Second Group of Model Cases Involving Building of the “Belt and Road”
From: 最高人民法院 Updated: 2017-05-15Second Group of Model Cases Involving Building of the “Belt and Road”
Contents
1.Liwan Subbranch, Guangzhou Branch of China Construction Bank Co., Ltd. v. Guangdong Lanyue Energy Development Co., Ltd. et al. (Retrial case concerning dispute over issuance of a letter of credit)
2.Wanjia Financing Consulting PLC (British Virgin Islands) and Ye (Malaysian) v. Zhongyu Building Materials Group Co., Ltd. (Appeal case concerning dispute over a brokerage contract)
3.Qixia Lvyuan Fruits & Vegetables Co., Ltd. v. Beijing Branch of Bank of China Co., Ltd. (Retrial review case concerning dispute over transfer of a letter of credit)
4.Siemens International Trade (Shanghai) Co., Ltd. v. Shanghai Golden Landmark Co., Ltd. (Case concerning application for recognition and enforcement of a foreign arbitral award)
5.Case Concerning Application by Kolmar Group AG for Recognizing and Enforcing the Civil Judgment Delivered by the Singapore High Court
6.Hyundai Motor Group Co., Ltd. v. Zhejiang Branch of Industrial and Commercial Bank of China (Appeal case concerning dispute over an independent guarantee compensation)
7.Shandong Huali Investment Co., Ltd. v. Lauritz Knudsen Electric Co. Pte. Ltd. (Singapore) (Appeal case concerning dispute over an equity transfer contract)
8.Dalian Oceanic and Fishery Administration v. Ondimar Transportes Maritimos Ltda and the Britannia Steamship Insurance Association (Case concerning retrial review of dispute over compensation for marine pollution damage)
9.Xuzhou Tianye Metal Resources Co., Ltd. v. SanClemente Shipping, S.A. and Tokyo Sangyo Co., Ltd. (Retrial review case concerning dispute over a contract on carriage of goods by sea)
10.A.P. Moller-Maersk AS v. Shenzhen Branch of Shanghai Chanlian Xieyun Logistics Co., Ltd. and Shanghai Chanlian Xieyun Logistics Co., Ltd. (Retrial case concerning dispute over container demurrage in a contract on carriage of goods by sea)
Cases
Case No. 1
Properly Applying the Principle of Contract Interpretation
Clarifying the Nature of the Rights of the Holder of a Bill of Lading
——Liwan Subbranch, Guangzhou Branch of China Construction Bank Co., Ltd. v. Guangdong Lanyue Energy Development Co., Ltd. et al. (Retrial case concerning dispute over issuance of a letter of credit)
[Basic Facts]
In December 2011, Liwan Subbranch, Guangzhou Branch of China Construction Bank Co., Ltd. (hereinafter referred to as “Liwan Subbranch”) and Guangdong Lanyue Energy Development Co., Ltd. (hereinafter referred to as “Lanyue Energy”) concluded a Contract on Trade Credit Line and a Special Agreement on Issuance of a Letter of Credit and the relevant appendices. It was agreed that Liwan Subbranch would provide Lanyue Energy with the Trade Credit Line not exceeding CNY 550 million, including issuance of a usance letter of credit (“L/C”) with equivalent quota. Guangdong Yuedong Electric Power Design Engineering Co., Ltd. (hereinafter referred to as “Yuedong Electric Power”) and other guarantors signed guarantee contracts. In November 2012, Lanyue Energy filed an application with Liwan Subbranch for issuing a usance L/C of CNY 85.92 million. For this purpose, Lanyue Energy submitted the Trust Receipt to Liwan Subbranch and they concluded a Pledge Agreement of Security Money. The Trust Receipt confirmed that from the date of issuance of receipts, Liwan Subbranch obtained the ownership of documents and goods under the aforesaid L/C. Therefore, Liwan Subbranch became the trustor and beneficiary while Lanyue Energy became the trustee of the trusted goods. After the issuance of the L/C, Lanyue Energy imported 164,998 tons of coal. Liwan Subbranch accepted the L/C and paid CNY 84,867,952.27. After performing its obligations of issuing the L/C and making payment, Liwan Subbranch obtained the full set of documents, including the bill of lading involved. Due to deterioration of business operations, Lanyue Energy failed to make payment against the documents. Therefore, in the trial of this case, Liwan Subbranch still held the bill of lading and the relevant documents. The coal under the bill of lading was seized by the People's Court of Gangkou District, Fangchenggang City, Guangxi due to other disputes. Liwan Subbranch filed this lawsuit with the Intermediate People's Court of Guangzhou City, Guangdong Province and requested the Court to order that Lanyue Energy should pay off the principal of CNY 84,867,952.27 under the L/C and the interest thereof; to confirm that 164,998 tons of coal under the L/C were owned by Liwan Subbranch and that Liwan Subbranch enjoyed the priority in receiving payment from the disposal of coal under the bill of lading; and Yuedong Electric Power and other guarantors should bear the guarantee liability.
[Judgment]
The judgment of first instance delivered by the Intermediate People's Court of Guangzhou City, Guangdong Province supported the claim of Liwan Subbranch that Lanyue Energy should repay the principal and the interest and that the guarantors should assume the corresponding guarantee liability. However, the Intermediate People's Court of Guangzhou City rejected its claim for confirmation of the coal ownership and the priority in receiving payment on the ground that the delivery of the Trust Receipt and the bill of lading could not take effect against a third party. Liwan Subbranch is disatsfied with this judgment on the decision on the ownership and priority and appealed. The High Court of Guangdong Province delivered a judgment of second instance to dismiss the appeal and affirm the original judgment. Liwan Subbranch refused to accept the judgment of second instance and filed an application for retrial with the Supreme People's Court. The Supreme People's Court brought this case to trial.
In the retrial, the Supreme People's Court held that although a bill of lading had dual attributes, both as a certificate of creditor's rights and a certificate of ownership, it did not mean that the holder of the bill of lading would necessarily enjoy the ownership of goods under the bill of lading. As for the holder of the bill of lading, whether it could obtain the proprietary right and which type of proprietary right it could obtain depended on the contractual stipulations by the parties. Indeed, Liwan Subbranch had performed the obligations of issuing the L/C and making payment and obtained the bill of lading under the L/C. However, since the parties had no expression of intention to transfer the ownership of goods, it could not be determined that Liwan Subbranch’s acquisition of the bill of lading is equivalent to ownership of goods under the bill of lading. Under the Trust Receipt, security was provided by transferring the ownership of goods under the bill of lading. Since such transfer of guarantee did not conform to the principle of that proprietary rights could only be established by law, any disposal thereof does not affect the propietary rights, and the transfer of security was obviously different from a pledge of movable property or pledge of rights, the Trust Receipt could not serve as the contractual basis for the establishment of a pledge of rights in the bill of lading. It was stipulated in the Special Agreement on Issuance of a Letter of Credit that when Lanyue Energy breached the contract, Liwan Subbranch enjoyed the guarantee rights and had the right to dispose of the documents and goods under the L/C. Therefore, according to the overall interpretation of the contract and characteristics of L/C trading, the true intention of the parties on the guarantee rights and the right of disposition included the right of creating a pledge over the bill of lading. This case satisfied the two essential conditions for the establishment of pledge of right, namely, a written pledge contract and a publication of proprietary rights. As the holder of the bill of lading, Liwan Subbranch enjoyed the right of pledge of the bill of lading. Therefore, on October 19, 2015, the Supreme People's Court delivered a judgment upon retrial and confirmed that Liwan Subbranch enjoyed priority in receiving payment from the money paid in the disposal of goods in the bill of lading under the L/C.
