Second Group of Model Cases Involving Construction of the “Belt and Road” Published by China Supreme People's Court

 2018-08-02  8


· Area of Law: Release of Judicial Cases Belt & Road Initiative

· Level of Authority: Documents of Judicial Interpretation Nature

· Date issued:05-15-2017

· Effective Date:05-15-2017

· Issuing Authority: Supreme People's Court

· Status: Effective

 

Second Group of Model Cases Involving Construction of the “Belt and Road” Published by China Supreme People's Court
(May 15, 2017)
Case No. 1
Accurately Applying the Principle of Contract Interpretation and Clarifying the Nature of the Right of the Holder of the 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 Company”) concluded a Contract on Trade Financing Quota and a Special Agreement on Issuance of a Letter of Credit and the relevant appendixes. It was stipulated that Liwan Subbranch provided Lanyue Energy Company with the trade financing quota not exceeding CNY550 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 Company”) and other guarantors concluded guarantee contracts. In November 2012, Lanyue Energy Company filed an application with Liwan Subbranch for issuing a usance L/C of CNY85.92 million. For the purpose of issuing the L/C, Lanyue Energy Company submitted the Trust Receipt to Liwan Subbranch and they concluded a Contract on Pledge of Margins. The Trust Receipt confirmed that from the date of issuance of receipts, Liwan Subbranch obtained the ownership of documents and goods involved under the aforesaid L/C, Liwan Subbranch was the settler and beneficiary, and Lanyue Energy Company was the trustee of the trusted goods. After the issuance of the L/C, Lanyue Energy Company imported 164,998 tons of coal. Liwan Subbranch accepted the L/C and paid CNY84,867,952.27. After performing the 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 Company 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 Zhuang Autonomous Region 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 Company should pay off the principal of CNY84,867,952.27 under the L/C and the interest thereof; confirm that 164,998 tons of coal under the L/C was owned by Liwan Subbranch and Liwan Subbranch enjoyed the priority of compensation from the disposal of coal under the bill of lading; and Yuedong Electric Power Company and other guarantors should assume the guarantee liability.
[Adjudication]
The judgment of first instance rendered by the Intermediate People's Court of Guangzhou City, Guangdong Province supported the claim of Liwan Subbranch that Lanyue Energy Company should repay the principal and the interest and the guarantors should assume the corresponding guarantee liability. However, on the ground that the delivery of the Trust Receipt and the bill of lading could not be against a third party, the Intermediate People's Court of Guangzhou City rejected the claim of Liwan Subbranch for confirmation of the coal ownership and the priority of compensation. Liwan Subbranch refused to accept the item of the judgment of first instance that Liwan Subbranch's claim for confirmation of the coal ownership and the priority of compensation should be dismissed, and it appealed. The Higher People's Court of Guangdong Province rendered 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: A bill of lading had dual attributes including certificate of creditor's rights and certificate of ownership, but 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 real right and which type of real right it could obtain depended on the contractual stipulations of the parties. Liwan Subbranch has 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 intention of transferring the ownership of goods, it could not be determined that Liwan Subbranch obtained the bill of lading, namely, ownership of goods under the bill of lading. In the Trust Receipt, guarantee was provided by transferring the ownership of goods under the bill of lading. Since the transfer of guarantee did not conform to the statutory principle of real rights, the effect of the real rights could not be produced, and the transfer of guarantee was obviously different from pledge of movables or pledge of rights, the Trust Receipt should not serve as the basis for identifying the establishment of the contract on the 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 Company breached the contract, Liwan Subbranch enjoyed the guarantee rights and had the right to dispose of documents and goods under the L/C. Therefore, according to the overall interpretation of the contract and characteristics of L/C trading, it was indicated that the true intentions of the parties on the guarantee rights and the disposal rights included the right of setting pledge of the bill of lading. This case satisfied two essential conditions for the establishment of pledge of right, namely, a written pledge contract and a publication of real 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 rendered a judgment upon retrial and confirmed that Liwan Subbranch enjoyed priority of compensation from money paid in the disposal of goods in the bill of lading under the L/C involved.
[Significance]
This case was about dispute over issuance of a foreign-related usance documentary L/C and the issue was the nature of rights of the holder of the bill of lading. In the trading of international sales of goods by means of a documentary L/C, there was no final conclusion on which types of rights enjoyed by the issuing bank that legally held a bill of lading after payment for goods under the bill of lading in judicial practice and opinions varied. The judgment of this case has given clear answers to the legal attribute of the bill of lading, the legal significance of the trust receipt, which types of rights enjoyed by the holder of the bill of lading, and other difficult and complex problems. It has key guidance 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 such dual attributes as certificate of creditor's rights and 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, 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 Financing Quota, the Special Agreement on Issuance of a Letter of Credit, and the Trust Receipt as a whole, explored the true intentions of the parties by means of contract system interpretation and in light of the underlying mechanisms and conventions, so that the issuing bank enjoyed the right of pledge of the bill of lading, the autonomy of the parties was truly respected, and the priority of compensation of the issuing bank was safeguarded according to the law. In the construction of the “Belt and Road,” as the “life blood of international commercial transactions,” the documentary L/C has played vital functions 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 avoided puzzles to international trade due to absence of rules, and fully reflected the spirit of strict judicial justice.
Case No. 2
Respecting Autonomy of the Parties and 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. (Appeal case concerning dispute over a brokerage contract)
[Basic Facts]
On February 26, 2009, Wanjia Financing Consulting PLC (hereinafter referred to as “Wanjia Company”) registered and founded in British Virgin Islands and Ye concluded an Agreement on Financing Service and Confidentiality with Zhongyu Building Materials Co., Ltd. (hereinafter referred to as “Zhongyu Company”). According to the Agreement, Ye and Wanjia Company introduced investors for Zhongyu Company's financing of capital and Zhongyu Company would pay the financing service charge that was 9% of the amount of actual investment in two parts. 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 and the other 5% thereof would be injected into Zhongyu Company or a listed company designated by Zhongyu Company as strategic investment funds according to the equivalent clauses of investors. Afterwards, Wanjia Company and Ye successfully introduced investors for Zhongyu Company, but Zhongyu Company failed to pay the remuneration and a dispute was caused thereby. Wanjia Company and Ye filed this lawsuit with the Higher People's Court of Fujian Province and requested the Court to order that Zhongyu Company should pay the financing service charge in arrears and the interest thereof.
