How The Chinese Maritime Courts Apportion Liability In The Claims For Damage To Soya Bean Cargoes
At the Chinese ports it is not uncommon for the ships carrying soya bean cargoes in bulk to be required to wait sometimes even for prolonged periods either due to the late completion of the import formalities by the cargo receivers or as a result of a change of the import regulations, the change of import tariff1, the change of VAT on the imports of soya beans, the congestion in ports or the lack of storage space ashore.
The prolonged delay in berthing caused in the past twenty years the partial deterioration of several soya bean cargoes and the cargo receivers sought to recover the financial loss incurred thereby from the shipowners.
Among the first cases of this kind reported by the Chinese maritime courts were the 2004`s cases of Henan Cereals Oils and Foodstuffs Import and Export Group Co. Ltd. v. Saint Vincent Shipping Inc. and of Ping An Insurance v. Hanjin Shipping Co..
Both cases were related to the quarantine restrictions imposed by AQSIQ2 on 10 May 2004 on the imports of Brazilian soya beans that prevented the ships carrying the Brazilian soya bean cargoes to enter into the Chinese ports.
In the case of Henan Cereals Oils and Foodstuffs Import and Export Group Co. Ltd. v. Saint Vincent Shipping Inc., a cargo of 60,000 MT of soya beans in bulk was loaded between 14 and 17 April 2004 on board the bulk carrier "Seafarer" at the port of Paranagua, in Brazil for transport to the port of Chiwan, in China. The cargo consisted of 11 parcels shipped by 11 different shippers. The Brazilian shippers sold the parcels on FOB terms to Noble Grain.
Noble Grain sold on the entire cargo shipped on board on CFR basis under two contracts, one for a quantity of 35,000 MT +/-10% and the second for a quantity of 20,000 MT+/-10% to a Chinese importer. The ETA date for the two cargoes at the port of Chiwan was 24 May 2004.
The payment of the two cargoes was to be made by letters of credit.
While the soya bean cargo was en route to China, on 10 May 2004, AQSIQ, a Chinese government agency in charge of imports of agricultural commodities, imposed quarantine restrictions on the imports of Brazilian soya beans prohibiting Noble Grain and other trading companies from exporting soya beans to China following the discovery by the Chinese authorities of soya beans treated with seed coated agent in a Brazilian soya bean cargo.
Subsequently, on 23 June 2004, AQSIQ issued a new Circular informing the local CIQ3 branches that the import prohibition was lifted subject to the condition that if red beans (soya beans treated with seed coated agent) were found in the Brazilian soya bean cargoes, they had to be picked up and disposed of before discharging and the costs arising from the pick up and disposal of the red beans were to be borne by the suppliers (exporters).
The quarantine restrictions imposed by AQSIQ on the imports of Brazilian soya beans prevented the Chinese buyers to obtain the necessary documents for the import of soya bean cargo on board the vessel "Seafarer" between 10 May and 23 June 2004. Unable to import the soya bean cargo, the Chinese buyers asked the L/C issuing bank not to accept the documents submitted for payment by Noble Grain and refused to pay for the cargo during the quarantine restrictions.
Due to the quarantine restrictions and the Chinese bank`s refusal to accept the documents and pay under the letters of credit, Noble Grain instructed the vessel trough the time charterer Noble Europe initially to stay off Singapore for 4 days from 21 to 25 May 2004 and then to stay off Hong Kong waters for nearly one month from 29 May to 25 June 2004. Then on 26 June 2004, after the import prohibition was lifted, the vessel proceeded to the port of Chiwan and on 2 July 2004 arrived at the quarantine anchorage of the port of Chiwan. CIQ inspected the cargo on board the vessel and found red beans in the cargo. Then, CIQ issued a Notice to Noble Grain whereby the red beans had to be picked up and disposed of before discharging.
On 19 July 2004, Noble Grain reached an agreement with a local port operator to berth the vessel "Seafarer" and pick-up the red beans from the soya bean cargo. Finally, the vessel berthed at the port of Chiwan on 21 July 2004, which was nearly two months later than the ETA date pre-advised upon the departure from the loading port.
The discharging operations commenced on 22 July 2004, but due to the requirement to pick-up the red beans found in the cargo, there were delays in discharging the cargo which was completed on 12 August 2004. During the discharge it was discovered that a small part of the cargo was damaged, a quantity of 9.85 MT of soya beans was mouldy and a quantity of 258.777 MT of soya beans was damaged by self-heating.