[Significance]
This case was about a dispute over issuance of a foreign-related usance documentary L/C. The issue was the nature of rights of the holder of the bill of lading. In the international sales of goods transactions by means of a documentary L/C, there was no final conclusion in judicial practice on the type of rights enjoyed by the issuing bank, which legally held a bill of lading after payment for goods. This judgment provided clear answers to the legal attributes of the bill of lading, the legal significance of the trust receipt, the types of rights enjoyed by the holder of the bill of lading and other difficult and complex problems. It holds key significance in unifying the application of law in this field. First, the judgment of this case specified that the bill of lading corresponding to the documentary L/C had dual attributes as both a certificate of creditor's rights and a certificate of ownership. The specific rights of the holder of the bill of lading depended on the causal legal relationship based on which the bill of lading was forwarded. Therefore, the debate on the nature of the certificate of the bill of lading that has long puzzled the judicial practice was clarified. Second, the judgment of this case treated the Contract on Trade Credit Line, the Special Agreement on Issuance of a Letter of Credit, and the Trust Receipt as a whole, exploring the true expression of intention of the parties by means of wholistic interpreation in light of the underlying mechanisms and conventions. Thus, the issuing bank is confirmed to have enjoyed the right of pledge of the bill of lading while the autonomy of the parties was truly respected and the priority in receiving payment of the issuing bank was safeguarded according to the law. In the building of the “Belt and Road,” as the “life blood of international commercial transactions,” the documentary L/C is playing a vital role in safeguarding transaction security and monetary circulation. By means of unifying adjudication rules, settling disputes, and concluding cases, the judgment of this case has improved the documentary L/C trading and security system, effectively solved the problem that puzzled the international trade due to absence of rules, and fully manifested the spirit of strict judicial justice.
Case No. 2
Respecting Autonomy of the Parties
Reasonably Protecting the Right of Brokers to Claim Remuneration
——Wanjia Financing Consulting PLC (British Virgin Islands) and Ye (Malaysian) v. Zhongyu Building Materials Group Co., Ltd. (Appeals case concerning dispute over a brokerage contract)
[Basic Facts]
On February 26, 2009, Wanjia Financing Consulting PLC (hereinafter referred to as “Wanjia”) registered and incorporated in British Virgin Islands while Ye concluded an Agreement on Financing Service and Confidentiality with Zhongyu Building Materials Co., Ltd. (hereinafter referred to as “Zhongyu”). According to the Agreement, Ye and Wanjia introduced investors for Zhongyu to raise fund and Zhongyu would pay the financing service charge of 9% of the amount of actual investment in two phases. In particular, 4% of the amount of actual investment would be paid within 14 days upon completion of capital injection in cash or by remittance while the other 5% would be injected into Zhongyu or a listed company designated by Zhongyu as strategic investment funds according to the equivalent clauses of investors. Subsequently, Wanjia and Ye successfully introduced investors for Zhongyu but the latter failed to pay the remuneration, resulting in a dispute. Wanjia and Ye filed this lawsuit with the High Court of Fujian Province and requested the Court to order that Zhongyu should pay the financing service charge in arrears and the interest thereof.
[Judgment]
The judgment of the first instance delivered by the High Court of Fujian Province partially supported the claims of Wanjia and Ye by ordering that Zhongyu should pay Wanjia and Ye the remuneration of 5% of the amount of investment introduced by them depending on the actual circumstances. Wanjia, Ye and Zhongyu are dissatisfied and and appealed to the Supreme People's Court.
In the view of the Supreme People's Court, this lawsuit was about dispute over a brokerage contract. It was correct for the court of first instance to determine that the law of the People's Republic of China was applicable to the trial of this case according to the principle of Party Autonomy. The Agreement on Financing Service and Confidentiality was the true expression of parties’ intentions and it did not violate any mandatory provisions of the Chinese law. It was also correct to determine that the Agreement was legal and valid. Wanjia and Ye had fully performed their contractual obligations and hence they had the right to claim the corresponding remuneration according to the contractual stipulations. In other words, Wanjia and Ye could claim the remuneration of 9% of the total amount of funds raised from Zhongyu. While the contract stipulated that 5% of the remuneration would be paid in non-cash form, this would actually involve the problem in which Wanjia and Ye served as investors of Zhongyu or the listed company it designated, facing obstacles in terms of the Company Law, and was hence difficult to realize. Therefore, the Supreme People's Court determined that such remuneration should be paid in the same method taken for the remaining 4% of the remuneration. In the judgment of second instance delivered by the Supreme People's Court, the judgment of first instance was set aside and Zhongyu was ordered to pay Wanjia and Ye the remuneration with the amount of 9% of the total amount of funds raised , namely, CNY 18,280,753 plus the interest.
[Significance]
This case has great significance in the reasonable protection of brokers' right to claim remuneration. In the process of promoting the strategy of the “Belt and Road”, a broker who provides investors or fund-raisers with brokerage services should have the legally protected right to claim remuneration. The Chinese court has fully respected the principle of Party Autonomy, determining the amount of brokerage remuneration according to contractual stipulations and appropriately adjusted the payment method of the brokerage remuneration based on the actual situations. The practice of the Chinese court has also equally protected the lawful rights and interests of all parties and maintained the trade order, which is conducive to promoting international investment and exchange.
Case No. 3
Specifying the Compensation Liability of an Intermediary Bank for Its Fault
-- Safeguarding the Security of Letter of Credit Trading
——Qixia Lvyuan Fruits & Vegetables Co., Ltd. v. Beijing Branch of Bank of China Co., Ltd. (Retrial review case concerning dispute over transfer of a letter of credit)
[Basic Facts]
On June 7, 2007, Beijing Branch of Bank of China Co., Ltd. (hereinafter referred to as “Beijing Branch”) received a transferable letter of credit (“L/C”) in the format of SWIFT forwarded by Dnieper Credit Bank (Ukraine). The L/C showed that the issuing bank was Lloyd Trade and Savings Commission located in the Republic of Slovakia, the applicant being Tata Lucca Co., Ltd. (Cyprus), the beneficiary being Bain & Company and the transferring bank and notifying bank being Beijing Branch. On the same day, Beijing Branch notified the beneficiary Bain & Company of the L/C and the latter filed an application with Beijing Branch for transferring the L/C with Lvyuan as the secondary beneficiary and designated Qixia Branch of Bank of China Co., Ltd. in Shandong Province (hereinafter referred to as “Qixia Branch”) as the notifying bank. On June 14, 2007, according to the instructions of Bain & Company, Beijing Branch transferred the L/C and forwarded the telegraph text of the L/C in the format of SWIFT. As indicated in the notification on transferring the L/C received by Lvyuan from Qixia Branch, the issuing bank was Dnieper Credit Bank (Ukraine). After submitting the relevant documents, Lvyuan did not receive the funds under the L/C. Upon consultation and inquiry, Lvyuan found that the issuer was Lloyd Trade and Savings Commission located in the Republic of Slovakia, which was not a bank. On the ground that the erroneous information in the L/C made Lvyuan believe that the L/C involved was issued by a bank and losses were caused consequently, Lvyuan filed a lawsuit with the Beijing Second Intermediate People’s Court and requested the Court to order that Beijing Branch should compensate Lvyuan CNY 6,790,344 and the losses of interest and tax rebate of CNY 246,606.06.