[Adjudication]
The judgment of first instance rendered by the Higher People's Court of Fujian Province partially supported the claims of Wanjia Company and Ye and ordered that Zhongyu Company should pay Wanjia Company and Ye the remuneration that was 5% of the amount of investment introduced by them depending on the actual circumstances. Wanjia Company, Ye, and Zhongyu Company refused to accept the judgment of first instance 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 will of both parties and it did not violate any provisions of the Chinese law. It was correct for the court of first instance to determine that the Agreement was legal and valid. Wanjia Company and Ye fully performed the contractual obligations and they had the right to obtain the corresponding remuneration according to the contractual stipulations. In other words, Wanjia Company and Ye may obtain the remuneration with the amount of 9% of the total amount of financing capital from Zhongyu Company. According to the contractual stipulations, 5% of the remuneration would be paid not in cash. As a matter of fact, it would involve the problem in which Wanjia Company and Ye served as investors of Zhongyu Company or the listed company it designated, be confronted with obstacles in terms of the Company Law, and be difficult to realize. Therefore, the Supreme People's Court determined that 5% of the remuneration should be paid in the same method taken for the other 4% of the remuneration. In the judgment of second instance rendered by the Supreme People's Court, the judgment of first instance was set aside, Zhongyu Company was ordered to pay Wanjia Company and Ye the remuneration with the amount of 9% of the total amount of financing capital obtained by Zhongyu Company, namely, CNY18,280,753 and 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 provides investors or fund-raisers with brokerage services and his or her right to claim remuneration should be protected by law. The Chinese court has fully respected the principle of party autonomy, determined the amount of brokerage remuneration according to the contractual stipulations, and appropriately adjusted the payment manner of the brokerage remuneration based on the actual situations. The practice of the Chinese court has 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 the Intermediary Bank for Its Fault and 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 was Tata Lucca Co., Ltd. (Cyprus), the beneficiary was Bain & Company, and the transferring bank and notifying bank was Beijing Branch. On the same day, Beijing Branch notified the beneficiary Bain & Company of the L/C and Bain & Company filed an application with Beijing Branch for transferring the L/C with Luyuan Company 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. The issuing bank indicated in the written notice on transferring the L/C received by Luyuan Company from Qixia Branch was Dnieper Credit Bank (Ukraine). After submitting the relevant documents, Luyuan Company did not receive funds under the L/C. Upon consultation and inquiry, Luyuan Company 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 erroneous information in the L/C made Luyuan Company believe that the L/C involved was issued by a bank and losses were caused, Luyuan Company filed a lawsuit with the No. 2 Intermediate People's Court of Beijing Municipality and requested the Court to order that Beijing Branch should compensate Luyuan Company CNY6,790,344 and the losses of interest and tax rebate of CNY246,606.06.
[Adjudication]
In the trial of first instance, the No. 2 Intermediate People's Court of Beijing Municipality held that: Beijing Branch had a fault in erroneously notifying the title of the issuer. It was one reason for Luyuan Company's losses, but it was not the only reason. Therefore, the No. 2 Intermediate People's Court of Beijing Municipality rendered a judgment that Beijing Branch should assume the liability of compensation for Luyuan Company's loss of CNY3.4 million and the interest loss calculated at the interest rate on deposits over the same period, and reject other claims of Luyuan Company. Both Luyuan Company and Beijing Branch refused to accept the judgment of first instance and appealed to the Higher People's Court of Beijing Municipality. In the trial of second instance, the Higher People's Court of Beijing Municipality held that: Beijing Branch had a gross negligence in erroneously notifying the title of the issuer. There was no evidence in this case proving that before receipt of the notice on transferring the L/C, Luyuan Company has expressly known the title of the issuer. There was causation between Luyuan Company'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, the Higher People's Court of Beijing Municipality rendered a judgment that Beijing Branch should pay Luyuan Company CNY6,749,265.85 and the interest loss calculated at the interest rate on deposits over the same period, and other claims of Luyuan Company should be rejected. Luyuan Company 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; and 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 (No. 500 Publication of ICC) to be 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 subparagraph 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 Luyuan Company erroneously believe that the issuer was a bank with good credit, accept the L/C, and suffer 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 that should be assumed by the party to the L/C that violated its obligations should be only limited to direct losses under the L/C. The loss of loan interest and the loss of export tax rebate claimed by Luyuan Company were expenses and interest that may be avoided and obtained if the underlying contract could be fulfilled and 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 rendered a ruling to dismiss Luyuan Company's application for retrial.
[Significance]
This case is about 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 and 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 guaranteeing the trading order and security based on L/C. First, the ruling of this case indicated that what were handled by all relevant parties to the L/C were only documents other than goods and services related to such documents or other activities. Therefore, the sole legal basis for judging loss caused by the fault of the intermediary bank must be the L/C itself and the loss could not be calculated based on the underlying contract, which has 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 predictability and determined that the scope of damages may not exceed the unpaid amount under the L/C and the interest, which has guaranteed the predictability 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 and has strong reference value for similar cases concerning dispute over L/C in the future construction of the “Belt and Road.”
