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Xuzhou Tianye Metal Resources Co., Ltd. v. SanClemente Shipping, S.A. and Tokyo Sangyo Co., Ltd. (Retrial review case concerning dispute over a contract on carriage of goods by sea)

Reasonably Filling the Gap in the International Maritime Solid Bulk Cargoes Code
Improving the International Maritime Adjudicating Rules
---- Xuzhou Tianye Metal Resources Co., Ltd. v. SanClemente Shipping, S.A. 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 and CJ entered into a sale and purchase contract, under which the former agreed to purchas 50,000 tons (±10%) of bulk Indonesia laterite nickel mine. On January 28, 2011, the vessel jointly owned by the carrier, SanClemente Shipping, S.A. and Tokyo Sangyo Co., Ltd., “Maritime Lijiang” , arrived at the Indonesian North Conaway Port ready for loading goods. However, due to the suspected excessive amount of water in the goods, they determined that the vessel should stay at the anchorage of North Conaway Port as of February 12, 2011, for cabin-opening, goods-drying under the sun, sample collection and inspection. Thereafter, the vessel, after two days’ voyage from March 27, 2011, arrived at Davao Port, Philippines on March 29, 2011, and continued to undergo cabin-opening, goods-drying and inspection. It departed from Davao Port on May 16 and arrived at the designation port, Lianyungang Port, on May 23. CJ, the consignor, received the full set of original clear order bill of lading issued by the carrier for the goods, and Xuzhou Tianye obtained this set of original bill of lading via payment by way of letter of credit. Xuzhou Tianye commenced a lawsuit at Shanghai Maritime Court on June 28, 2011 on the grounds that the carrier had breached the obligations of reasonable dispatch and without deviation, petitioning the Court to order the carrier to indemnify for the loss arising out of the drop of market price, CNY 14.14 million, and the interest thereon. 
[Judgment]
Shanghai Maritime Court held after the trial of first instance that the suspension of voyage, goods-drying and inspection by the carrier at the loading port and Davao Port do not constitute a breach of reasonable dispatch obligations, and thus dismissed the claims of Xuzhou Tianye. Xuzhou Tianye, dissatisfied with the Judgment and appealed.
High Court of Shanghai Municipality held in the trial of second instance that Maritime Lijiang’s stay by deviating from Davao Port was deemed unreasonable deviation; however, since Xuzhou Tianye could not prove the objectivity and reasonableness of the loss arising from the resale of its goods, the court dismissed the appeal and upheld the original judgment. Both Parties were dissatisfied with the judgment of the second instance and applied for a retrial.
The Supreme People’s Court, after due examination, held that upon the mutual agreement of the two parties, the dispute arising in this case shall be governed by the laws of the People's Republic of China; China is the signatory state to International Convention for Safety of Life at Sea 1974, as amended, and the International Maritime Solid Bulk Cargoes Code (hereinafter, the Bulk Cargoes Code, pursuant to the terms of this Code, it became effective as to China as of January 1, 2011); in accordance with the Bulk Cargoes Code, the consignee shall, prior to loading, supply the captain or his representative with a statement and inspection certificate containing proper information on the moisture, transportable moisture limit and other relevant information for goods that may be liquefied, so that necessary measures could be taken to properly stow and safely transport the goods; except for those loaded on a vessel exclusively built up for that purpose or a vessel equipped with exclusive equipment, goods that may be liquefied shall only be loaded and shipped where the actual moisture is less than the transportable moisture limit. Both inspection reports and other evidence provided by the consignor and carrier failed to set forth the transportable moisture limit applicable to goods of a dimension of more than 7 millimeters or 6.7 millimeters and the moisture limit applicable to the whole batch of goods. Therefore, the argument of the carrier that it determined that the goods were not fit for safe transportation at the loading port is sound both in law and in fact, and thus the vessel’s arrival at Davao Port shall be deemed as reasonable deviation. In light of the above, the Court dismissed the application of the Parties for retrial. 
[Significance]
This case is about a dispute over goods transportation at sea contract in a country covered by the “Belt and Road” initiative. The Supreme People’s Court has conducted a review of the retrial application and delivered a ruling, which is significant in the following aspects. Firstly, the ruling filled in the gap in international maritime rules and proposed a reasonable adjudication standard. The Bulk Cargoes Code has express provisions on the comparison method regarding the moisture of single fine particles and their transportable moisture limit (TML), but does not have provisions on the comparison regarding bulk solid cargoes, which are a combination of single fine particles and goods of large volumes (whether to compare the overall moisture with the TML of fine particles, or compare the moisture of the fine particles of the same type to the TML of fine particles of the same type) as in this case. The inspection report issued by the consignor and carrier did not set forth the TML of goods of a dimension greater than 7 millimeters or 6.7 millimeters and the TML of the whole batch of goods (which is likely to be attributable to the restraints of the flow plate method). However, after a purposive interpretation of the system and context of applicable terms under the Bulk Cargoes Code by the Supreme People’s Court, the Court held, in the spirit of maintenance of marine transportation safety, that the TML as referred to in the Bulk Cargoes Code shall refer to the TML of the whole batch of goods, not merely that of fine particles contained therein, and that the transportability of goods shall be determined by comparing the moisture content of the whole batch of goods and the TML of the whole batch of goods; since the inspection report issued by the consignor did not mention the moisture content and the TML of the whole batch of goods, the carrier had reasonable ground to determine that the goods were not transportable in a safe manner. Secondly, in order to maintain the ocean transportation safety in the countries covered by the “Belt and Road” initiative, this ruling plays a leading and guiding role. Indonesia, the Philippines and other Southeast Asian countries are the main production areas in the world for nickel mines, and the demand for nickels in the world growing during the last decade. Nickel ores are bulk solid goods that are easily liquefied and where the actual moisture content exceeds TML, they may be subject to liquefaction, resulting in a loss of stability of the vessel and hence the wreckage of the vessel. Simultaneously, from October 27 to December 3, 2010, three vessels (JianFuStar, NascoDiamond and HongWei) carrying nickel ores sunk during their voyage from Indonesia to China, with 44 Chinese seamen reportedly dead or missing; from December 25, 2011 to August 14, 2013, another three vessels carrying Indonesia Nickel ores, VinalinesQueen (Vietnamese vessel), HaritaBauxite (Panamanian vessel) and TransSummer (Hong Kong vessel), sunk with a casualty of 37 seamen. A number of risks and complexities exist for transportation of this type of goods, including false statement by the consignor of moisture content, the lack of representativeness of sample collection and inspection, rainy weather at the time of stacking in open areas and loading and other factors. Thus, the carrier is obligated to diligently conduct observation, inspection and monitoring, and shall timely raise doubts to the consignor when it has reasonable ground to doubt the transportability of the goods, and may reject the loading. This case is one example of successful and timely avoidance of ship wreckage regarding a vessel carrying solid goods that may be liquefied. The Supreme People’s Court, on the ground that the carrier has reasonable ground to believe that the moisture content in the goods is excessively high, upheld the suspension of voyage and drying goods and other reasonable measures taken by it, which is an embodiment of the principle of maintenance of ocean transportation safety. 


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