[Judgment]
In the trial of first instance, Beijing Second Intermediate People’s Court held that Beijing Branch was at fault in erroneously describing the title of the issuer. This was one reason for Lvyuan's losses but not the only reason. Therefore, Beijing Second Intermediate People’s Court delivered a judgment that Beijing Branch should assume the liability of compensation for Lvyuan's loss of CNY 3,400,000 and the interest loss calculated at the interest rate on deposits over the same period, and rejected other claims of Lvyuan. Both Lvyuan and Beijing Branch refused to accept the judgment of first instance and appealed to Beijing High Court. In the trial of second instance, Beijing High Court held that Beijing Branch had a gross negligence in erroneously describing the title of the issuer. There was no evidence in this case to prove that Lvyuan had actual knowledge of the title of the issuer before receipt of the notification on transferring the L/C. There was causation between Lvyuan's losses and Beijing Branch's erroneous notification in forwarding the L/C and Beijing Branch should assume the compensation liability according to the law. Therefore, Beijing Higher People’s Court delivered a judgment that Beijing Branch should pay Lvyuan CNY 6,749,265.85 and the interest loss calculated at the interest rate on deposits over the same period, and other claims of Lvyuan should be rejected. Lvyuan refused to accept the judgment of second instance and filed an application for retrial with the Supreme People's Court. It claimed that since it did not receive the payment for goods, it had to borrow a loan from a bank and there was loss of loan interest; in the meantime, there was loss of export tax rebate. It claimed that the judgment of second instance that did not support the aforesaid two claims for loss compensation lacked evidence in fact-finding and was erroneous in the application of law.
Upon review, the Supreme People's Court held that The Uniform Customs and Practice for Documentary Credits, ICC Publication No. 500 applicable as prescribed in the L/C involved did not specify which type of liability the intermediary bank should assume for its erroneous notification. It was not inappropriate for the original judgment to apply the provisions of Paragraph 2 of Article 106 of the General Principles of the Civil Law of the People's Republic of China on the tort of fault. The fault of Beijing Branch made Lvyuan erroneously believe that the issuer was a bank with good credit, misled the latter into accepting the L/C and consequently suffering from losses. Therefore, Beijing Branch should assume the corresponding compensation liability according to the degree of fault. L/C was document trading independent from the underlying contract. Therefore, the scope of liability assumed by the party to the L/C that violated its obligations should only be limited to direct losses under the L/C. The loss of loan interest and the loss of export tax rebate claimed by Lvyuan were expenses that could be avoided and and interest that could be obtained if the underlying contract could be fulfilled. They were not direct loss under the L/C and were not within the scope of losses that should be predicted by the party to the L/C. There was no causation between the aforesaid losses and the fault of the party to the L/C that violated its obligations. Therefore, these losses should not be compensated in the L/C relationship. The Supreme People's Court delivered a ruling to dismiss Lvyuan's application for retrial.
[Significance]
This case is about a dispute over transfer of a L/C between countries along the “Belt and Road”. Under the circumstance where the Chinese law and the international practice did not specify the scope of liabilities of the intermediary bank for its erroneous notification and there was no contractual relationship between the intermediary bank and the beneficiary, according to the principle of compensation for tort damage, the people's court determined that the intermediary bank had the obligation of accurate notification. Moreover, if the intermediary bank violated such obligation, it should assume the corresponding liability of damages. The aforesaid practice of the people's court undoubtedly has great significance in safeguarding the trading order and security based on L/C. First, the ruling of this case indicated that all relevant parties to the L/C only handled documents other than goods, services, or other activities related to such documents. Therefore, the sole legal basis for judging loss caused by the fault of the intermediary bank must be theL/C itself and the loss could not be calculated based on the underlying contract. This clearly revealed the connotation of the principle of independence of the L/C. Second, when specifying the obligation of the bank, the ruling of this case adopted the principle of forseeability and determined that the scope of damages may not exceed the unpaid amount under the L/C and interest, which has guaranteed the certainty of the scope of compensation liability. The ruling of this case has great significance in unifying the adjudication rules and filling in the legal lacuna, providing strong reference value for similar cases concerning dispute over L/C during the building of the “Belt and Road” in the future.
Case No. 4
Honoring the Obligation of Award Enforcement under the New York Convention
Creating a Premium Environment of Rule of Law
——Siemens International Trade (Shanghai) Co., Ltd. v. Shanghai Golden Landmark Co., Ltd. (Case concerning application for recognition and enforcement of a foreign arbitral award)
[Basic Facts]
On September 23, 2005, Shanghai Golden Landmark Co., Ltd. (“Golden Landmark”) and Siemens International Trading (Shanghai) Co., Ltd. (“Siemens”) entered into a contract for goods supply by means of bidding, in which it was agreed that Siemens should deliver the equipment to the construction site prior to February 15, 2006, and if any dispute arose, it shall be submitted to Singapore International Arbitration Centre (“SIAC”) for settlement by arbitration. Disputes arose between the parties during the performance of the contract. Golden Landmark referred it to SIAC for arbitration and asked to rescind the contract and stop paying for the goods. Siemens counterclaimed in the arbitration procedure by asking for the full payment of the goods price and interests as well as the compensation for other losses. In November 2011, the SIAC dismissed the petition of Golden Landmark and supported the counterclaim of Siemens. Golden Landmark made partial payment and owed outstanding payment and interests under the award totaling CNY 5,133,872.3. Pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitration Award, i.e. the New York Convention, Siemens submitted a petition to No. 1 Intermediate People’s Court of Shanghai asking for the recognition and enforcement of the award made by SIAC. In its defense, Golden Landmark believed that such award should not be recognized or enforced because both parties to the case were Chinese legal persons and the place of contract performance was China as well. Thus, the civil relationship involved in the case had no foreign-related factors and the agreement between both parties on referring the dispute to a foreign arbitration body was invalid. Recognizing and enforcing the award of the case involved would be against the public policies of China.
[Judgment]
After reporting level by level to the Supreme People’s Court and receiving the reply, No. 1 Intermediate People’s Court of Shanghai ruled to recognize and enforce the arbitration award of the case pursuant to the provisions of the New York Convention. As to whether the arbitration clause in accordance to which the dispute of the case should be submitted to foreign arbitration was valid or not, the key issue whether the contractual relationship at issue has foreign-related factor. If it does, the arbitration clause is valid; otherwise, it is invalid. Having given a full review of the actual situations as the subjects, performance attributes, etc. involved in the contract under the case, and pursuant to Paragraph 5, Article 1 of the Interpretation (I) of the Supreme People’s Court on Issues concerning the Application of the Law of the People's Republic of China on Application of Laws to Foreign-Related Civil Relations, it can be determined that the contractual relationship at issue is a foreign-related civil legal relationship. This is because first, despite both being Chinese legal persons, the place of registration of both Siemens and Golden Landmark were in China (Shanghai) Pilot Free Trade Zone, their were both wholly foreign-owned enterprises, and both of them were closely related to foreign investors. Second, the attributes of contract performance in this case involved foreign-related factors. The equipment involved was firstly delivered from a foreign country to the pilot free trade zone for bonded supervision, and then, as needed for contract performance, the formalities for customs clearance and tax payment were handled at appropriate time to enable the equipment involved to be moved from the pilot free trade zone to the outside. Up to this point, the formalities for import of the goods had been completed. Therefore, the circulation of the subject matter of the contract had some characteristics of international sale of goods. The arbitration clause involved was therefore valid. In addition, there was no conflict between the content of the arbitral award involved and the public policies of China. For this reason, it is not violating the public policies of China to recognize and enforce such arbitral award. In the meantime, the ruling also specified that Golden Landmark Company actually participated in the entire arbitration procedure, claimed that the arbitration clause was valid and partially performed obligations as determined in the arbitral award after the issuance of such arbitral award. Under such circumstance, the petition of Golden Landmark Company for refusing the recognition and enforcement of the arbitral award on the ground that the arbitration clause was invalid violated the generally accepted legal principles of estoppel, good faith, justice and reasonableness. Therefore, the claim of Golden Landmark Company should not be supported.
