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Maritime Law and Practice in China

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CHAPTER 7

Bill of lading: Obligations, liabilities and limitation

Bill of lading: Obligations, liabilities and limitation

 7.1 In the CMC 1992, the carrier has obligations of seaworthiness, management of goods and reasonable despatch. The carrier is liable for the damage to or loss of goods during its responsibility period and for the economic loss caused by delay in delivery of goods. The carrier is entitled to legal exemptions and limitation of liability. Both the carrier and the shipper are responsible for delivery and taking delivery of goods. The shipper has obligations of payment of freight. The shipper is liable for the shipment of dangerous goods and other faults. In contrast, the shipper has no limitation of liability.

Obligations of carrier

Period of responsibility

7.2 In the CMC 1992, the responsibility of the carrier with regard to the goods carried in containers covers the entire period during which the carrier is in charge of the goods, starting from the time the carrier has taken over the goods at the port of loading, until the goods have been delivered at the port of discharge. In container carriage, it is believed that the carrier begins to take over the goods in the container when the container arrives in the container yard and the responsibility period commences accordingly. The carrier is liable for the damage to the goods when the container is moved from the yard to the ship.1 The delivery that ends the responsibility period is when there is actual delivery. The issue and acceptance of a delivery order does not signify the end of the carrier’s responsibility period so long as the goods are still controlled by the carrier.2 7.3 In the CMC 1992, the responsibility of the carrier with respect to non-containerised goods covers the period during which the carrier is in charge of the goods, starting from the time of loading of the goods onto the ship until the time the goods are discharged therefrom. The period of responsibility does not prevent the carrier from entering into any agreement concerning the carrier’s responsibilities with regard to non-containerised goods prior to loading onto and after discharging from the ship.3 The responsibility period for the bulk liquid cargo is different because of different method of loading and discharge.

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The responsibility period of bulk liquid cargo ends at the time of connection between the ship pipeline and the shore tank pipeline, not the time when all bulk liquid cargo has been discharged into the shore tank.4

Obligations

7.4 In the CMC 1992, the carrier shall, before and at the beginning of the voyage, exercise due diligence to make the ship seaworthy, properly man, equip and supply the ship and make the holds, refrigerating and cooling chambers and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.5 This seaworthiness obligation is similar to that of the Hague-Visby Rules.6 The carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.7 The carrier may be liable for physical damage to the goods if it fails to properly and carefully carry and care for the goods, e.g. the self-ignition of fishmeal due to careless stowage and unsafe keeping of the carrier.8 The carrier may also be liable for the economic loss of the goods due to its own fault, e.g. the forfeiture of goods by the customs due to the lack of the manifest of the goods.9 7.5 The carrier has the obligation of reasonable despatch without unjustifiable deviation in the CMC 1992. The carrier must carry the goods to the port of discharge on the agreed or customary or geographically direct route. Justifiable deviation means any deviation in saving or attempting to save life or property at sea or any reasonable deviation.10 The reason ableness of deviation is a question of fact. In Xuzhou Tianye Metal Resources Co Ltd v San Clemente Shipping SA and Tokyo Sangyo Kaisha Ltd,11 the carrier carried the goods from North Konawa, Indonesia to Lianyungang, China. For purposes of drying goods and adding fresh water and other supplies, the carrier deviated to Davao, Philippine. The consignees claimed against the carrier for economic loss caused by the delayed delivery of goods due to the deviation. It was found that Davao is close to the customary route of carriage and it only took a short time to deviate to Davao. Therefore, it was difficult to prove the causation between such a deviation and the economic loss due to the delayed delivery. 7.6 In shipping practice, the slot exchange agreement is common in liner carriage. In judicial practice, such an agreement is not a good excuse for breach of the obligation of reasonable despatch. In Globe Express Services (Shanghai) Ltd v China Shipping Container

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Lines Tianjin Co Ltd and China Shipping Container Lines (Hong Kong) Co Ltd,12 the carrier agreed to carry the goods from Tianjin, China to Ashdod, Israel with transhipment in Shanghai by ZIM China Ltd on a certain date. The goods were delayed in Shanghai for a long time. The shipper had to arrange the carriage of goods by air and claimed against the carrier for the payment of air freight. The carrier argued that the transhipment was subject to the slot exchange agreement between the carrier and ZIM Israel Navigation Co Ltd and it could not arrange the transhipment because the slot space was full. This argument was rejected by the Shanghai Maritime Court. It was held that the slot exchange agreement was not a valid defence and the carrier breached the obligation of reasonable despatch.

