QCR Autumn 2021: Sameco S.A. v Shandong Chenxi Cereals and Oils Co., Ltd (The M/V “Adelante”) (2020) Lu Min Zhong No.1573

Claim for damage to soya beans - Chinese Appeal Court apportions liability between vessel Owner and Receivers

On 11 April, 2017, the bulk carrier, M/V “Adelante”, carrying Brazilian soybeans departed from Brazil for China. Loading operations from 7 - 10 April were suspended four times due to rain. The master, at the request of the Shipper, issued six clean bills of lading showing that the soybeans were shipped on board in sound condition. The vessel arrived at the discharge port of Rizhao in China on 25 May and immediately served Notice of Readiness. Due to issues with the Shipper, the Receiver belatedly had to open a new letter of credit on 16 June, and obtained the six original bills of lading on 6 July, following acceptance of the bills by the Bank. The application for inspection of the cargo was filed on 17 July, after receipt of the Quarantine Permit for Imported Animals and Plants on 13 July. The vessel was only able to berth on 22 August after a three month wait at anchorage.

The late completion of import formalities led to the delay in berthing, and the late discharge of the cargo. On discharge, the cargo was found caked, mildewed and blackened to various degrees. Consequently, the Receiver commenced proceedings in China claiming approximately USD 18 million against the Owner carrier.

Decision of the First Instance Court

At first instance, the Court held the causes of cargo damage to be multiple and attributable to both the Owner and the Receiver. The causes included improper loading operations in the rain, inadequate ventilation measures undertaken during the voyage and at anchorage as well as failure to mitigate loss.  The Owner was held to bear 70% liability for the cargo damage. The Owner’s arguments that it had fulfilled its obligation to  “properly and carefully” load, handle, stow, carry, keep and care for the cargo, and that the damage had arisen from the inherent vice of the goods were not accepted by the First Instance Court. The Owner therefore filed an appeal to Shangdong High People’s Court (the “Appeal Court”).

Decision of the Appeal Court

In accordance with Article 48 of the PRC Maritime Code, “the carrier shall properly and carefully load, move, stow, carry, keep, care for and discharge the goods carried. Accordingly, the Appeal Court re-examined the issue of whether the Owner is liable for the damage of the cargo from the following three aspects:

  1. whether the cargo was “properly and carefully” loaded by the carrier;
  2. whether the Owner had fulfilled its obligations to care for the  cargo during the voyage;
  3. other causes of the cargo damage i.e. the long wait at anchorage in high temperatures and delay in discharge.

The Court dismissed the Receiver’s  allegation that the Owner failed to properly and carefully load the cargo, finding instead that the Owner had exercised due diligence in loading the cargo and had taken proper measures to avoid rain/ wet damage during loading. These findings were based on extracts from the vessel’s logbook submitted by the Owner as new evidence.

The Court however found that the Owner had failed to take proper care of the cargo because it did not implement proper ventilation practices acceptable as standard in the industry.  The Owner only tested the temperatures in the holds once a day, which was insufficient.  Further, the “Daily Log – cargo holds temperature and ventilation” was found to be inconsistent with the ventilation record in the Vessel’s logbook.

The Court nevertheless found delay to have been the main cause of the damage.  The vessel arrived at the discharge port within a reasonable time but post-arrival, she had to wait at anchorage during the hot season for nearly a hundred days because the Receivers had failed to complete the import and Customs formalities timely. Relying on the opinion of Owner’s expert, the Court noted that heat damage in the middle and at the bottom of the holds would be inevitable, regardless of any natural ventilation from opening of the hatch covers.  The Court therefore held that the cargo damage was not the result of any omission or failure on the Owner’s part to take care of the cargo. It was the result of what the Receivers did, or rather failed to do which was to complete the import formalities timely. The Court also accepted that the Owner had no capability to dispose of the cargo on board to mitigate the loss while they were waiting at the anchorage. The Appeal Court therefore overturned the decision of the Court of First Instance and reduced Owner’s liability to 30% of the sum claimed.

Comments

The Appeal Court’s allocation of liabilities for cargo damage between the Owner and the Receivers in this case holds out hope for similar findings going forward, particularly in cases involving late cargo discharges attributable to the fault or negligence of  receivers.

The acceptance by the Court that natural ventilation for the cargo at anchorage had its limitations in preventing damage to the cargo, and thus the damage to the cargo was not the result of any omission or failure on the Owner’s part to take care of the cargo is important for Owners.

Similarly important is the Court’s acknowledgement that the Owner had no means to dispose of the cargo while the vessel was at anchorage for the purpose of loss mitigation.

The Receiver has however filed a petition for retrial to the Supreme Court of PRC. The Club will report on the outcome of that hearing in due course.

Jacqueline Tan

Legal Services Manager

Meredith Yang

UK P&I

Date01/10/2021