Case No. 4
Abiding by Obligations of Enforcing the Arbitral Award as Prescribed in the New York Convention and Creating a Quality Legal Environment in Pilot Free Trade Zones
--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. (hereinafter referred to as “Golden Landmark Company”) and Siemens International Trade (Shanghai) Co., Ltd. (hereinafter referred to as “Siemens Company”) concluded a contract on supply of goods by means of invitation for bids. It was stipulated in the contract that Siemens Company should deliver equipment to the construction site before February 15, 2006 and if there was any dispute between the parties, they should submit it to the Singapore International Arbitration Centre for arbitral settlement. During the performance of the contract, the parties had a dispute. Golden Landmark Company initiated arbitration in the Singapore International Arbitration Centre and requested termination of the contract and suspension of payment for goods. In the arbitration procedure, Siemens Company initiated a counterclaim and requested full payment for goods, interest, and compensation for other losses. In November 2011, the Singapore International Arbitration Centre issued an arbitral award, in which the arbitration claims of Golden Landmark Company were dismissed and the arbitration counterclaim of Siemens Company was supported. Golden Landmark Company made a partial payment and it still owed the payment for goods and the interest thereof under the arbitral award, amounting to CNY5,133,872.3. In accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (namely, the New York Convention), Siemens Company instituted a claim in the No. 1 Intermediate People's Court of Shanghai Municipality for recognition and enforcement of the arbitral award issued by the Singapore International Arbitration Centre. Golden Landmark Company contended that: The arbitral award should not be recognized and enforced on the ground that both parties were Chinese legal persons and the place where the contract was performed was also within the territory of China. The civil relationship involved had no foreign-related factors. The agreement between both parties on submitting any dispute to a foreign arbitration institution was invalid. If the arbitral award involved was recognized and enforced, it would violate the public policy of China.
[Adjudication]
Upon level-by-level reports to the Supreme People's Court and obtaining a reply from the Supreme People's Court, the No. 1 Intermediate People's Court of Shanghai Municipality ruled to recognize and enforce the arbitral award involved in accordance with the provisions of the New York Convention. With respect to validity of the arbitration clause that any dispute in this case should be submitted to a foreign arbitration institution for arbitration, the key was to determine whether the contractual relationship in dispute involved any foreign-related factors. If there was any foreign-related factor, the arbitration clause was valid, vise versa. In view of the actual situations of subjects involved in the contract in this case and characteristics of performance of the contract, in accordance with the provisions of item 5 of Article 1 the Interpretation (I) of the Supreme People's Court on Several Issues concerning the Application of the Law of the People's Republic of China on Application of Law for Foreign-Related Civil Relationship, it may be determined that the contractual relationship in dispute was a foreign-related civil legal relationship on the following grounds: First, although both Siemens Company and Golden Landmark Company were Chinese legal persons and the place of registration for both of them was China (Shanghai) Pilot Free Trade Zone, both of them were exclusively foreign-owned enterprises in nature, and both of them were closely related to foreign investors. Second, the characteristics of performance of the contract in this case involved foreign-related factors, the equipment involved was first delivered from a foreign country to the pilot free trade zone for bonded supervision and then the formalities for customs clearance and tax payment were handled at appropriate time according to the needs of performance of the contract. The equipment involved was circulated from the pilot free trade zone to the outside place. At this point, the formalities for import of the goods have been completed. Therefore, the circulation of the subject matter of the contract had some characteristics of international sales of goods. The arbitration clause involved was valid. In addition, there was no conflict between the content of the arbitral award involved and the public policy of China. For this reason, recognition and enforcement of the arbitral award involved did not violate the public policy of China. In the meantime, the ruling also specified that Golden Landmark Company actually participated in all 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 application of Golden Landmark Company for refusing recognition and enforcement of the arbitral award involved on the ground that the arbitration clause was invalid violated the acknowledged legal principles of estoppel, good faith, and justice and reasonableness. Therefore, the claim of Golden Landmark Company should not be supported.
[Significance]
Free trade zones are basic platforms, key nodes, and strategic support for promoting the construction of the “Belt and Road” in China. Integrating with international established practice, giving support to the development of pilot free trade zones, and establishing sound mechanisms for international arbitration and settlement of other non-litigation disputes are conducive to strengthening the international credibility and influence of the Chinese rule of law. Under the background where pilot free trade zones promote the investment and trade facilitation reform, the ruling of this case attached necessary attention to determination of foreign-related factors in contract dispute between exclusively foreign-owned enterprises in the pilot free trade zone, confirmed that the arbitration clause was valid, and explicitly applied “estoppel.” It has practiced the concept of the New York Convention of “in favor of enforcement of the arbitral award” and reflected China's basic standpoint of abiding by obligations as prescribed in international treaties. In the meantime, this case has, from point to surface, promoted the breakthrough reform where enterprises within a pilot free trade zone selected foreign arbitration, which is a successful example of reproducible and propagable judicial experience in pilot free trade zones. In January 2017, the Supreme People's Court issued the Opinions on Providing Judicial Safeguard for the Construction of Pilot Free Trade Zones. The Opinions provided that where exclusively foreign-owned enterprises registered in the pilot free trade zone agreed on extraterritorial arbitration of any commercial disputes, the people's court should not determine that the relevant arbitration agreement was invalid only on the ground that the dispute involved no foreign-related factors; the Opinions also provided that where one party or both parties were foreign-funded enterprises registered in the pilot free trade zone and they agreed on extraterritorial arbitration of commercial disputes, if one party submitted the dispute for extraterritorial arbitration and claimed invalidity of the arbitration agreement after the issuance of the relevant arbitral award or if the other party raised no objection to the arbitration agreement in the arbitration procedure, but it claimed that the arbitration agreement should be invalid after the issuance of the relevant arbitral award on the ground that no foreign-related factors were involved, the people's court should not support such claim. The Opinions of the Supreme People's Court are conducive to building a more stable and predictable business environment ruled by law for the construction of the “Belt and Road.”