[Significance]
Pilot free trade zones (PFTZs) play as the fundamental platform, important link and strategic support for China to promote the “Belt and Road” building. It is helpful in boosting the international credibility and the influence of China’s rule of law to keep abreast of the internationally universal practice, to support the development of pilot free trade zones and complete the mechanism for settling the international arbitration and other non-litigation disputes. The case ruled that, against the reform background of promoting investment and trade facilitation in the PFTZ, it is important to recognize the foreign-related factors in any contractual dispute among wholly foreign-owned enterprises inside the PFTZ. The case also confirmed the arbitration provision to bevalid, made clear the principle of “estoppel” , and applied the “pro-enforcement bias” concept provided in New York Convention, which showed China’s fundamental stance of honoring the obligation under international treaties. Meanwhile, this case pushed ahead the breakthrough reform from point to surface for enterprises inside the PFTZ choosing offshore arbitration, making itself a successful example of replicable and promotional judicial experience in the PFTZ. In January 2017, the Supreme People’s Court issued the Opinions on Providing Judicial Guarantee for Building Free Trade Zones in which it stipulates that where the wholly foreign-owned investment enterprises registered in the PFTZ mutually agree to submit the commercial dispute to foreign arbitration, the relevant arbitration agreement shall not be treated as invalid on the ground that there is no foreign factor involved in such dispute; it also stipulates that where one of both parties to a dispute is a foreign investment enterprise registered in the PFTZ and agrees to submit any commercial dispute to foreign arbitration or if either party submits the dispute to foreign arbitration but claims that the arbitration agreement is invalid after an award is made, or if the other party raises no objection to the force of arbitration agreement in the arbitration procedure, but claims that the arbitration agreement is invalid after an award being given on the ground that no foreign-related factor is involved, that will not be supported by the People’s Court. This is beneficial to building a more stable and certain legal business environment for the “Belt and Road”.
Case No. 5
Recognizing the Reciprocal Relationship between Singapore and China
Recognizing and Enforcing the Commercial Judgment Made by Singapore Court for the First Time
——Case Concerning Application by Kolmar Group AG for Recognizing and Enforcing the Civil Judgment Delivered by the Singapore High Court
[Basic Facts]
Kolmar Group AG (hereinafter referred to as “Kolmar Group”) is a corporation incorporated in Switzerland. In its application submitted to Nanjing Intermediate People’s Court of Jiangsu Province in June 2016, it claimed that it had disputes with Jiangsu Textile Industry (Group) Import & Export Co., Ltd. (abbreviated as Sutex Group) arising from a sales contract and both Parties reached a settlement agreement. Since Sutex Group failed to perform the settlement agreement, Kolmar Group filed a lawsuit with Singapore High Court in accordance with the jurisdiction clause agreed in the settlement agreement. The Court made an effective judgment. Since Sutex Group and its properties were within the territory of China, it requested Nanjing Intermediate People’s Court of Jiangsu Province to recognize and enforce such Singapore judgment. Sutex Group claimed in its statement that there were no provisions on the mutual recognition, enforcement of judgments and awards in the Treaty on Civil and Commercial Judicial Assistance concluded by and between China and Singapore. Pursuant to Article 282 of the Civil Procedure Law of the People’s Republic of China, the application of Kolmar Group should be dismissed.
Nanjing Intermediate People’s Court of Jiangsu Province found out through investigation that Sutex Group was present at the court despite being summoned by Singapore High Court. Furthermore, Singapore High Court made a default judgment on October 22, 2015 that Sutex Group should repay USD 350,000, the interest and expenses to Kolmar Group. Sutex Group also received such judgment. In January 2014, Singapore High Court recognized and enforced the civil judgment made by Suzhou Intermediate People’s Court of Jiangsu Province.
[Judgment]
Nanjing Intermediate People’s Court of Jiangsu Province held that the civil judgment involved was delivered by Singapore High Court. China and Singapore did not conclude or jointly participate in any international treaty on mutual recognition and enforcement of effective civil and commercial judgments. However, since Singapore High Court once enforced a civil judgment delivered by a Chinese court, according to the principle of reciprocity, the Chinese court may recognize and enforce qualified civil judgments delivered by the Singaporean court. After review, the judgment involved did not violate the basic principles of Chinese laws or the state sovereignty, security and public interest. Therefore, on December 9, 2016, in accordance with the provisions of Article 282 of the Civil Procedure Law of the People’s Republic of China, Nanjing Intermediate People’s Court of Jiangsu Province delivered a ruling to recognize and enforce the civil judgment No. O13 delivered by Singapore High Court on October 22, 2015.
[Significance]
In this case, the Chinese court recognized and enforced the commercial judgment as delivered by the Singaporean court for the first time. Article 282 of the Civil Procedure Law of the People’s Republic of China stipulated that the basis for recognizing and enforcing a judgment delivered by a foreign court was an international treaty or the principle of reciprocity. At present, China has concluded treaties on judicial assistance in mutual recognition and enforcement of civil and commercial judgments with less than 1/3 of the countries along the “Belt and Road”. Therefore, the determination of whether there is a relationship of reciprocity between both countries is crucial to whether the commercial judgments as delivered by the courts of countries along the “Belt and Road” can be recognized and enforced by the Chinese court. According to the precedent where the Singaporean court recognized and enforced the judgment delivered by the Chinese court, the judgment of this case determined that there was a relationship of reciprocity between China and Singapore for the first time and according to the principle of reciprocity, the Chinese court further recognized and enforced the commercial judgment delivered by the Singaporean court. This decision is of landmark significance in the mutual recognition and enforcement of commercial judgments delivered by the Chinese and Singaporean courts which will greatly promote the practice of judicial cooperation among countries along the “Belt and Road” in recognition and enforcement of foreign judgments.
