In July 2010 CTS International Transportation Co Ltd was entrusted by Jiangsu Holly Corporation to transport goods from China to the United States, and issued the relevant bill of lading. CTS forwarded the goods to Zim Integrated Shipping Services Co, which issued the whole set of documents under the reference number 545.
In February 2011 Jiangsu Holly made a claim against CTS, in which it required CTS to bear responsibility for releasing goods without the bill of lading and to pay $47,764.60 in compensation. The court finally ordered CTS to compensate Jiangsu Holly in full and paid litigation costs.
Following this decision, CTS brought an action against Zim Integrated Shipping before the Shanghai Maritime Court on the grounds that Zim Integrated Shipping had been the carrier in the transportation and had released the goods, without a bill of lading or instructions, when the whole set of documents was still held by CTS. On this basis, CTS claimed for its losses in compensating Jiangsu Holly and for the litigation costs in that case.
Bill of lading or sea waybill?
The first issue was whether the documents under reference 545, issued by Zim Integrated Shipping, constituted a bill of lading or a sea waybill.
Bills of lading and sea waybills differ in their nature and function, and also in the obligations imposed on the carrier. The categorisation of documents may have a significant impact on the final result of a case. If the documents were found to be sea waybills, it would follow that Zim Integrated Shipping had been entitled to release the goods without documentation and would bear no legal liability.
CTS held that the documents were bills of lading. Its argument was based on the following points:
- The issued documents clearly bore the words 'bill of lading'. Moreover, in practice sea waybills are generally issued in a single copy, but bills of lading must be issued in triplicate. In this case, there were three original copies, which was partial evidence that the documents should be categorised as bills of lading, rather than sea waybills.
- CTS had submitted two sea waybills. One was under reference 545 - a copy - and was related the case, but the other sea waybill under the reference 464 - an original - was unrelated to the case, although it had been issued for goods shipped on the same voyage. However, the two sea waybills were found to be identical in form. This proved that Zim Integrated Shipping had issued the sea waybill in question (ie, reference 545) to CTS. In addition, the copy of the correction guarantee submitted by CTS proved that CTS had required Zim Integrated Shipping to change the sea waybill into a bill of lading.
Zim Integrated Shipping argued that the document was a sea waybill, and that it had been entitled to deliver goods without the document; therefore, it should not bear liability for compensation. Zim Integrated Shipping submitted the original correction guarantee to the court and sought to show that although CTS had asked to change the sea waybill into a bill of lading, Zim Integrated Shipping had ultimately not followed its instruction.
In considering the two sides' evidence and assertions, the judge noted the following points in favour of CTS's arguments that the document in question was a bill of lading:
- The (original) correction guarantee submitted by Zim Integrated Shipping and the sea waybill under reference 545 (ie, the copy) provided by CTS were effective.
- Both parties confirmed that Zim Integrated Shipping had issued the sea waybill and that CTS had asked it to change the sea waybill into bill of lading. It was also acknowledged that the bill of lading was identical to the sea waybill in being recorded as 'seaway [bill of lading] no original issued'. On this basis, the judge concluded that Zim Integrated Shipping had issued the sea waybill under reference 545 and had changed the sea waybill into a bill of lading with the same number.
Did US law apply?
As Zim Integrated Shipping was domiciled abroad, the case involved a foreign interest and both parties were entitled to choose the applicable law of the contract. The clause on the back of the bill of lading stated that US law should apply thereto. The issue of the applicability of US law was particularly significant. If the relevant document were identified as a bill of lading, it would be a straight bill of lading. Under US law, this entitles the carrier to deliver goods without the original bill of lading. Therefore, Zim Integrated Shipping would bear no corresponding liability.
Zim Integrated Shipping submitted evidence in respect of Article 4.II.(b) on the back of the document to certify that US law applied to the document. CTS did not challenge the validity of the evidence, but claimed that the application of law should be determined by the court.
The court held that US law did not apply, as the article on the back of the bill of lading was a standard term. Although it was clear that the term might significantly affect the shipper's rights, the term was not specified on the front of the bill of lading and was not the subject of a special notice. Therefore, CTS's passive acceptance of the bill of lading could not be regarded as acceptance or recognition of the said provision. In accordance with the 'most significant relationship' principle in Article 5 of the Supreme People's Court Regulations on Issues of Application of Law in Hearing Foreign-Related Civil or Commercial Contract Disputes, the judge deemed that Chinese law applied to the contract.
Should CTS bear liability?
In submitting the correction guarantee, Zim Integrated Shipping argued that CTS had promised to assume responsibility for changing the sea waybill into a bill of lading, and that consequently CTS should bear liability for the consequences of the resulting dispute.
CTS also provided the correction guarantee, but it questioned the authenticity of the defendant's previous evidence. It was claimed that although CTS had promised to assume responsibility for the application for modification, the issue of liability for compensation should be strictly limited by law and should not be subject to a more expansive interpretation - namely, that the carrier's loss arose from CTS's improper application (eg, if it had had no right to apply for a modification), or that the carrier's additional costs arose from CTS's application for modification.
Although the judge ultimately affirmed the effectiveness of the correction guarantee offered by Zim Integrated Shipping, he dismissed its arguments on this point. The judge held that the responsibility for the guarantee, as undertaken by CTS, was limited to the defendant's external obligations resulting from the modification of the transport document. The damage caused by Zim Integrated Shipping due to its delivery of goods without the necessary documents was beyond the scope of the guarantee liability undertaken by the plaintiff. Therefore, the defendant was liable for the corresponding compensation for breach of contract.
In accordance with the relevant legal provisions, the court found in favour of CTS. It ordered Zim Integrated Shipping to pay CTS compensation in the amount of US$47,764.60 within 10 days of the judgment coming into effect. CTS's other claims were dismissed.
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]).