Case No. 5
Determining the Relationship of Reciprocity between China and Singapore and Recognizing and Enforcing the Commercial Judgment as Rendered by the Singaporean Court for the First Time
--Case concerning Application of Gore Group Co., Ltd. for Recognizing and Enforcing the Civil Judgment as Rendered by the High Court of Singapore
[Basic Facts]
Gore Group was a limited liability company established in Switzerland. In June 2016, it filed an application with the Intermediate People's Court of Nanjing City, Jiangsu Province and alleged that it and Jiangsu Textile Industry (Group) Import & Export Co., Ltd. (hereinafter referred to as “Textile Industry Group”) reached a settlement agreement for dispute arising from a sales contract. Since Textile Industry Group failed to perform the settlement agreement, in accordance with the jurisdiction clauses as stipulated in the settlement agreement, Gore Group filed a lawsuit with the High Court of the Republic of Singapore (hereinafter referred to as the “High Court of Singapore”), which rendered an effective judgment. Since Textile Industry Group and its property were within the territory of China, Gore Group requested the Intermediate People's Court of Nanjing City, Jiangsu Province to recognize and enforce the judgment rendered by the High Court of Singapore. In the opinions, Textile Industry Group stated that there was no provision on mutual recognition and enforcement of court judgments and rulings in the Treaty on Judicial Assistance in Civil and Commercial Matters between the People's Republic of China and the Republic of Singapore. In accordance with the provisions of Article 282 of the Civil Procedure Law of the People's Republic of China, the Intermediate People's Court of Nanjing City should reject the application of Gore Group.
The Intermediate People's Court of Nanjing City, Jiangsu Province found that: Upon legal summon by the High Court of Singapore, Textile Industry Group failed to appear in court. On October 22, 2015, the High Court of Singapore rendered a judgment that Textile Industry Group should pay Gore Group USD350,000 and the interest thereof and other expenses. Textile Industry Group also received the judgment. In January 2014, the High Court of Singapore once recognized and enforced the civil judgment rendered by the Intermediate People's Court of Suzhou City, Jiangsu Province.
[Adjudication]
The Intermediate People's Court of Nanjing City, Jiangsu Province held that the civil judgment involved was rendered by the High Court of Singapore. 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 the High Court of Singapore once enforced a civil judgment rendered by a Chinese court, according to the principle of reciprocity, the Chinese court may recognize and enforce qualified civil judgments rendered by the Singaporean court. It was found upon examination that the judgment involved did not violate the fundamental principles of the Chinese laws or the state sovereignty, security, and public interests. Therefore, in accordance with the provisions of Article 282 of the Civil Procedure Law of the People's Republic of China, on December 9, 2016, the Intermediate People's Court of Nanjing City ruled to recognize and enforce the civil judgment (No. 013 [2016], High Court, Singapore) as rendered by the High Court of Singapore on October 22, 2015.
[Significance]
In this case, the Chinese court recognized and enforced the commercial judgment as rendered 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 rendered 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 one third of countries along the “Belt and Road.” Therefore, the determination of whether there is relationship of reciprocity between both countries is crucial to whether the commercial judgments as rendered 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 rendered by the Chinese court, the judgment of this case determined that there was relationship of reciprocity between China and Singapore for the first time and according to the principle of reciprocity, the Chinese court recognized and enforced the commercial judgment as rendered by the Singaporean court. The practice of the Chinese court is a landmark in the mutual recognition and enforcement of commercial judgments as rendered by the Chinese and Singaporean courts and will greatly promote the judicial cooperation practice among countries along the “Belt and Road” in the recognition and enforcement of civil and commercial judgments.
Case No. 6
Applying the Uniform Rules for Demand Guarantees (ICC) as Agreed and 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 claim for compensation in an independent guarantee)
[Basic Facts]
Hyundai Motor Group Co., Ltd. (hereinafter referred to as “Hyundai Company”) was a company registered and founded in South Korea. It concluded a contract on the Supply of Diesel Generating Sets with Zhejiang ZGPT Holding Group Co., Ltd. (hereinafter referred to as “ZGPT Company”). It was stipulated in the contract that ZGPT Company filed an application with 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 manner for underlying transactions. It was stated in the independent guarantee issued by Zhejiang Branch to Hyundai Company that in the claim for compensation, Hyundai Company should submit the “duplicate of the order clean marine bill of lading specifying the informant of freight payable at destination notify as the applicant.” Afterwards, ZGPT Company failed to make payment on schedule. Hyundai Company made a claim for compensation to Zhejiang Branch and submitted the duplicate of a straight bill of lading, but its claim was refused. Hyundai Company filed a lawsuit with the Intermediate People's Court of Hangzhou City, Zhejiang Province and requested that Zhejiang Branch should pay USD6,648,010 under the independent guarantee and the overdue fine. Zhejiang Branch contended that: The claim for compensation made by Hyundai Company 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 Company's claims.
[Adjudication]
In 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 and the performance of the underlying contract was not a factor that should 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 of Zhejiang Branch conformed to the regulations and were valid. Therefore, the Intermediate People's Court of Hangzhou City rendered a judgment to dismiss Hyundai Company's claims. Hyundai Company refused to accept the judgment of first instance and appealed.
In the trial of second instance, the Higher People's Court of Zhejiang Province held that: An independent guarantee was a contract with legal 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 Company 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), which was the standard for examination of receipts as stated in the independent guarantee, in the examination of receipts, the issuer should apply the doctrines of format compliance and strict compliance. The duplicate of the straight bill of lading submitted by Hyundai Company was significantly different from the duplicate of the order bill of lading as requested by the guarantee involved in terms of the type of bill of lading. These two types of bills of lading were different in international trade and marine transportation. Zhejiang Branch refused the payment on the ground of noncompliance points, which conformed to the stipulations of the guarantee. Hyundai Company 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 Intermediate People's Court of Hangzhou City dismiss the appeal and affirmed the original judgment.
[Significance]
An independent guarantee has such primary functions as trading guarantee, credit conformation, and financing support. It has become a common financial guarantee instrument that is indispensable in the “Going-Out” of Chinese enterprises and the construction of the “Belt and Road.” In the trial of a case concerning claim for compensation in an independent guarantee, the people's court should fully respect and apply the international trading rules as stipulated by the parties, 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 Uniform Rules for Demand Guarantees (ICC) 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 points, 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 protected 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 rights and interests and effectively prevent financial risks.
