Shipowners success in China’s Supreme Court: no change in cargo condition during transit
The Club has in recent years experienced a large number of cargo claims in China arising from the shipment to China of agricultural products especially soyabeans. The Club supported Shipowner members in a recent case and successfully defended a claim for alleged damage to a cargo of DDGS before the Chinese Supreme People’s Court with the assistance of UK solicitors Waterson Hicks and PRC lawyers Wang Jing & Co. The Supreme Court set out a number of principles which may be usefully applied in future cases involving alleged damage to grain and other bulk agricultural cargoes particularly where damage is believed to be of preshipment origin.
The Vessel “TOBA” arrived at Huangpu in October 2015 with a cargo of 55,000 mt Distiller's dried grains with solubles (DDGS) loaded at Destrehan, Louisiana. Immediately upon arrival the Receivers alleged cargo damage on the grounds the cargo was caked and burned. The Receivers set about segregating the DDGS into separate warehouses according to the lightness of its colour. The Receivers’ surveyors refused to allow Owners’ surveyors to observe the sampling of the cargo.
Some 26,000 mt of the lighter coloured cargo was sold and, over two months later, Receivers alleged that the remaining 29,000 mt of darker cargo was off-specification due to a Hunter-L value below the contractually agreed value of 50. A higher Hunter-L value represents a lighter colour which is considered more desirable by Receivers in China. The cargo’s Certificate of Quality recorded a Hunter-L value of 50.8. The cargo sample relied on by Receivers returned a Hunter-L value of 42.5. It was clear that sampling of the darker 29,000 mt balance of cargo would return a lower Hunter-L value than if a proper composite sample of the whole 55,000 mt cargo had been tested.
The Guangzhou Maritime Court rejected Owners’ arguments that on the evidence the Receivers had failed to discharge the burden upon them to show that the cargo had been damaged during transit. The GMC found that the condition of the cargo had altered during the period of responsibility of the Vessel - i.e. during transit - because the Hunter-L value of the cargo had decreased and Owners had failed to prove otherwise.The GMC also rejected Owners’ inherent vice defence made under Article 51(9) of the Chinese Maritime Code. On appeal, the Guangdong Higher People’s Court upheld the GMC’s decision and determined that the Bill of Lading recorded the cargo was in apparent good condition and the Master had failed to record on the Bill of Lading that the cargo was of different colours. Accordingly, it found Owners responsible for the different colours of the cargo as discharged.
The issues for determination in the Supreme Court were (1) whether the goods were damaged during the carrier’s period of responsibility and (2) whether the Master should have annotated on the Bill of Lading that the cargo was of different colours.
The Supreme Court held that Article 46 of the CMC places the responsibility upon the carrier for damage to cargo arising during the period between loading and discharge of cargo. By Article 67 of the Chinese Civil Procedure Law, the burden of establishing damage during the carrier’s responsibility period rests with the party bringing the claim.
In this case, Owners had submitted evidence to show there were different colours of DDGS when the cargo was loaded from 42 barges at Destrehan and that a composite sample of the cargo from these barges gave a Hunter-L value of 50.8. Overruling the local CCIC inspector, the Court found the Receivers’ sample surveys at the discharge port were unreliable and did not prove either a change in colour during transit or temperature increases in the cargo which might explain a change in colour of the cargo and the cargo was discharged in the same condition as when loaded. The Receivers had failed to discharge the burden upon them under Article 67 of the Civil Procedure Law to show that the cargo changed condition during the carrier’s period of responsibility.
Under Articles 75 and 76 of the CMC, the carrier has the right to make annotations to the Bill of Lading when the carrier deems the condition of the cargo unsatisfactory. If no annotation is made, the carrier will bear the consequences. DDGS is known to have different colours which indicate the quality of the cargo. However, the law did not expect the Master or crew to assess with precision a dusty cargo loaded through conveyors and grabs nor did it require the carrier to annotate the internal quality of the cargo. It was not necessary for the Master to annotate or clause the Bill of Lading, in particular because the Bill of Lading did not specify any colour features of the cargo. The Master and crew were not expected to have expert knowledge of DDGS. It was therefore reasonable for the Master not to annotate the Bill of Lading and to leave it marked as in apparent good order and condition.
This case highlighted the benefit of proactiveness in defending cargo claims in China. The early appointment of surveyors at the discharge port to monitor and fully document the discharge process is essential as is taking proper representative samples of the cargo upon outturn.
This article was prepared with the input of John Hicks and Edward Bayliss of Waterson Hicks who acted for the successful Shipowners.