Iron ore cargo shortage claim dismissed : Chinese court holds carrier only responsible for B/L wet ton quantity
Introduction
Recently, a substantial number of cargo shortage claim cases involving iron ore, soy bean, and crude oil etc. are being filed with Chinese courts. Especially in terms of carriage of iron ores, not only in Chinese courts, due to too frequent occurrence of iron ore shortage disputes, the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China (AQSIQ) and its branches have issued various warnings and notices alerting Chinese merchants dealing with import of iron ores.
As appreciable, cargo shortage claims may generally just involve a small claim amount and in the golden times of shipping, this will not be a big problem and cargo shortage may be settled instead of being filed at court. However, during this long winter in the shipping industry, for carriers every coin has its value and considering the frequent occurrence of such cases, it makes sense to defend such claims as much as possible.
In terms of legal defences, carriers may generally argue that the shortage is caused by a calculation/measurement error, that it is a matter of inherent vice of the goods, that the carrier is not liable for 0.5% reasonable loss, or that the carrier can be exempted on the basis of an unknown clause in the B/L. The carrier may also argue that it should not be responsible for the dry tons of cargo, and the carrier may also try to challenge the authenticity and accuracy of the load port moisture certificate. By the end of year 2014, an appeal court of China rendered a judgment to dismiss a cargo claim case and the most eye-attracting point of the appeal judgment is that the court holds the carrier responsible only for B/L wet ton quantity. The facts and legal reasoning of this judgment are summarized herewith for club/members' attention.
Summary of this cargo shortage case
Seller A and buyer B concluded a contract for the sale of STANDARD SINTER from Brazil to China. On 27 August 2012, seller presented a Certificate of Moisture and Transport Moisture Limit to carrier X which recorded that the moisture content was 7.82%. Seller also issued Certificate of Weight and Certificate of Analysis, which recorded that the cargo was 166,379 wet tons with moisture at 7.30%. On 2 September 2012, B/L issued with cargo quantity as 166,379 wet tons. Afterwards, the vessel arrived in China and as surveyed by CIQ (China Entry-Exit Inspection and Quarantine Bureau), the cargo was 164,633 wet tons with moisture at 7.37%. After compensating the cargo interest, the cargo insurer Y lodged claim against carrier X before Shanghai Maritime Court (SMC), which dismissed the claim of Y. Y appealed to Shanghai High People's Court (SHPC) and the appeal court maintained the judgment of SMC for reasons that [1]:
- Y's reasons of appeal is that: the seller is one of the largest iron ore traders in the world and its Certificate of Weight should be recognized; compared with the dry quantity in the load port and the discharge port, there is cargo shortage; it is wrong for SMC to decide that this Certificate of Weight only has binding effect on shipper and consignee, and has no binding effect on carrier; it is wrong for SMC to admit the water pumping record of the vessel and related emails, which are just documents provided by the carrier X unilaterally.
- X's reasons of appeal defence is that: the load port Certificate of Moisture (whether being stamped by the master or not) has no binding effect on the carrier; as a matter of international practice, bulk iron ores will be transported on wet ton basis; it is against international practice to require carrier to compensate on basis of dry tons; there is no shortage on basis of wet tons, and the carrier should not be liable.
- SHPC decides that: (1) As per Art. 71 of Chinese Maritime Code, B/L is the evidence for the carriage of goods by sea contract. The B/L recorded that the cargo is 166,379 wet tons STANDARD SINTER, and this means that the cargo quantity is weighted on wet ton basis. (2) As such, during the involved sea carriage, wet ton is the weighing standard regarding the cargo, unless there is special agreement between shipper and carrier to use dry ton. However, in this case, there is no evidence to prove that the shipper and carrier agreed to do so. (3) Although the cargo papers provided in the load port have record of the moisture content, submitting such docs to carrier is a requirement under the BC Code and its purpose is just to ensure safe carriage of the goods. Carrier's stamping on such certificates cannot change the weighing standard in the B/L (i.e. wet ton). (4) In terms of the sales agreement, the related clauses regarding sales price on dry ton basis has no binding effect on carrier. (5) The involved cargo contains moisture and water will seep out during sea carriage. To ensure safe carriage, the carrier pumped out some water and the carrier has provided relevant evidence (water pumping log and the related emails), which can prove that some 1,753.20 tons of water was pumped out. (6) Based on comprehensive consideration of the draft survey figures at load/discharge port, the water pumping record, and the reasonable calculation error, SMC decides that there is no cargo shortage. Such determination of SMC is reasonable and shall be maintained by the appeal court.
Our observation and comment
It is generally recognized that the B/L is prima facie evidence of receipt of the goods described except when it has been transferred to a bona fide third party when it becomes conclusive evidence. As such, in terms of adducing opposite evidence to rebut the B/L quantity or invoking defences such as 0.5% reasonable loss etc, in judicial practice it is hard to get support from court. However, to what extent the records in B/L can be binding on the carrier, i.e., B/L wet tons or B/L wets tons minus moisture, is an arguable legal issue to be explored. Further, if the court needs to make a determination regarding cargo shortage on dry tons, it then has to give a decision regarding evidentiary value of the two evidences, i.e., shipper's moisture certificate in load port and carrier's water pumping log regarding quantity of water being pumped out during sea carriage.
In this case, SHPC adopted a relatively easier middle way, i.e., it does not say whether the load port moisture certificate is accurate, or whether the water pumping log can be admitted as effective evidence. The core issue of SHPC's decision is that since there is no special agreement between shipper and carrier regarding dry tons, the carrier is just responsible for wet tons in the B/L. From a consensus point of view, plainly there will not be an agreement or contract clause between carrier and shipper/consignee regarding using dry tons as measurement standard. As such, we think SHPC's legal reasoning is persuasive and it may not be easy to have it further challenged to a higher court (e.g. the Chinese Supreme Court). Although China is not a case law country and this is not a judgment of the Chinese Supreme Court, it should still be a welcomed judgment to carriers and such defences should be referred to in handling of similar cases.
[1] Trial court of this case: Shanghai High People's Court, PRC; Case no.: [2014] HGMS[H]ZZ No. 137; Dated: 12 December 2014
The Association is grateful to Peng Xianwei (Philip Peng) at Hai Tong
& Partners, Beijing, for contributing to this article. Email: philip.peng@haitonglawyer.com