Case No. 7
Correctly Defining the Nature of a Foreign-Related Equity Transfer Contract and Safeguarding the Rights and Interests of 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 Company was originally an exclusively foreign-owned enterprise. On September 14, 2010, it was transformed into a Sino-foreign joint venture and Lauritz Knudsen Electric Co. Pte. Ltd. (Singapore) (hereinafter referred to as “LKE Company”) was one of its joint venture partners. In October 2010, LKE Company and Shandong Huali Investment Co., Ltd. (hereinafter referred to as “Huali Company”) concluded an Agreement on Capital Increase and Share Expansion and they agreed that Huali Company invested CNY20 million in Erke Company and if LKE Company violated any terms of the Agreement, causing failure to achieve the purpose of the Agreement, Huali Company 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 Company would apply for being restructured to a limited liability company, the target company, after the restructuring, Huali Company would own 8 million shares of the target company. After October 10, 2013, Huali Company 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 Company 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 Company concluded an Agreement on Capital Increase and Share Expansion and Huali Company subscribed the increased capital of Erke Company at a premium and Huali Company accounted for 10% of equities of Erke Company. When any circumstance as agreed in the Agreement occurred, Huali Company had the right to terminate the Agreement after notifying LKE Company and withdraw the capital increased and shares expanded this time. After the Agreement was approved by the competent department, all parties handled equity transfer registration and Huali Company held 10.001% of equities of Erke Company and LKE Company owned 76.499% of equities of Erke Company. On the ground that LKE Company refused to perform the obligation of capital increase as agreed and failed to perform the liability of guarantee for the repurchased shares, Huali Company filed a lawsuit with the Intermediate People's Court of Zhuhai City, Guangdong Province and requested the Court to order that LKE Company should purchase the equities of Erke Company held by Huali Company and pay CNY20 million and the interest thereof.
[Adjudication]
In the trial of first instance, the Intermediate People's Court of Zhuhai City, Guangdong Province held that: The claim of Huali Company that LKE Company should purchase the equities of Erke Company held by Huali Company lacked factual and legal basis. Therefore, the Intermediate People's Court of Zhuhai City rendered a judgment that all claims of Huali Company should be dismissed. Huali Company 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 estimated value 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 trial of second instance, the Higher People's 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 Company was restructured into a limited liability company, Huali Company could transfer the equities of Erke Company it held to LKE Company. The stipulation of the Agreement on future facts did not violate the mandatory provisions of Chinese laws and administrative regulations and it should be identified as effective according to the law. An agreement on adjustment of estimated value of equity investment was a clause of estimated value 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 the fixed term, one party should make payment to or compensate for losses of the other party. However, the restructuring of Erke Company to a limited liability company was not preset as the business operation objective in the Agreement on Equity Transfer and it was not stipulated in the Agreement that as the shareholder, LKE Company should assume the liability of repurchasing equities if the target company Erke Company failed to complete the shareholding restructuring. In the performance of the Agreement by both parties, there was no circumstance where any breach of contract brought about termination of the Agreement and on June 9, 2011, Huali Company also obtained the equities of Erke Company. Therefore, the grounds of Huali Company 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. In view of the above, the Higher People's Court of Guangdong Province rendered 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. It has typical significance 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 estimated value of equity investment, and whether such stipulation on the nature should be supported. On the 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 estimated value of equity investment in an autonomous way; and on the other hand, the judgment follows the principle that the consensus on adjustment of estimated value 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 Company should assume the liability of equity repurchase if Erke Company failed to complete the shareholding restructuring, it was determined that the true will of both parties was restructuring Erke Company to a limited liability company. Therefore, the nature of the Agreement on Equity Transfer was equity transfer not affixed with factual conditions. Before the prerequisite that Erke Company was restructured to a limited liability company was satisfied, Huali Company had no right to claim that LKE Company should purchase equities. By using the method of semantic interpretation, the judgment of this case determined the investment intention of the parties and effectively avoided random withdrawal of corporate capital, which has safeguarded stability in the joint venture relationship of Chinese and foreign investors, legally safeguarded the rights and interests of investors, and played powerful security effect on the orderly development of new investment methods in the “Belt and Road.”
Case No. 8
Accurately Interpreting the International Convention on Civil Liability for Oil Pollution Damage 1992 and Expressly Excluding a Claim for Compensation not within the Scope of Compensation as Prescribed in the Convention
--Dalian Oceanic and Fishery Administration v. Undama Marine Limited and Boletania Steamboat Insurance Association (Case concerning retrial review of dispute over compensation for marine pollution damage)
[Basic Facts]
On April 3, 2005, the Portugal oil tanker “Arteaga” (77,399 gross tons) got stranded on the dangerous roof rock (38°57.34′N, 121°54.53′E) in Dalian City and the body of the oil tanker was damaged and crude oil was leaked, causing marine pollution. Undama Marine Limited (hereinafter referred to as “Undama Company”) and Boletania Steamboat Insurance Association (hereinafter referred to as “Insurance Association”) was the owner and oil pollution liability insurer of the oil tanker. On May 23, 2005, the Dalian Oceanic and Fishery Administration (hereinafter referred to as the “Oceanic and Fishery Administration”) filed a lawsuit with the Dalian Maritime Court and requested the Court to order that Undama Company and Insurance Association should jointly and severally compensate for loss of CNY59.076 million (including marine environmental capacity loss and marine ecosystem service loss amounting to CNY56.476 million and investigation and loss assessment fee of CNY2.6 million).
[Adjudication]
In the trial of first instance, the Dalian Maritime Court held that: The Oceanic and Fishery Administration was a department legally exercising the authority of marine environmental supervision and administration and it was the eligible subject of claiming for oil pollution damage compensation involved; however, the Oceanic and Fishery Administration failed to prove that it actually took any restoration measures after the occurrence of the pollution accident. On the contrary, according to the report issued by the Judicial Expertise Center of the National Marine Environmental Monitoring Center, the sea areas affected by the oil spilling have been actually restored without taking any measures. Therefore, the Dalian Maritime Court rendered a judgment to dismiss the claims of the Oceanic and Fishery Administration. The Oceanic and Fishery Administration refused to accept the judgment and appealed.