Case No. 6
Applying the ICC's Uniform Rules for Demand Guarantees as Agreed
Ensuring the Trading Order of Independent Guarantees
——Hyundai Motor Group Co., Ltd. v. Zhejiang Branch of Industrial and Commercial Bank of China (Case concerning dispute over an independent guarantee compensation)
[Basic Facts]
Hyundai Motor Group Co., Ltd. (hereinafter referred to as “Hyundai”) is a company registered and incorporated in South Korea. It concluded a Contract on the Supply of Diesel Generating Set with Zhejiang Zhonggao Power Technology Co., Ltd. (hereinafter referred to as “ZGPT”) , in which the parties agreed that ZGPT should apply to the Zhejiang Branch of Industrial and Commercial Bank of China (hereinafter referred to as Zhejiang Branch) for issuing an irrevocable demand guarantee, namely, an independent guarantee, as the payment method for underlying transactions. It was stated in the independent guarantee issued by Zhejiang Branch to Hyundai that in the claim for compensation, Hyundai should submit the “duplicate of the order clean ocean bill of lading specifying the informant of freight payable at destination notify as the applicant”. Afterwards, ZGPT failed to make payment on schedule. Hyundai made a claim for compensation to Zhejiang Branch and submitted the duplicate of a straight bill of lading, but its claim was rejected. Hyundai filed a lawsuit with the Intermediate People’s Court of Hangzhou City, Zhejiang Province and requested Zhejiang Branch to reimburse USD 6,648,010 under the independent guarantee and the overdue fine. Zhejiang Branch contended that the claim for compensation made by Hyundai according to the independent guarantee was an invalid claim. Zhejiang Branch has issued a telegraph text on refusal of payment according to the stipulations, specified three noncompliance points, and requested the Intermediate People’s Court of Hangzhou City to dismiss Hyundai’s claims.
[Judgment]
After the trial of first instance, the Intermediate People’s Court of Hangzhou City, Zhejiang Province held that it was stipulated in the guarantee involved that the Uniform Rules for Demand Guarantees (ICC Publication No. 758) was applicable and this stipulation was valid. In accordance with the provisions of the Rules, under the circumstance where the terms and conditions of a guarantee were specific and clear, the guarantor only needed to consider whether the receipts were superficially consistent with the terms and conditions of the guarantee whereas the performance of the underlying contract was not a relevant factor to be taken into consideration in the examination of receipts. Since there were several noncompliance points between the receipts involved and the terms of the guarantee, the repeated refusals of payment by Zhejiang Branch conformed to the regulations and were valid. Therefore, the Intermediate People’s Court of Hangzhou City delivered a judgment to dismiss Hyundai’s claims. Hyundai refused to accept the judgment of first instance and appealed.
In the trial of second instance, the High Court of Zhejiang Province held that an independent guarantee was a contract with legally binding effect between the issuing bank and the beneficiary. Once the beneficiary accepted the terms of the guarantee or made a claim for compensation to the issuing bank in accordance with the terms of the guarantee, it showed that the beneficiary voluntarily accepted all terms of the guarantee and was bounded by such terms of the guarantee. The guarantee issued by Zhejiang Branch clearly stated the requirements for receipts. When accepting the guarantee, the beneficiary Hyundai raised no objection. In its claim for compensation, it should provide all receipts consistent with the terms and conditions of the guarantee. In accordance with the provisions of Article 2 of the Uniform Rules for Demand Guarantees (ICC Publication No. 758), the standard for examination of receipts as stated in the independent guarantee, the issuer should apply the doctrines of format compliance and strict compliance. The duplicate of the straight bill of lading submitted by Hyundai was significantly different from the duplicate of the order bill of lading as requested by the guarantee involved in the case. There is a difference between the two duplicates in terms of international trade and maritime transport. Zhejiang Branch refused the payment on the ground of noncompliance points, which conformed to the stipulations of the guarantee. Hyundai alleged that the receipts it submitted were not different from those as requested by the guarantee based on the performance of the underlying contract, which violated the principle of receipt transactions and the doctrine of format compliance in an independent guarantee. Therefore, the High People’s Court of Zhejiang Province delivered a judgment to dismiss the appeal and affirmed the original judgment.
[Significance]
An independent guarantee has important functions to serve as trading guarantee, credit confirmation and to provide financing support. It has become a common financial guarantee instrument that is indispensable for the outgoing Chinese enterprises and in the building of the “Belt and Road”. The People’s Court fully respects and applies the international trading rules agreed upon by the parties in hearing an independent guarantee claim, which is crucial to accurately defining the rights and obligations of the parties and ensuring the trading order of independent guarantees. The independent guarantee involved in this case specified that the ICC’s Uniform Rules for Demand Guarantee should be applicable. The courts of first instance and second instance adjusted the relationship of rights and interests of the parties in accordance with the Rules, applied the doctrines of strict compliance and format compliance, examined whether the receipts strictly complied with the terms and conditions of the guarantee based on the receipts themselves and determined the existence of noncompliance, which has shown the capability of the Chinese court in accurately applying international rules. The judgment of this case specified that a conclusion on format compliance may not be reached on the basis of performance of the underlying contract, which has reflected the full respect of the principle of receipt transactions of independent guarantees and the principle of independence, equally protecting the lawful rights and interests of Chinese and foreign parties, and effectively ensured the trading order of independent guarantees. This case also reflects the importance of the Chinese banking industry in learning and applying international financial transaction rules to protect its own rights and interests and effectively guard against financial risks.
Case No. 7
Correctly Defining the Nature of Foreign-related Equity Transfer Contracts
Safeguarding the Rights and Interests of the Investors of a Joint Venture
——Shandong Huali Investment Co., Ltd. v. Lauritz Knudsen Electric Co. Pte. Ltd. (Singapore) (Appeal case concerning dispute over an equity transfer contract)
[Basic Facts]
Erke was originally an wholly foreign-owned enterprise. On September 14, 2010, it was transformed into a Sino-foreign equity joint venture and Lauritz Knudsen Electric Co. Pte. Ltd. (Singapore) (hereinafter referred to as “LKE”) was one of its joint venture partners. In October 2010, LKE and Shandong Huali Investment Co., Ltd. (hereinafter referred to as “Huali”) concluded an Agreement on Capital Increase and Share Expansion and they agreed that Huali would invest CNY 20 million in Erke and if LKE violated any term of the Agreement and caused failure to achieve the purpose of the Agreement, Huali had the right to terminate the Agreement and withdraw the funds invested for capital increase and share expansion. On December 6, 2010, both parties concluded another Agreement on Equity Transfer and agreed that considering that Erke would apply for being restructured to a joint stock limited company, (i.e. the target company) and Huali would own 8 million shares of the target company after the restructuring. After October 10, 2013, Huali had the right to raise a claim of transferring equity shares of the target company within the limit of the original amount of capital contribution and LKE committed to purchasing the shares to be transferred in its own name or by a designated third party in an unconditional manner. On January 27, 2011, all shareholders of Erke concluded an Agreement on Capital Increase and Share Expansion and Huali subscribed to the increased capital of Erke at a premium and Huali accounted for 10% of equities of Erke. When any circumstance as agreed in the Agreement occurred, Huali had the right to terminate the Agreement after notifying LKE and to withdraw the investment made under this capital increased and shares expansion. After the Agreement was approved by the competent authority, all parties began equity transfer registration whereby Huali held 10.001% of the sahres of of Erke and LKE owned 76.499% of the shares of Erke. On the ground that LKE refused to perform the obligations of capital increase as agreed and failed to perform the liability of guarantee for repurchasing shares, Huali filed a lawsuit with the Intermediate People’s Court of Zhuhai City, Guangdong Province and requested the Court to order that LKE should purchase the equities of Erke held by Huali and pay CNY 20 million and interest thereof.
[Judgment]
In the trial of first instance, the Intermediate People’s Court of Zhuhai City, Guangdong Province held that the claim of Huali that LKE should purchase the equities of Erke held by Huali lacked factual and legal basis. Therefore, the Intermediate People’s Court of Zhuhai City delivered a judgment that all claims of Huali should be dismissed. Huali refused to accept the judgment of first instance and appealed on the ground that the Agreement concluded by and between both parties was actually an agreement on adjustment of valuation of equity investment in nature and it had the right to claim for withdrawing equities when the financial stocks company failed to be listed on schedule.
