In November 2009 a machinery company concluded a sales contract whereby it agreed to purchase three items of machinery from a Brazilian company. The deal was agreed on an ex works basis, for a total price of just under €1.75 million. The machinery company entrusted a carrier to ship the goods.
On May 11 2010 a container carrying one item of machinery struck the lifting equipment, resulting in damage to the machinery. After the accident, and in accordance with the open policies on sea and inland transportation, the insurer paid the machinery company around Rmb4.1 million, which represented 88% of the invoice value of the damaged equipment, and then obtained the right of subrogation.
In May 2011 the plaintiff insurance company brought legal action before the Wuxi High-Tech Development Zone Court, claiming that the defendant carrier should bear corresponding responsibility on the basis of its contractual relationship with the machinery company for the multimodal transport of the items. The plaintiff believed that, as the underwriter, it had acquired the right of subrogation by law and was entitled to recover from the defendant.
The carrier contested the jurisdiction of the court, holding that the case fell within the exclusive jurisdiction of the Shanghai Maritime Court. The court upheld the objection on June 20 2012 and the Wuxi Intermediate People's Court subsequently dismissed the plaintiff's appeal. The case was transferred to the Shanghai Maritime Court.
The case centred on a typical insurance claim dispute, but a question arose as to whether the accident that had caused the cargo damage had occurred during the sea transportation. The answer to this question would determine whether the defendant, as the multimodal transport operator, was entitled to enjoy the unit limitation of liability stipulated in the Maritime Law.
The carrier's position was that the machinery company had suffered no economic loss because it had not made payments in respect of the damaged equipment; therefore, the plaintiff should not have compensated the machinery company and it was not entitled to recover from the defendant to make good its own mistake.
The carrier for the entire intermodal transportation was another forwarding company. The defendant was responsible merely for cabin booking, the transmission of information and freight collection. Therefore, it was the forwarder, rather than a party to the contract. On this basis it was argued that even if actual loss had occurred, the carrier was not liable. Moreover, the plaintiff had not entrusted a qualified third party to carry out an inspection. As a result, and in the absence of evidence that the damaged machinery was a total loss, the loss assessment and the compensation settlement were unreasonable. Most significantly, it was argued that even if a total loss had occurred and the defendant were identified as the multimodal transport operator, the defendant would be entitled to enjoy the unit limitation of liability because the cargo damage had occurred during sea transportation.
The plaintiff believed that the cargo damage had occurred some distance from the ship's rail, before the sea transportation had started, so that the defendant was not entitled to enjoy the unit limitation of liability.
The court of first instance concluded that the goods in question were containerised cargo. Therefore, the plaintiff was not entitled to set the ship's rail as the starting point of the sea transportation. The transportation at issue included the inland transportation from the Brazilian factory where the machinery was made to the Brazilian port of Paranagua, plus the sea transportation from Paranagua to China. The plaintiff and the defendant agreed that the cargo damage had occurred within the port and that the port had accepted the goods. Therefore, the inland transportation had ended by the time that the goods were damaged.
The defendant lodged valid evidence to prove that the onboard space for the machinery in question had already been booked and the relevant voyage record of the vessel, as specified in the booking confirmation, corroborated the finding in the joint cargo damage inspection report that the damage had occurred during the shipping of the cargo from the freight yard to the vessel. The court held that the sea transportation had already commenced and the cargo damage had occurred during such transportation, as the booking had been made and the goods were within the port area at the time.
On this basis the court held that the defendant was entitled to enjoy the unit limitation of liability in accordance with Article 56 of the law. It held that only Rmb255,234 was due in compensation, to be paid (with interest) within 10 days of the judgment coming into effect. The plaintiff's other pleadings 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]).