In the trial of second instance, the Higher People's Court of Liaoning Province held that: The marine ecological environmental damage claimed by the Oceanic and Fishery Administration included marine environmental capacity losses and marine ecosystem service losses and it was a claim for compensation for marine environmental damage; in the court trial of second instance, the Oceanic and Fishery Administration has provided the voucher for payment of CNY500,000 for assessment and monitoring costs, which were reasonable expenses and should be borne by Undama Company. The Higher People's Court of Liaoning Province rendered a judgment of second instance to set aside the original judgment; ordered that Undama Company should compensate CNY500,000 for assessment and monitoring loss of the Oceanic and Fishery Administration; and dismissed other claims of the Oceanic and Fishery Administration. The Oceanic and Fishery Administration still refused to accept the judgment of second instance and filed an application for retrial with the Supreme People's Court.
Upon examination, the Supreme People's Court held that: The People's Republic of China was a contracting state of the International Convention on Civil Liability for Oil Pollution Damage 1992 and the judgments of first instance and second instance were correct in applying the Convention to settle dispute in this case. In accordance with the provisions of item 6 of Article 1 of the Convention, the compensation of environmental damage should be limited to expenses incurred from reasonable restoration measures that have been actually taken or would be taken. In accordance with the provisions of item 4 of Article 3 of the Convention, unless the claim for compensation for pollution damage conformed to the Convention, such claim may not be made to the ship-owner. Whether the marine ecological environmental damage claimed by the Oceanic and Fishery Administration may be compensated depended on whether such damage was within the scope of compensation as prescribed in the Convention. The Oceanic and Fishery Bureau had no evidence proving that it has taken any restoration measures to the polluted sea areas and expenses were actually incurred. According to the loss assessment report, the Oceanic and Fishery Administration claimed that the sewage treatment fee of CNY55.2 million was a “reasonable restoration measure to be taken”; however, according to the monitoring conclusions reached by the North China Sea Environmental Monitory Center of the State Oceanic Administration and the Judicial Expertise Center of the National Marine Environmental Monitoring Center, on April 28, 2005 (25 days after the occurrence of the oil spilling accident involved), the water quality of the oil spill sea area did not exceed the second standard of sea water quality; in October 2005, the marine environment was restored and the Oceanic and Fishery Administration had no evidence to prove the necessity of sewage treatment in the sea area. Therefore, the judgments of first instance and second instance were not inappropriate in determining that the aforesaid costs were not expenses incurred from reasonable restoration measures that have been taken or would be taken as prescribed in the Convention. On December 29, 2015, the Supreme People's Court rendered a ruling that the application for retrial of the Oceanic and Fishery Administration should be rejected.
[Significance]
This case was about dispute over compensation for marine environmental pollution damage occurred in regions along the “Belt and Road” and the owner and oil pollution liability insurer was respectively a Portugal company and a British company. It was also about dispute between parties from countries along the “Belt and Road.” The provisions of the Supreme People's Court on effectively implementing the Several Opinions of the Supreme People's Court on Providing Judicial Services and Safeguards for the Construction of the “Belt and Road” by people's courts (No. 9 [2015], Supreme People's Court) have played a good role of demonstrative guidance. As a responsible maritime power, China should, in strict accordance with the Vienna Convention on the Law of Treaty and based on general definitions of terms of the Convention, make good faith interpretation on the basis of the contexts and by reference to the purposes and objectives of the Treaty, specify that the compensation for environmental damage under the International Convention on Civil Liability for Oil Pollution Damage 1992 should be limited to the expenses incurred from adoption of reasonable restoration measures (including monitoring and assessment costs), and ensure the uniformity, stability, and predictability of the application of an international treaty. Under the current Convention, compensation for oil pollution damage from a ship had particularity. However, some parties failed to accurately comprehend the spirit of the Convention and made a claim for compensation for marine ecological environmental damage caused by oil pollution of a ship not based on the expenses incurred from adoption of restoration measures, but on the marine ecosystem service loss and marine environmental capacity loss. The aforesaid losses were inconsistent with the Convention and it was a claim expressly excluded from the scope of compensation as prescribed in the Convention. The ruling of this judgment has practical significance in guiding the department legally exercising the authority of marine environmental supervision and administration in accurately claiming for compensation of similar marine ecological damage. Although plaintiff was a Chinese state organ, the courts at three levels took law as the criterion, based on the facts, and resolutely dismissed plaintiff's claims as having no factual and legal basis, which has fully reflected Chinese courts' strict implementation of the principle of equal protection of both Chinese and foreign parties.
Model Case No. 9
Reasonably Filling in Gaps of the International Maritime Solid Bulk Cargoes Code and Improving the International Maritime Adjudication Rules
--Xuzhou Tianye Metal Resources Co., Ltd. v. St. Claremont Shipping Co., Ltd. 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 Metal Resources Co., Ltd. (hereinafter referred to as “Xuzhou Tianye Company”) and CJ Company concluded a sales contract, according to which Xuzhou Tianye Company purchased 50,000 tons (± 10%) of bulk Indonesian laterite-nickel ores from CJ Company. On January 28, 2011, the vessel “Maritime Lijiang” jointly owned by the carrier, St. Claremont Shipping Co., Ltd. (hereinafter referred to as “St. Claremont Shipping Company”) and Tokyo Sangyo Co., Ltd. (hereinafter referred to as “Tokyo Sangyo Company”), arrived at the North Konawe Port of Indonesia to be loaded with cargos. Since it doubted that the moisture content in such cargos was over-high, it decided to stay in the North Koanawe Port anchorage from February 12, 2011 for cargo-drying by cabin-opening, sampling, and inspection. Afterwards, after sailing for two days, on March 29, 2011, the vessel arrived at the Davao Port of the Philippines and continued the cargo-drying by cabin-opening and inspection. On May 16, it left the Davao Port and on May 23, it arrived at the destination port, Lianyungang. As the consignor, CJ Company obtained the full set of original clean order bills of lading issued by the carrier for the cargoes involved and by means of payment by L/C, Xuzhou Tianye Company obtained such full set of original bills of lading. On June 28, 2011, Xuzhou Tianye Company filed a lawsuit with the Shanghai Maritime Court on the ground that the carrier violated the obligation of non-deviation and dispatch and requested the Shanghai Maritime Court to order that the carrier should compensate for the loss from decline in the price of its cargos and the interest thereof.