In the opinion of second instance, the High Court of Guangdong Province held that the content of the Agreement on Equity Transfer was equity transfer affixed with factual conditions, namely, only after Erke was restructured into a joint stock limited liability company, Huali could transfer the equities of Erke it held to LKE. The stipulation of the Agreement on future facts did not violate the mandatory provisions of Chinese laws and administrative regulations and hence it should be identified as legally effective. An agreement on adjustment of valuation of equity investment was a clause of valuation adjustment prepared for the purpose of rationally controlling risks when an investment company invested in the target company. In general, both parties would agree on the business operation objective within a fixed term. If the enterprise failed to realize the business operation objective within a fixed term, one party should make payment or compensate for the losses of the other party. However, the restructuring of Erke to a joint stock limited company was not presented as the business operation objective in the Agreement on Equity Transfer. Furthermore, it was not stipulated in the Agreement that as the shareholder, LKE should assume the liability of repurchasing equities if the target company Erke failed to complete the shareholding restructuring. In the performance of the Agreement by both parties, there was breach of contract that would bring about termination of the Agreement. On June 9, 2011, Huali also obtained the equities of Erke. Therefore, the grounds relied upon by Huali for claiming the withdrawal of funds invested in the capital increase and share expansion in accordance with the Agreement on Equity Transfer and the Agreement on Capital Increase and Share Expansion lacked factual and legal basis. Hence, the High Court of Guangdong Province delivered a judgment to dismiss the appeal and affirm the original judgment.
[Significance]
This is a case where a Chinese company invested in a Sino-foreign joint venture by means of equity transfer. Its typical significance lies in how to determine the nature of the clause on repurchase of equities as stipulated in the contract, whether it is a new investment and financing method (namely, an agreement on adjustment of valuation of equity investment), and whether such stipulation on the nature should be supported. Onthe one hand, the judgment affirms that for the purpose of adapting to the high financing demands of modern market economy, shareholders have the right to stipulate the content of adjustment of valuation of equity investment in an autonomous way; On the other hand, the judgment follows the principle that the consensus on adjustment of valuation of equity investment must be clearly stipulated in the contract. Under the circumstance where the Agreement on Equity Transfer involved did not set a business operation objective and did not stipulate that LKE should assume the liability of equity repurchase if Erke failed to complete the shareholding restructuring, it was determined that the true intention of both parties was restructuring Erke to a joint stock limited company. Therefore, the nature of the Agreement on Equity Transfer was equity transfer affixed with factual conditions. Before the prerequisite that Erke was restructured to a joint stock limited company was satisfied, Huali had no right to claim that LKE should repurchase equities. Through literal interpretation, the judgment of this case determined the intention of the parties on investment, effectively avoided random withdrawal of corporate capital, safeguarded stability in the joint venture relationship of Chinese and foreign investors, legally safeguarded the rights and interests of investors, and would play a significant role in the orderly development of new investment methods in the “Belt and Road”.
Case No. 8
Accurately INTERPRETING the 1992 International Convention on Civil Liability for Oil Pollution Damage
Expressly Excluding the Claims for Damages beyond the Scope of Damages Permitted by the Convention
---- Dalian Oceanic and Fishery Administration v. Ondimar Transportes Maritimos Ltda and the Britannia Steamship Insurance Association (Case concerning retrial review of dispute over compensation for marine pollution damage)
[Basic Facts]
A Portuguese oil tanker “Arteaga” (with gross tonnage of 77,399 tons) stranded at the Dalian Xianjiao Reef (38º57.34＇N, 121º54.53＇E) dated April 3, 2005, with the main body of the tanker damaged and crude oil leaked, resulting in pollution to the ocean. The owner and oil pollution damage insurer for the tanker are Ondimar Transportes Maritimos Ltda and the Britannia Steamship Insurance Association, respectively. Dalian Oceanic and Fishery Administration brought an action to Dalian Maritime Court dated May 23, 2005, petitioning the court to hold Ondimar and the Insurance Association jointly and severally liable for damages of an amount of CNY 59.076 million (including loss of marine environmental capacity and marine ecological value loss of CNY 56.476 million as well as loss assessment and appraisal cost of CNY 2.60 million).
[Judgment]
Dalian Maritime Court held, after the first instance trial, that the Oceanic and Fishery Administration is the agency exercising the supervision and management authority regarding ocean environment, and qualifies as the party claiming damages for oil pollution in this case; however, the Oceanic and Fishery Administration failed to prove that it had actually taken mitigation measures after the occurrence of the pollution. To the contrary, as illustrated by the report issued by the Judicial Appraisal Office, National Marine Environmental Monitoring Center, the ocean affected by the oil leakage had been restored without any actions taken. Therefore, the court dismissed the claim of the Oceanic and Fishery Administration. The Administration was not satisfied with the judgment and appealed.
After the trial of second instance, High Court of Liaoning Province held that the ocean ecological losses claimed by the Administration comprise of marine ecological value loss and loss of marine environmental capacity, which are claims for ocean environment damages; the Administration had delivered a certificate proving its payment of CNY 500,000 for loss assessment and monitoring cost during the hearing of the second trial. Such amount of payment shall be deemed reasonable and shall be borne by Ondimar Transportes Maritimos Ltda. As such, the High Court of Liaoning Province delivered a judgment of second instance to overrule the judgment of first instance, which ordered Ondimar Transportes Maritimos Ltda to indemnify the Administration for the cost of loss assessment and monitoring cost of CNY 500,000, but dismissed other claims of the Administration. The Administration was dissatisfied with the judgment of second instance and petitioned to the Supreme People’s Court for a re-trial.
After due examination, the Supreme People’s Court held that the People's Republic of China is a signatory state to the 1992 International Convention on Civil Liability for Oil Pollution Damage, and thus the judgment of first instance and the judgment of second instance properly applied the Convention in the determination of this case. In accordance with Paragraph 6, Article 1 of the Convention, damages for an environment damage shall be limited to expenses reasonably incurred or to be incurred in the recovery of the affected ocean. As provided in Paragraph 4, Article 3 of the Convention, no pollution claims shall be filed against any vessel owner, except those in compliance with the Convention. Whether the claim for the ocean ecological losses filed by the Administration is justified is predicated on whether such losses fall within the scope of damages liability as provided by the Convention. The Administration failed to present evidence to prove that it had actually taken measures to restore the affected ocean and incurred expenses in that regard. It claimed in its loss assessment report that the amount of CNY 55.20 million spent for polluted water treatment fell under the category of “reasonable recovery actions to be taken”. However, as seen from the inspection result issued by the North China Sea Environmental Monitoring Center, State Oceanic Administration and the Judicial Appraisal Office, National Marine Environmental Monitoring Center, on April 28, 2005, 25 days after the oil leakage incident, the water quality of the ocean affected by the oil leakage had not exceeded the Class 2 water quality standard; By October 2005, the ocean environment had recovered, and the Administration had not presented evidence to show the necessity of polluted water treatment for such ocean. As such, the judgments of first instance and second instance had not erred in ruling that the expenses above do not fall under the category of expenses incurred in the recovery action taken or to be taken under the Convention. The ruling by Supreme People’s Court on December 29, 2015 dismissed the application filed by the Administration for retrial.