Liabilities, exemptions and limitation of liability of carrier

Liability for loss, damage and delay

7.7 During the period the carrier is in charge of the goods, the carrier is liable for loss of or damage to the goods, except those arising or resulting from causes for which the carrier is not liable as provided for in the CMC 1992.13 The carrier is liable for damage to the goods if he fails to care for the goods during the period of responsibility even if the damage occurs after the period due to such failure.14 Besides the liability for the loss of or damage to goods, the carrier is also liable for loss of or damage to the goods and economic losses even if no loss of or damage to the goods had actually occurred that was caused by the delay in delivery due to the fault of the carrier. However, this liability is exempted by those arising or resulting from causes for which the carrier is not liable as provided for in the CMC 1992. Delay in delivery occurs when the goods have not been delivered at the designated port of discharge within the time expressly agreed upon.15 The person entitled to make a claim for the loss of goods may treat the goods as lost when the carrier has not delivered the goods within 60 days from the expiry of the time for delivery.16 7.8 In Chinese judicial practice, the shipper may not be entitled to claim against the carrier for loss caused by delay in delivery if it has transferred the bill of lading. In Zhejiang Tea Group Co Ltd v CMA CGS SA,17 the seller as the shipper received the payment of the price of the goods with deduction from the buyer because of delay in delivery of the goods. The seller claimed against the carrier for the loss of the deduction. The Ningbo Maritime Court pointed out that only the buyer as the bill of lading holder had the title to sue and the seller failed to prove that the buyer had assigned such a title to the seller. Therefore, it was held that the seller had no title to sue the carrier. It is commonly understood that the rights of suit will be transferred when the bill of lading is transferred. However, the transfer of

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the bill of lading does not mean that the shipper will cease to be a contractual party to the contract of carriage of goods by sea. If the bill of lading holder had paid the full price of the goods but suffered loss due to the delay in delivery, it might claim against the carrier for such a loss. However, when the buyer chose to be compensated by the deduction of payment of price, the seller actually suffered the loss due to the delay in delivery. There is no reason to deny the seller’s title to sue the carrier. 7.9 Where loss or damage or delay in delivery has occurred from causes from which the carrier or his servant or agent is not entitled to exoneration from liability, together with another cause, the carrier shall be liable only to the extent that the loss, damage or delay in delivery is attributable to the causes from which the carrier is not entitled to exoneration from liability; however, the carrier bears the burden of proof with respect to the loss, damage or delay in delivery resulting from the other cause.18

Liability for live animal and deck cargo

7.10 The carrier shall not be liable for the loss of or damage to live animals arising or resulting from the special risks inherent in the carriage thereof. However, the carrier has the burden to prove that he has fulfilled the special requirements of the shipper with regard to the carriage of the live animals and that under the circumstances of the sea carriage, the loss or damage has occurred due to the special risks inherent therein.19 Where the carrier intends to ship the goods on deck, he shall come to an agreement with the shipper or comply with the custom of the trade20 or the relevant laws or administrative rules and regulations. When the goods have been so shipped on deck, the carrier shall not be liable for loss of or damage to the goods caused by the special risks involved in such carriage. Otherwise, if the carrier has shipped the goods on deck and the goods have consequently suffered loss or damage, the carrier shall therefore be liable.21