[Adjudication]
In the trial of first instance, the Shanghai Maritime Court held that the acts of the carrier of suspending sailing, drying cargoes, and conducting inspection at the port of loading and the Davao Port were not unreasonable deviation and did not violate the obligation of reasonable dispatch. Therefore, the Shanghai Maritime Court rendered a judgment to dismiss the claims of Xuzhou Tianye Company. Xuzhou Tianye Company refused to accept the judgment and appealed.
In the trial of second instance, the Higher People's Court of Shanghai Municipality held that: The stay of “Maritime Lijiang” at the Davao Port by making a detour was unreasonable deviation, but Xuzhou Tianye Company failed to prove the objectivity and rationality of loss incurred from the resale of such cargoes. Therefore, the Higher People's Court of Shanghai Municipality rendered a judgment to dismiss the appeal and affirm the original judgment. Both parties refused to accept the judgment of second instance and applied for retrial.
Upon review, the Supreme People's Court held that: According to the consistent choice of both parties, the dispute in this case should be tried by applying the law of the People's Republic of China; the People's Republic of China was the contracting country to the amended International Convention for Safety of Life at Sea (1974). In accordance with the Convention, the International Maritime Solid Bulk Cargoes Code (hereinafter referred to as the “Bulk Cargoes Code”) became the mandatory rules and on January 1, 2011, the Bulk Cargoes Code took effect in the People's Republic of China; in accordance with the provisions of the Bulk Cargoes Rules, before loading, the consignor must provide the captain or his representative with statements on such appropriate information as the moisture content of such cargoes subject to easy fluidization and the transportable moisture limit (“TML”) and the test certificates, so as to enable the adoption of necessary measures for proper stowage and safe transport; cargoes subject to easy fluidization should be loaded on specially built vessels or vessels installed with special-purpose equipment. Besides, only when the actual moisture content of such cargoes was lower than the TML, they may be loaded and transported. The inspection reports and other evidence provided by the consignor and the carrier did not specify the TMLs of cargoes with the size larger than 7 mm or with the size of 6.7 mm in the cargoes involved and the TML of the whole lot of cargoes. The reason and evidence of the carrier based on which it judged that the cargoes involved were inapplicable for safe transport was relatively sufficient and the sailing of the vessel to the Davao Port was reasonable deviation. Therefore, the Supreme People's Court rendered a ruling to dismiss the applications for retrial of both parties.
[Significance]
This was a case concerning dispute over a contract on carriage of goods by sea in countries along the “Belt and Road.” The Supreme People's Court conducted a retrial review and rendered a ruling, which was of the following typical significance: First, the practice of the Supreme People's Court filled up gaps of the international maritime code and the Supreme People's Court put forward rational jurisdiction rules. There were specific provisions on the comparison between the moisture content of single fine particles and their TML. However, there were no specific provisions on how to compare the moisture content and the TML of solid bulk cargoes mixed by fine particles similar to those involved and cargoes with a larger size (comparison between the integral moisture content and the TML of fine particles or comparison between the moisture content of fine particles of the same kind and the TML of the fine particles of the same kind). Although the inspection report provided by the consignor and the carrier did not specify the TML of the cargoes with the size larger than 7 mm or with the size of 6.7 mm and the TML of the lot of cargoes (possibly restricted by the flow table measuring method), the Supreme People's Court reasonably interpreted the system of the Bulk Cargoes Code and the literary context of the relevant provisions. From the perspective of value orientation of maintaining maritime safety, it determined that the TML as prescribed in the Bulk Cargoes Code referred to the TML of the integral lot of cargoes (other than the TML of only fine particles) and that the moisture content and the TML of the integral lot of the cargoes should be compared for determining whether the cargoes were transportable; under the circumstance where the consignor provided the inspection report not specifying the moisture content and the TML of the integral lot of cargoes, the carrier had the reasonable ground for determining that the cargoes were unsuitable for safe transport. Second, the practice of the Supreme People's Court has played the role of standardized guidance for maintaining the safe transport of goods by sea along the “Belt and Road.” Indonesia, the Philippines, and other Southeast Asia region are main producing areas of nickel ores in the world. In the recent ten years, the international demands are on the rise. Nickel ores are solid bulk cargoes subject to easy fluidization. Once their actual moisture content exceeds the TML, they are likely to be liquidized, which may make vessels lose stability and cause the overturn of such vessels. During the same period for the loading and carriage of the cargoes involved, from October 27 to December 3, 2010, three vessels carrying nickel ores (“Jian Fu Star,” “Nasco Diamond,” and “Hong Wei”) sank on the way from Indonesia to China and 44 Chinese crew died or were missing; from December 25, 2011 to August 14, 2013, another three vessels carrying Indonesian laterite nickel ores (Vietnamese “Vinalines Queen,” Panamanian “Harita Bauxite, ” and Hong Kong “Trans Summer”), and 37 crews died. There are a series of hazards and complexity in the transport of this kind of cargoes, including such factors as untruthful declaration of the moisture content by the consignor, unrepresentative sampling for inspection, air storage after inspection, and rainfall during loading and transport. It is necessary for the carrier to appropriately strengthen observation, inspection, and check. Once there is any reasonable ground for doubting the transport safety of the cargoes, the carrier should raise the doubt in a timely manner and may refuse the loading. This is a successful example where an accident of overturn of the vessel carrying solid bulk cargoes subject to easy fluidization was prevented in a timely manner in recent years. The Supreme People's Court determined that the carrier had reasonable grounds to doubt the over-high moisture content of the cargoes. On this basis, the Supreme People's Court upheld the carrier's adoption of such reasonable measures as suspended sailing and cargo drying, which has reflected the value orientation of guaranteeing shipping safety.