CIQ issued a Damaged Cargo Inspection Certificate stating that:
- the mould damage to the quantity of 9.85 MT was caused by the ingress of sea water from the gap of the hatch covers when the vessel encountered bad weather during the voyage;
- the heat damage to the quantity of 258.777 MT was caused by the prolonged storage of soya beans in the cargo holds, insufficient ventilation and the delay in discharging due to the search for the red beans.
The cargo receivers claimed compensation from the shipowners for the cargo damage.
In respect of the heat damage to the quantity of 258.777 MT, the shipowners provided evidence that the fumigation instructions prevented the ship`s crew to open the hatch covers` vents (ventilation openings) within 10 days after the date of fumigation. Then the vessel encountered bad weather and could not ventilate the cargo holds until 13 May 2004. After that date the ship`s crew had carried out ventilation according to the dew point rule during the voyage and no abnormal change of temperature in the cargo holds had been found. The shipowners provided evidence in this regard with the Temperature and Cargo Ventilation Logbook.
Nonetheless, the Guangzhou Maritime Court held that the heat damage to the quantity of 258.777 MT was caused not only by the prolonged storage of the cargo in the ship`s holds but also by the insufficient ventilation of the ship`s holds. Therefore, the damage occurred partially due to the improper care of the cargo by the carriers and partially due to the late completion of the import formalities by the cargo receivers. Since it was difficult to determine to what extent the insufficient ventilation of the ship`s holds and to what extent the prolonged storage of soya bean cargo in the ship`s holds caused the heat damage to the quantity of 258.777 MT of soya beans, the Guangzhou Maritime Court decided that the shipowners had to bear 50% of the loss arising from the heat damage and had to compensate the cargo receivers for the value of that share.
In respect of the mould damage to the quantity of 9.85 MT, the Guangzhou Maritime Court held that the damage was caused by the improper care of the cargo by the carriers who had to compensate the cargo receivers for the full value of the loss.
In the case of Ping An Insurance v. Hanjin Shipping Co., the loading of a 60,000 MT cargo was completed on 7 May 2004. The cargo was loaded at the port of Santos on board the bulk carrier "Hanjin Tacoma" for transport to the port of Zhanjiang in China.
The cargo was procured on FOB terms from the Brazilian shippers by Louis Dreyfus Asia Pte. Ltd. for on-sale on CFR terms to a Chinese importer, Guangdong Fuhong Edible Oil Co. Ltd.
The vessel arrived at the port of Zhanjiang and tendered NOR on 19 June 2004 but, due to the quarantine restrictions, it had to wait until the end of July 2004 for the cargo receivers to obtain the necessary documents for the import of soya bean cargo.
The discharging operations commenced on 1 August 2004 and were completed on 3 September 2004 due to the delays caused by the requirement to pick-up the red beans.
During the discharge of cargo, it was discovered that a quantity of 5,868.428 MT of soya beans was mouldy or damaged by self-heating. The cargo insurers, Ping An Insurance claimed compensation for the cargo damage from the shipowners.
Like in the case of Henan Cereals Oils and Foodstuffs Import and Export Group Co. Ltd. v. Saint Vincent Shipping Inc., the Guangzhou Maritime Court held that the damage occurred partially due to the improper care of the cargo by the shipowners and partially due to the late completion of the import formalities by the cargo receivers, but taking into consideration the extent of the damage to cargo compared to the previous case and the shipowners` failure to provide "satisfactory evidence" that the ship`s crew had monitored the cargo temperature and properly ventilated the cargo during the voyage and during the time spent waiting for berth, the Court considered that the shipowners were the main ones responsible and therefore, they had to bear a share of 70% of the liability, the balance of 30% being the receivers` share of liability.
It looks like the Chinese maritime courts apportion the liability for the cargo damage taking into consideration the time spent by the vessel waiting for berth, the extent of the cargo damage and the documentary evidence provided by the shipowners. The greater the extent of the cargo damage, the greater the chances that the shipowners will be held the main ones responsible. The longer the time spent by the vessel waiting for berth, the greater the chances that the liability for the cargo damage will be shared 50/50 by the shipowners and the cargo receivers.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Grain Trade Review Edition No. 8.
Endnotes:
1. In June 2018 while the US-China trade war has gradually unfolded, the ship "Peak Pegasus" loaded a cargo of 70,000 MT of soya beans in Seattle and then rushed in a race against clock to reach the port of Dalian in China before noon on 6 July 2018 when the 25% tariff on the imported goods from USA took effect. The ship missed the noon deadline by 30 minutes and then had to wait for over a month off the port pending a settlement over the import tariff.
2. General Administration of Quality Supervision, Inspection and Quarantine of the People`s Republic of China.
3. China Entry-Exit Inspection and Quarantine Bureau.