[Significance]
This case is a dispute over ocean environmental pollution damages in a region along the “Belt and Road”, with the owner and oil leakage liability insurer for the vessel being a Spanish company and a UK company, respectively. Moreover, this case is also between parties from countries along the “Belt and Road”. The Supreme People’s Court has played a leading and guiding role by properly implementing Several Opinions on Provision by People’s Courts of Judicial Services for the Building of the “Belt and Road” numbered FF [2015] No. 9. China, as a responsible ocean country, will strictly interpret the Convention in good faith and in accordance with the ordinary meanings of terms therein and their context, by reference to the purpose and intent of the Convention and consistent with Vienna Convention on the Law of Treaty. Specifically, the environmental damages under 1992 International Convention on Civil Liability for Oil Pollution Damage shall be limited to expenses reasonably incurred in the recovery (including monitoring and assessment expenses), in order to ensure consistency, steadiness and forseeability in the application of international conventions. Under the current convention system, vessel leaked oil pollution damages are special. However, certain parties, due to their failure to properly apprehend the spirit of the Convention, file claims for ocean ecological damage caused by vessel-leaked oil pollution based on the marine ecological losses and loss of marine environmental capacity instead of expenses in the recovery. This is inconsistent with the provisions of the Convention, and is expressly excluded from the permitted damages under the Convention. The judgment for this case is significant in that it would play a guiding role in accurately assessing claimed amounts by the agencies exercising ocean environment supervision and management authority. Although the Plaintiff is a Chinese government authority, the courts of all three levels under this case dismissed the claim filed by the plaintiff that is unfounded in fact and law,adheared to the law and based on the evaluation of facts. This hence proves that Chinese courts will strictly abide by the principle of equal protection for Chinese and foreign parties.
Case No. 9
Reasonably Filling the Gap in the International Maritime Solid Bulk Cargoes Code
Improving the International Maritime Adjudicating Rules
---- Xuzhou Tianye Metal Resources Co., Ltd. v. SanClemente Shipping, S.A. and Tokyo Sangyo Co., Ltd. (Retrial review case concerning dispute over a contract on carriage of goods by sea)
[Basic Facts]
On December 29, 2010, Xuzhou Tianye and CJ entered into a sale and purchase contract, under which the former agreed to purchas 50,000 tons (±10%) of bulk Indonesia laterite nickel mine. On January 28, 2011, the vessel jointly owned by the carrier, SanClemente Shipping, S.A. and Tokyo Sangyo Co., Ltd., “Maritime Lijiang” , arrived at the Indonesian North Conaway Port ready for loading goods. However, due to the suspected excessive amount of water in the goods, they determined that the vessel should stay at the anchorage of North Conaway Port as of February 12, 2011, for cabin-opening, goods-drying under the sun, sample collection and inspection. Thereafter, the vessel, after two days’ voyage from March 27, 2011, arrived at Davao Port, Philippines on March 29, 2011, and continued to undergo cabin-opening, goods-drying and inspection. It departed from Davao Port on May 16 and arrived at the designation port, Lianyungang Port, on May 23. CJ, the consignor, received the full set of original clear order bill of lading issued by the carrier for the goods, and Xuzhou Tianye obtained this set of original bill of lading via payment by way of letter of credit. Xuzhou Tianye commenced a lawsuit at Shanghai Maritime Court on June 28, 2011 on the grounds that the carrier had breached the obligations of reasonable dispatch and without deviation, petitioning the Court to order the carrier to indemnify for the loss arising out of the drop of market price, CNY 14.14 million, and the interest thereon.
[Judgment]
Shanghai Maritime Court held after the trial of first instance that the suspension of voyage, goods-drying and inspection by the carrier at the loading port and Davao Port do not constitute a breach of reasonable dispatch obligations, and thus dismissed the claims of Xuzhou Tianye. Xuzhou Tianye, dissatisfied with the Judgment and appealed.
High Court of Shanghai Municipality held in the trial of second instance that Maritime Lijiang’s stay by deviating from Davao Port was deemed unreasonable deviation; however, since Xuzhou Tianye could not prove the objectivity and reasonableness of the loss arising from the resale of its goods, the court dismissed the appeal and upheld the original judgment. Both Parties were dissatisfied with the judgment of the second instance and applied for a retrial.
The Supreme People’s Court, after due examination, held that upon the mutual agreement of the two parties, the dispute arising in this case shall be governed by the laws of the People's Republic of China; China is the signatory state to International Convention for Safety of Life at Sea 1974, as amended, and the International Maritime Solid Bulk Cargoes Code (hereinafter, the Bulk Cargoes Code, pursuant to the terms of this Code, it became effective as to China as of January 1, 2011); in accordance with the Bulk Cargoes Code, the consignee shall, prior to loading, supply the captain or his representative with a statement and inspection certificate containing proper information on the moisture, transportable moisture limit and other relevant information for goods that may be liquefied, so that necessary measures could be taken to properly stow and safely transport the goods; except for those loaded on a vessel exclusively built up for that purpose or a vessel equipped with exclusive equipment, goods that may be liquefied shall only be loaded and shipped where the actual moisture is less than the transportable moisture limit. Both inspection reports and other evidence provided by the consignor and carrier failed to set forth the transportable moisture limit applicable to goods of a dimension of more than 7 millimeters or 6.7 millimeters and the moisture limit applicable to the whole batch of goods. Therefore, the argument of the carrier that it determined that the goods were not fit for safe transportation at the loading port is sound both in law and in fact, and thus the vessel’s arrival at Davao Port shall be deemed as reasonable deviation. In light of the above, the Court dismissed the application of the Parties for retrial.
[Significance]
This case is about a dispute over goods transportation at sea contract in a country covered by the “Belt and Road” initiative. The Supreme People’s Court has conducted a review of the retrial application and delivered a ruling, which is significant in the following aspects. Firstly, the ruling filled in the gap in international maritime rules and proposed a reasonable adjudication standard. The Bulk Cargoes Code has express provisions on the comparison method regarding the moisture of single fine particles and their transportable moisture limit (TML), but does not have provisions on the comparison regarding bulk solid cargoes, which are a combination of single fine particles and goods of large volumes (whether to compare the overall moisture with the TML of fine particles, or compare the moisture of the fine particles of the same type to the TML of fine particles of the same type) as in this case. The inspection report issued by the consignor and carrier did not set forth the TML of goods of a dimension greater than 7 millimeters or 6.7 millimeters and the TML of the whole batch of goods (which is likely to be attributable to the restraints of the flow plate method). However, after a purposive interpretation of the system and context of applicable terms under the Bulk Cargoes Code by the Supreme People’s Court, the Court held, in the spirit of maintenance of marine transportation safety, that the TML as referred to in the Bulk Cargoes Code shall refer to the TML of the whole batch of goods, not merely that of fine particles contained therein, and that the transportability of goods shall be determined by comparing the moisture content of the whole batch of goods and the TML of the whole batch of goods; since the inspection report issued by the consignor did not mention the moisture content and the TML of the whole batch of goods, the carrier had reasonable ground to determine that the goods were not transportable in a safe manner. Secondly, in order to maintain the ocean transportation safety in the countries covered by the “Belt and Road” initiative, this ruling plays a leading and guiding role. Indonesia, the Philippines and other Southeast Asian countries are the main production areas in the world for nickel mines, and the demand for nickels in the world growing during the last decade. Nickel ores are bulk solid goods that are easily liquefied and where the actual moisture content exceeds TML, they may be subject to liquefaction, resulting in a loss of stability of the vessel and hence the wreckage of the vessel. Simultaneously, from October 27 to December 3, 2010, three vessels (JianFuStar, NascoDiamond and HongWei) carrying nickel ores sunk during their voyage from Indonesia to China, with 44 Chinese seamen reportedly dead or missing; from December 25, 2011 to August 14, 2013, another three vessels carrying Indonesia Nickel ores, VinalinesQueen (Vietnamese vessel), HaritaBauxite (Panamanian vessel) and TransSummer (Hong Kong vessel), sunk with a casualty of 37 seamen. A number of risks and complexities exist for transportation of this type of goods, including false statement by the consignor of moisture content, the lack of representativeness of sample collection and inspection, rainy weather at the time of stacking in open areas and loading and other factors. Thus, the carrier is obligated to diligently conduct observation, inspection and monitoring, and shall timely raise doubts to the consignor when it has reasonable ground to doubt the transportability of the goods, and may reject the loading. This case is one example of successful and timely avoidance of ship wreckage regarding a vessel carrying solid goods that may be liquefied. The Supreme People’s Court, on the ground that the carrier has reasonable ground to believe that the moisture content in the goods is excessively high, upheld the suspension of voyage and drying goods and other reasonable measures taken by it, which is an embodiment of the principle of maintenance of ocean transportation safety.