Case No. 10
Legally Determining the Shipping Container Demurrage and Maintaining the Fair Shipping Trade Order
--A.P. Moller-Maersk A/S v. Shenzhen Branch of Shanghai Cicada Transport Logistics Co. Ltd. and Shanghai Cicada Transport 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 Cicada Transport Logistics Co. Ltd. (hereinafter referred to as “Shenzhen Branch of Cicada Company”) authorized A.P. Moller-Maersk A/S (hereinafter referred to as “Maersk A/S”) to carry goods in five containers from Huangpu, Guangdong Province to New Delhi, India. On February 23, the goods arrived at the destination port and the consignor constantly changed the consignee, but there was no party taking delivery of such goods. On February 21, 2011, the goods in such containers were auctioned by the Customs of Nhava Sheva of India. On February 28 of the same year, the Customs signed the bill of lading and required Maersk A/S to deliver such goods to the purchaser. On February 27, 2012, Maersk A/S filed a lawsuit with the Guangzhou Maritime Court and requested the Court to order that Shenzhen Branch of Cicada Company and Cicada Company should jointly bear the container demurrage starting from March 1, 2010, 8,026,425 rupees (converted to CNY1,029,554.51 at the exchange rate on the day of the lawsuit-filing).
[Adjudication]
This case was tried by the Guangzhou Maritime Court for the first instance and the Higher People's Court of Guangdong Province for the second instance. The courts at these two levels held that: This case was about dispute over a contract on carriage of goods by sea and the limitation of action was one year starting from the day when the obligee knew or should know the infringement upon its rights. The infringement upon the rights of Maersk A/S was caused by the extended use of containers provided by Maersk A/S. Such fact of infringement continued in an uninterrupted manner and the extended use of containers was not ceased until the goods were auctioned by the Customs. By that time, the amount of charges was finally fixed. Therefore, the limitation of action for Maersk A/S to exercise the right of claim should start from the day when the Customs of Nhava Sheva issued to Maersk A/S the notice on delivery of goods, namely, February 28, 2011. Up to January 27 when Maersk A/S filed the lawsuit with the court of first instance, it did not exceed the limitation of action of one year. Since there was no party taking delivery of the goods, the containers involved were used for a long term and could not be put into transport and production. The consignor Shenzhen Branch of Cicada Company should assume the compensation liability and the container demurrageshould not exceed the prices for repurchasing new containers. Therefore, both the courts of first instance and second instance rendered the judgment that Shenzhen Branch of Cicada Company and Cicada Company should jointly compensate Maersk A/S the charges of CNY150,000 for extended use of the five containers involved. Shenzhen Branch of Cicada Company and Cicada Company filed an application for retrial with the Supreme People's Court. The Supreme People's Court ruled to bring the case before the court.
Upon retrial, the Supreme People's Court held that: After the goods involved arrived at the destination port, since the consignee designated by Shenzhen Branch of Cicada Company failed to take delivery of such goods, the containers provided by Maersk A/S for the performance of the carriage contract were extensively used and failed to be put into normal circulation. The acts of Shenzhen Branch of Cicada Company constituted breach of contract. According to the contract on carriage of goods by sea, Maersk A/S had the right to raise a claim for container demurrage to the consignor Shenzhen Branch of Cicada Company with regard to the loss caused by breach of contract due to Shenzhen Branch of Cicada Company's delayed performance of the obligation of returning containers. In accordance with the provisions of the Official Reply of the Supreme People's Court on the Limitation of Action for the Carrier's Claim for Compensation to the Consignor, Consignee, or Holder of the Bill of Lading with Regard to Carriage of Goods by Sea, the limitation of action for the claim should be one year, starting from the day when Maersk A/S knew or should know the infringement upon its rights. As confirmed by all parties, the consignor Shenzhen Branch of Cicada Company should pay Maersk A/S the container demurrage from March 1, 2010. The right of claim of Maersk A/S for the payment of container demurrage was created. In other words, Maersk A/S knew or should know the infringement upon its rights from March 1, 2010. On March 30, 2010, by e-mail, Shenzhen Branch of Cicada Company promised that the consignor would bear the container demurrage, which constituted interruption of limitation of action as prescribed in Article 267 of the Maritime Law of the People's Republic of China. Therefore, the limitation of action of this case should start from March 30, 2010. When Maersk A/S filed a lawsuit on February 27, 2012, it has exceeded the limitation of action of one year and Maersk A/S lost the prevailing right for this claim. The Supreme People's Court rendered a new judgment that the judgments of first instance and second instance should be set aside and Maersk A/S's claim should be dismissed.
[Significance]
With the slowdown of growth in global trading, the shipping market also experiences a sustained downturn, causing a large amount of maritime disputes. In terms of categories of disputes, conventional goods damage disputes and marine insurance disputes are spread to the upstream and downstream chains. In recent years, disputes over container demurrage accounted for an increasing proportion in maritime cases and the emerging problems are also on the rise, including definition of legal relationship, standards for calculation of container demurrage, and starting time of the limitation of action. There are no uniform standards of judicial practice in China and the handling opinions on such disputes are also different around the world. Therefore, the relevant shipping enterprises are undisciplined in practical operations. By bringing this case before the court and rendering a new judgment, the Supreme People's Court specified the nature of dispute over the container demurrage involved in the contract on carriage of goods by sea and the limitation of action. Since the judgment of this case is a foreign-related maritime judgment, it has attracted extensive attention and great concerns of the Chinese and foreign shipping enterprises. At the same time of legally protecting the shipping enterprise's claim for compensation with regard to container demurrge, the judgment of this case specified how the shipping enterprise should raise a claim to the consignor or the consignee in a timely manner during the statutory limitation of action, which has provided legal support to foreign and domestic shipping enterprises' active adoption of legal measures and effective guarantee of their lawful rights and interests and established uniform standards for China's maritime judicial practice. As a maritime power and a large trade country, China owns extensive maritime strategic interests. The strategy of the “Belt and Road” is an important measure to build a maritime power. Fair and efficient justice is an indispensable element in guaranteeing the sound economic environment for the strategy of the “Belt and Road.” The trial of this case has given full play to the functions and roles of maritime trial for providing judicial guarantee for the construction of the “Belt and Road”; and legally and equally protected the lawful rights and interests of foreign and Chinese parties, enhanced the international credibility of the Chinese maritime trial, and created a good legal environment for the construction of the “Belt and Road.”