Assessment of liability

7.11 In the CMC 1992, the amount of indemnity for the loss of the goods shall be calculated on the basis of the actual value of the goods so lost, while that for the damage to the goods shall be calculated on the basis of the difference between the values of the goods before and after the damage, or on the basis of the expenses for repair. The actual value is the value of the goods at the time of shipment plus insurance and freight. When the price of goods in the sale of goods contract is different from the price in the customs declaration, the latter price shall prevail.22 At the time of compensation, deduction is to be made of the expenses that had been reduced or avoided as a result of the loss or damage occurred.23 If damage occurs before or at the beginning of the carriage, the freight will not

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be added for compensation if it is not paid.24 In judicial practice, any economic damage of delay and reputation due to the loss of goods is not within the scope of compensation from the carrier.25 7.12 Although the CMC 1992 provides the methods for calculation of loss or damage, if the goods are damaged and not assessed for the damaged value but sold with discount, the assessment of such liability had not been certain until the decision of the SPC in Shanghai Senfu Industrial Co Ltd v Hachiman Shipping S.A. and Dorval Kaiun KK.26 In this case, the goods of 1,400 tons of phenol were damaged and sold by the consignee to a third party in the port of discharge at the price of Renminbi (RMB) 4,700 per ton although the highest offer was RMB 5,000 per ton. The original price of the goods was RMB 14,668,844.40 at the port of shipment. In the first instance, the Qingdao Maritime Court took the view that it was reasonable to calculate the damage on the basis of the expenses for the repair because the actual value of the damaged goods at the port of discharge was not proved.27 This method was overruled on appeal of this case. 7.13 The Shandong High People’s Court pointed out that the repair method should not be adopted because the goods were not actually repaired. It was held that the damage to the goods should be the difference between the original price at the port of shipment and the price based on the highest offer at the port of discharge. Therefore, the damage was RMB 7,668,844.40 (7,668,844.40 = 14,668,844.40 – (5,000 × 1,400)). However, the method of the court of appeal was overruled in the retrial of the case. The SPC pointed out that the method of assessment of damage to the goods in the CMC 1992 does not count the market loss. In other words, the actual value of the goods in the port of discharge was not the market value of the damaged goods. It complies with the compensation principle in the Contract Law.28 The court of appeal took into account the highest offer for the damaged goods in the market at the port of discharge. It meant that the market price was used for the calculation of the damage. The SPC pointed out that the carrier should not be liable for the market loss due to the damage to the goods. It was found that the average market price at the port of discharge was RMB 5,850 per ton. The SPC first calculated the depreciation rate which was 19.66 per cent ((5,850 – 4,700)/5,850). Then the SPC calculated the damage based on the depreciation rate plus the insurance of the goods which was RMB 2,887,071.96 ((14,668,844.40 + 16,160.47) × 19.66 per cent). The SPC’s method of assessment of damage to the goods has now been adopted by Chinese maritime courts, particularly where the market price of the goods varies.

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Exemptions

7.14 In the CMC 1992, the carrier shall not be liable for loss of or damage to goods that occurred during the period of the carrier’s responsibility arising or resulting from any of the following causes:29
  • (1) fault of the master, crew members, pilot or servant of the carrier in the navigation or management of the ship;30
  • (2) fire,31 unless caused by the actual fault of the carrier;32
  • (3) act of God and perils, dangers and accidents of the sea or other navigable waters;33
  • (4) war or armed conflict;
  • (5) act of the government or competent authorities, quarantine restrictions or seizure under legal process;34
  • (6) strikes, stoppages or restraint of labour;
  • (7) saving or attempting to save life or property at sea;
  • (8) act of the shipper, owner of the goods or their agents;
  • (9) nature or inherent vice of the goods;35
  • (10)

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    inadequacy of packing or insufficiency or illegibility of marks;
  • (11) latent defect of the ship not discoverable by due diligence; and
  • (12) any other cause arising without the fault of the carrier or his servant or agent.36

The carrier who is entitled to exoneration from liability for compensation as provided for in the preceding paragraph shall, with the exception of the causes given in sub-paragraph (2), bear the burden of proof.

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