloth had resulted in mildew, caking and deterioration of the sorghum in the rear part of the vessel's cabin.With respect to the involved cargo damage and loss that occurred during the waterway transport, after indemnifying the shipper, the cargo insurer filed a recovery litigation against the shipowner and the operator of the carrying vessel for the cargo loss.DecisionFirst, the Shanghai Maritime Court decided that the sorghum had been damaged due to improper storage and care during the waterway transport. Therefore, the shipowner of the carrying vessel, who was the actual carrier and responsible for taking care of the cargo, had to bear liability for the cargo loss in this case. However, the operator of the carrying vessel had no relevance to the above, so there was no legal basis for the operator to bear joint liability with the shipowner.Then, the Court then discussed in detail whether the shipowner should be exempted from liability for the cargo loss based on force majeure, considering the impact of the covid-19 pandemic and the relevant authorities' measures in Wuhan and Jingzhou.Whether covid-19 and relevant authorities' measures could be regarded as force majeureAccording to article 117 of the Contract Law, which is codified in Civil Code as article 180, force majeure is an objective situation that cannot be foreseen, avoided or overcome.Further, the Guiding Opinions on Several Issues Concerning the Proper Adjudication of Civil Cases involving Covid-19 pandemic published by the Supreme People's Court states that for civil disputes arising out of a direct impact of the pandemic or pandemic prevention measures, if the statutory requirements have been met with regard to the application of force majeure as an exemption, then the relevant rules of force majeure apply.Based on this, whether the covid-19 pandemic and the relevant authorities' measures could constitute force majeure mainly depends on the duration and content of the contract performance and the impact of the pandemic and causation, which shall be decided on a case-by-case basis.In this case, the Shanghai Maritime Court found that the sorghum was mouldy, caked, had deteriorated and was thus damaged due to the leaking waterproof cloth during the rainy days. Although Wuhan and Jingzhou had been under lockdown at that time due to the covid-19 pandemic, the damages to the sorghum were not caused by the pandemic prevention measures of the authorities since these did not affect the weather. In other words, the damages occurred because the shipowner as the actual carried had breached its obligation to store and care for the cargo properly, rather than because of the pandemic or pandemic prevention measures.Therefore, the Court concluded that the covid-19 pandemic and the relevant authorities' measures could not constitute force majeure in this case, and held that the shipowner as the actual carrier could not be exempted from liability for the damaged sorghum.Impact of covid-19 pandemic on carrier's dispatch obligationArticle 291 of the Contract Law, codified in Civil Code as article 812, provides that the carrier shall transport cargo to the agreed place through the agreed or usual transport route, which sets up the carrier's dispatch obligation.Further, according to the Guiding Opinion III on Several Issues concerning the Proper Adjudication of Civil Cases involving Covid-19 pandemic published by the Supreme People's Court, if the carrier proves that the transport route is changed because of a covid-19 outbreak on the vessel during transport – requiring timely diagnosis, isolation and other corresponding measures – and if the carrier notifies the shipper in a timely manner, then the court will not find that the carrier has breached its dispatch obligation.Moreover, the Guiding Opinion III states that if the carrier proves that, due to the pandemic, pandemic prevention measures are adopted at the place of departure or destination (eg, a ban or restriction on entry or exit), and thus the transport route has to be changed, or the loading and unloading of cargo is adversely affected, leading to a delay in delivery and if the carrier notifies the shipper in a timely manner, the carrier will be exempted from the corresponding liability.In this case, the carrying vessel departed from Shanghai port on 9 January 2020 and arrived at Wuhan port on 16 January 2020. Instead of directly sailing to the place of destination, Jingzhou port, on 19 January 2020 the shipowner disembarked to take a personal vacation for the Chinese spring festival and left the vessel waiting at Wuhan port. When the shipowner disembarked at Wuhan port, neither Wuhan nor Jingzhou were in lockdown.The Court held that the shipowner had breached its dispatch obligation by failing to transport, unload and deliver the sorghum in a timely manner. If the shipowner had fulfilled its dispatch obligation, the sorghum would not have been caught in the rain, and the shipowner could have delivered the sorghum before the lockdown of Jingzhou. Therefore, the shipowner could not be exempted from liability by asserting the covid-19 pandemic and relevant authorities' measures as force majeure.Impact of covid-19 on carriers' mitigation obligationThe Court held that the pandemic had adversely affected the carrier's mitigation obligation, even though the pandemic and the relevant authorities' measures did not constitute force majeure in this case and the damage to the sorghum had been caused by the carrier's breach of its dispatch obligation and its obligation to store and care for the cargo properly.Due to the pandemic, Wuhan had been in lockdown since 23 January 2020, and Jingzhou had been in lockdown since 24 January 2020, and thus the carrier had been unable to mitigate the losses by quickly unloading and drying the sorghum in the sun. It was about five to 10 days after the carrier had found the sorghum was mouldy on 25 February 2020 that the carrier had been able to unload the sorghum on 29 February 2020. The carrier unloaded all of the sorghum on 6 March 2020.Based on the above, considering the pandemic's impact on the carrier's mitigation obligation, the Court decided that the shipowner should compensate the plaintiff for 80% of the total cargo loss.CommentIn this case, the Court held that the sorghum had been damaged due to the carrier's breach of its dispatch obligation and its obligation to properly store and care for the sorghum. Thus, the covid-19 pandemic and the relevant authorities' measures did not constitute an exemption as force majeure in this case. However, the Court held that where the covid-19 pandemic and the relevant authorities' measures affect the carrier's mitigation obligation, then the mitigation obligation could be eased correspondingly.Based on the above, it can be concluded that the judging principle and the legal ground upon which the Court's decision was based in this case will be of reference value to determine the liability of carriers in both domestic waterway transport and ocean transport in similar cases. Whether the covid-19 pandemic and the relevant authorities' measures constitute force majeure and exempt carriers from liability depends on:the duration and content of contract performance;the impact of the pandemic on contract performance; andthe causation between the pandemic and the damage.These factors are decided on a case-by-case basis.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 ([email protected]). The Shanghai Kai-Rong Law Firm website can be accessed at www.skrlf.com.