Case No. 10
Determining the Fees for the Extended Use of Shipping Containers According to Law
Maintaining the Fairness of Shipping Trade Order
——A.P. Moller-Maersk AS v. Shenzhen Branch of Shanghai Chanlian Xieyun Logistics Co., Ltd. and Shanghai Chanlian Xieyun Logistics Co., Ltd. (Retrial case concerning dispute over container demurrage in a contract on carriage of goods by sea)
[Basic Facts]
In January 2010, Shenzhen Branch of Shanghai Chanlian Xieyun Logistics Co., Ltd. (hereinafter referred to as “Chanlian”) entrusted A.P. Moller-Maersk AS (hereinafter referred to as “Maersk”) to ship five containers of goods from Huangpu, Guangdong to New Delhi, India. On February 23, the goods arrived at the port of destination and the shipper continued to change the consignee. However, no one had ever drawn the goods. On February 21, 2011, the goods were auctioned by Newport Customs in Mumbai, India. On February 28, the customs signed a bill of lading requesting Maersk to deliver the goods to the buyer. On February 27, 2012, Maersk filed a lawsuit requesting Shenzhen Branch of Chanlian and Chanlian to be jointly responsible for the container detention charge of INR 8,026,425, which was calculated from March 1, 2010 and equivalent to CNY 1,029,554.51 on the day of filing.
[Judgment]
This case was brought to Guangzhou Maritime Court for first instance and the High Court of Guangdong Province for second instance. Both courts held that this case is a dispute over a contract for the carriage of goods by sea. The limitation period for the action is one year, counting from the date on which an obligee knows or should have known that its rights have been infringed. The reason of the violation of Maersk's rights was that the containers provided by Maersk were occupied beyond the contracted period of time, and the damage continued uninterrupted until the goods were auctioned by the customs. Then the damage caused by the detention of containers was suspended and the amount of fees was fixed. Therefore, the limitation period for Maersk to exercise the right of claim should be calculated from the date on which the goods delivery notification was issued by the Newport Customs, Mumbai, India, i.e. from February 28, 2011 to February 27, 2012 on which Maersk filed a lawsuit in the first instance court and did not exceed one year’s limitation period. Due to the failure to take delivery, the containers involved in the case were occupied for a long period of time and could not be put into transport and production in the meantime time. The shipper, Shenzhen Branch of Chanlian, should be liable for compensation, and the container detention charge shall be limited to the price of repurchasing new containers. Therefore, it was decided that Shenzhen Branch of Chanlian and Chanlian should jointly compensate Maersk for the detention charge of the five containers involved of CNY 150,000. Shenzhen branch of Chanlian and Chanlian appealed to the Supreme People's Court for retrial. The Supreme People's Court determined to review the case.
In the view of the Supreme People's Court, after the goods involved in the case were transported to the port of destination, the consignee designated by the Shenzhen branch of Chanlian did not withdraw the goods, causing the containers provided by the carrier Maersk in performance of the transportation contract to be occupied for a long time and unable to be put into normal turnover, thus constituting a breach of contract. Maersk has the right to request the compensation of excessive use of the containers from the shipper Shenzhen branch of Chanlian for contractual damages due to the delayed performance of the obligation to return the containers in accordance with the contract of carriage of goods by sea. According to the Supreme People's Court's Reply to the Limitation Period of the Carrier's Requirement for Claims against Shippers, Consignees, or B/L Holders with regard to the Carriage of Goods by Sea, the limitation period for the claim is one year, counting from the date on which Maersk knew or should have known that the rights had been infringed. According to the confirmation of all parties, the shipper Shenzhen Branch of Chanlian should pay Maersk the container detention charge from March 1, 2010, and Maersk’s right to claim the payment of the container detention charge had already been generated--that is, Maersk knew or should have known that its rights had been infringed since March 1, 2010. Shenzhen branch of Chanlian made a promise through email on March 30 that the shipper would bear the container’s detention charge, which constituted the suspension of limitation as stipulated in Article 267 of the Maritime Code of the People's Republic of China. Therefore, this case should be counted from March 30, 2010. Maersk filed a lawsuit on February 27, 2012, which had exceeded the one-year limitation period, and lost the right to win the case. The Supreme People's Court set aside judgments of first instance and second instance and rejected Maersk's claim of action.
[Significance]
With the slowdown in global trade growth, the shipping market has also experienced a continuous downturn, resulting in the emergence of a large number of maritime disputes. The types of disputes have spread from the traditional cargo damage disputes and marine insurance disputes to the upstream and downstream chains. Among them, disputes over the fees for the extended use of containers have been rising in maritime cases in recent years. The number of problems arising during this period has also been increasing, including the categorization of legal relations, the calculation standards of the fees, and the calculation of limitation period, etc.. The standards of domestic judicial practice in China have not been unified and the international treatment of such disputes is not the same, causing the relevant shipping companies at a loss of rules to follow in practice. Through the review and correction of the case, the Supreme People's Court has made a clear determination of the nature of the dispute over the fees for the extended use of containers in the contract for the carriage of goods by sea and the issue of limitation of action. The judgment of this case is a decision with foreign maritime element, which has aroused widespread concern and attention from Chinese and foreign shipping enterprises. The judgment result protected the right of the shipping enterprise to claim compensation for the extended use of the containers in accordance with law. Meanwhile, it has clarified how shipping enterprises should claim rights against the shippers or consignees in time during the limitation period of legal action while providing legal support for Chinese and foreign shipping enterprises to take active legal measures to effectively protect their lawful rights and interests. It has also established a unified standard for China's maritime judicial practice. China is a large oceanic, shipping and trading country, with extensive strategic interests in the oceans. The strategy of the “Belt and Road” is an important measure for building a strong maritime nation. A fair and efficient judicial system is an indispensable element in safeguarding the “Belt and Road" strategic and healthy economic environment. The trial of the case has fully played the role of maritime trials in providing judicial guarantees for the building of the “Belt and Road”. Moreover, it offered equal protection of the lawful rights and interests of Chinese and foreign parties in accordance with the law, improved the international credibility of China’s maritime trials and created a good legal environment for the building of the “Belt and Road”.
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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.