Shanghai Reeferco Container Co Ltd entrusted COSCO Container Lines Co Ltd to carry 200 40-foot refrigerated containers from Shanghai, China to Limon, Costa Rica. COSCO issued two sets of original bills of lading which named the vessel as M/V COSCO Panama and gave the voyage number V009E. The goods were shipped on November 19 2006 and arrived at the destination in December 2006. However, the batch of refrigerated containers was found to be short; containers were found to have been damaged after checking, but before acceptance by the consignee.

Shanghai Reeferco believed that the defendant's failure to ensure proper stowage and custody of the goods had led to the loss of 86 containers at sea, plus severe damage to a further 24 containers. It claimed before the Shanghai Maritime Court against COSCO for the value of the lost goods in an amount of over $1.5 million, for repair costs of over $90,000 and for corresponding losses of interest.

As the insurer, Ping An Insurance (Group) Company of China Ltd Shanghai Branch obtained the right of subrogation after paying an insurance indemnity to Shanghai Reeferco in an amount of nearly $765,000. The insurer asked the court to rule against COSCO for the loss and corresponding interest over the same period.

COSCO argued that:

  • the events of the case were already beyond the limitation period; and
  • as the fact that the accident had been the result of maritime peril and an inherent defect in the vessel's equipment, the carrier was entitled to enjoy exemption from duty or package limitation of liability.


Both sides submitted evidence and advanced conflicting legal opinions.

Limitation period
The two plaintiffs, Shanghai Reeferco and Ping An Shanghai, claimed that they had taken action against the defendant within the statutory one-year limitation period and that the court could therefore hear the case. However, COSCO argued that Shanghai Reeferco had been informed of the occurrence of the accident on November 29 2006, but had not brought a claim to court until December 7 2007, which put the matter beyond the relevant period.

The court held that according to Article 257 of the Maritime Code, it was entitled to hear a compensation claim against the carrier for disputes relating to cargo carriage at sea within one year of the date of completion of delivery by the carrier or the date when the goods were to be delivered. In this case, the accident took place on November 28 2006 and the vessel arrived at Balboa on February 2 2007. Consequently, it was hardly possible for the carrier to have arrived in Limon, Costa Rica and delivered the goods on February 12 2007. Therefore, the case was still within the limitation period and the plaintiff was entitled to take action and bring a case.

Reason for loss and damage
The plaintiffs claimed that the carrier's failure to safeguard the goods and lash them in position with due care had caused the loss and damage in question. The defendant maintained that the accident had been caused by maritime peril and an inherent defect in the automatic twist locks for the containers. The defendant submitted evidence, including the vessel's logbook, correspondence and a report on atmospheric conditions, to show that the accident had occurred because of a sudden change in the weather. It also offered the report and authentication, as well as notarisation material issued by Brookes Bell Co Ltd, the accident investigation report and two accident analysis reports by a professor from Shanghai Maritime University. However, after the presentation of evidence and cross-examination, the court concluded that the materials had been obtained from the expert commissioned by the defendant; they could be regarded only as references to identify the true cause of the accident.

The court ultimately held that the change in the weather had been a reason for the accident, but had been foreseeable - relevant measures could have been taken against it. Therefore, the maritime risk did not fall into the category of force majeure and the carrier was not exempt from liability. Furthermore, the court considered that the defendant had not provided sufficient evidence that it had properly installed and employed the automatic twist locks on the containers in question, although the model of lock had achieved safety authentication from many German and US classification societies. Therefore, the carrier was not entitled to rely on this argument to enjoy exemption and was liable for the loss of goods in the accident.

Defendant's entitlement to claim exemption or limitation of liability
The plaintiffs maintained that the defendant′s limitation of liability for loss of or damage to the goods should be calculated according to the total weight of the damaged and lost containers (ie, around 1.025 million units of account, equivalent to approximately 512,600 kilograms). However, the defendant argued that under the Maritime Code their liability for the lost and damaged containers should be limited to an amount equivalent to 666.67 units of account.

The court held that in line with Article 56 of the code, a carrier′s liability must be calculated according to the package or gross weight, whichever is higher. If the carriage instrument does not belong to the carrier, it should be considered as one package or one shipping unit. In this case, the plaintiff entrusted the defendant to carry the refrigerated containers. Therefore, the containers themselves were to be regarded as cargo, rather than carriage instruments, and the defendant′s limitation of liability was to be calculated according to the higher of the package or gross weight.

Right of subrogation
The plaintiffs alleged that Ping An Shanghai had paid indemnity for the loss of the 86 containers and had thereby obtained the right of subrogation within the scope of cover. The defendant argued that Shanghai Ping An did not have standing to participate in the proceedings.

Considering the evidence, including the open cover agreement and the proof of payment presented by the plaintiffs, the court held that Ping An Shanghai and Shanghai Reeferco had already reached consensus regarding the insurance issues arising from the goods involved, and that the insurance contract relationship between the two plaintiffs had been effectively established. After the accident, Ping An Shanghai had paid an insurance indemnity in the amount of nearly $765,000 to Shanghai Reeferco. Thus, it was entitled to exercise the right of subrogation.


After several trials, the Shanghai Maritime Court found for the plaintiff.

The defendant was ordered to pay Shanghai Reeferco for losses and repair costs totalling $769,336, plus corresponding loss of interest, within 10 days of the judgment entering into effect. It was ordered to pay Ping An Shanghai for losses and repair costs totalling over $69,000, plus corresponding loss of interest, within the same time.

The defendant appealed to Shanghai Higher People′s Court. After comprehensively evaluating the assessment of the facts and the application of the law, and having held an open court hearing, the court decided that the judgments should be sustained.

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]).