Abstract: In a recent SPC retrial decision, the SPC held that, considering the literary meaning, interrelation, and legislative intention of Articles 46, 55, and 56 of the China Maritime Code (CMC), Article 55 of the CMC not only provides the way to calculate compensation for loss of or damage to cargo, but also defines the scope of carrier’s liability. Where the CMC has explicitly specified the scope of carrier’s liability for cargo damage, general principles of the China Civil Code shall not be applied on top of such provision to aggravate the carrier’s liability.

Case Reference: (2023) Zui Gao Fa Min Shen No. 2157 (Date of Issuing: 19 February 2024)

Disputes: How to interpret and apply Article 55 of the CMC? Apart from it, whether the carrier shall also be subject to the general principle of full compensation in civil law, i.e., apart from the total loss of cargo, whether the carrier shall be held liable for fees incurred to render the damaged cargo harmless?

Adjudication:

In the captioned case, the containerized cargo (raw chemical materials), upon arrival at the port of destination, was found as total loss by the cargo receiver. As the cargo was of a certain toxicity, special treatment was required to render it harmless, which incurred a large amount of disposal fees. The cargo interests then claimed against the carrier for the lost cargo value and the disposal fees.

The case has gone through the first instance trial, appeal and retrial. Both Parties admitted that the cargo damage occurred during the carrier’s period of responsibility and the carrier should be liable for the cargo damage because it was due to the carrier’s failure in maintaining proper temperature inside the container. The key dispute lies in the Parties’ divergent interpretation and application of Article 55 of the CMC:

The cargo interests, as the claimants, stated that Article 55 of the CMC only provided a way to calculate compensation amount (loss of cargo value) and did not specify the scope of carrier’s liability for cargo damage. As such, the provisions under the China Civil Code concerning general damages and the principle of full compensation under civil law should be applicable. Fees incurred by disposal of the damaged cargo should be deemed as direct loss resulting from the carrier’s failure to care for the cargo and thus the carrier should be held liable for compensation therefor.

The carrier defended that Article 55 of the CMC stipulated the compensation rule for the carrier where their liability shall be determined as per the lost cargo value. Therefore, the carrier’s liability shall be limited to the cargo value in line with such provision.

The Supreme People’s Court of China (SPC) affirmed the judgements by the Shanghai Maritime Court (first instance court) and the Shanghai High People’s Court (second instance court) that given the CMC has explicitly specified the compensation amount payable by the carrier for cargo damage, the general principles in civil law should not be applied on top of such provision to aggravate the carrier’s liability. Eventually, the SPC dismissed the claim head for cargo disposal fees.

WJNCO Comments:

In China’s maritime judicial practice, there are continuous debates regarding the interpretation and application of Article 55 of the CMC. The above latest adjudication from the SPC is a positive sign for marine carriers. According to it, the carrier’s compensation liability shall be limited to the loss of cargo value, whilst other consequential costs and losses alleged by cargo owners are not claimable.

Nonetheless, in China, the SPC judgements are not adducible source of law. The above adjudication by the SPC can only be future reference to other Chinese courts when they consider similar cases and has no legal binding effect. Besides, specific details of different cases also affect courts’ judgements. For instance, while the captioned case involved total loss of cargo, with respect to those involving partial loss of cargo, in the famous retrial case Hachiman Shipping S.A. v. Shanghai Shenfu Chemical Co., Ltd. and Dorval Kaiun K.K. (case ref.: (2013) Min Ti Zi No. 6) over dispute of damage compensation as per contract of carriage of goods by sea, the SPC determined the calculation method for the partial loss of cargo to base on the cargo depreciation rate, and further supported the claim against the carrier for compensation of cargo damage survey fees paid to ITS and SGS. This case was selected by the SPC as one of the Eight Model Cases Regarding Providing Judicial Services and Safeguards by the People’s Courts for the Construction of the “Belt and Road” and was included in the Gazette of the Supreme People’s Court of the Republic of China (Vol. 2 of 2016) as a case for study, which apparently is of great reference value and influence.

Furthermore, in the retrial case Laredo Maritime Inc. v. Shandong Provincial Light Industry Supply and Marketing Co., Ltd. (case ref.: (2021) Zui Gao Fa Min Shen No. 1976) of dispute over contract for carriage of goods by sea, the cargo was partially damaged and then auctioned at the port of discharge. The SPC considered that there should be no transshipment or storage fees incurred had the sales contract been normally performed as agreed; accordingly these fees were directly incurred due to the cargo damage. In their retrial judgement, the SPC not only determined to calculate the loss of cargo value as per the cargo depreciation rate, but also supported the claim heads for transshipment fee and storage fee. It transpires that the SPC’s opinion on interpretation and application of Article 55 of the CMC varies from time to time in recent years depending on different case details.

In any event, the latest adjudication by the SPC on the captioned case that carrier’s liability for cargo damage shall be limited to the lost cargo value as specified by Article 55 of the CMC is a positive signal to carriers after all. It will also encourage the legal practitioners in China to exhaust the maritime law against prevalence of invoking civil law. Yet, whether such view will become a consistent trend in court judgements shall be further tested in actual judicial practice. We will look attentively at the latest development and present our further comments in due course.

Author: Chen Xiangyong, Li Lan