LEGAL ISSUES CONCERNING NON-DELIVERY AT THE DESTINATION PORT

- COSCO Container Lines Co., Ltd. v. Xiamen King Far East Shipping Co., Ltd. Guangzhou Branch for dispute over a contract for carriage of goods by sea

 

【Abstract】

In case of non-delivery at the destination port, the carrier may retain the goods, and use his best efforts to store, keep and care them properly. Upon expiration of the related legal term or the formation of an applicable legal cause, it may request an applicable court to sell the goods by auction, and be preferably compensated from the proceeds of the auction. In case that it is impossible or difficult to keep the goods, or that the advance payment made by the carrier on behalf of the shipper may exceed the value of the goods, the carrier may request an auction at an earlier time. In case that the carrier is not fully compensated, the balance should be maid good by the shipper.

In case of non-delivery at the destination port, the carrier may not return the goods, unless this is requested by the shipper, or unless he has notified the shipper prior to the returning of the goods and obtained the approval of the shipper, or unless he proves that it is reasonable to do so in order to mitigate the loss. Otherwise, the carrier will not have the right to claim against the shipper for the related costs and expenses from the returning of the goods.

 

【Facts】

Plaintiff: COSCO Container Lines Co., Ltd.

Defendant: Xiamen King Far East Shipping Co., Ltd. Guangzhou Branch

In June 2008, for twice, the defendant booked spaces with COSCO Jiangxi International Freight Co., Ltd. (hereinafter “COSCO Jiangxi”, which is not involved in this case). It issued a booking note to COSCO Jiangxi, commissioning the latter to transport a cargo of customized gypsum plates to Mexico. The waybill shows that the shipper was the defendant; the consignee was Orbi Cargo Internacional S.A. de C.V.; the port of loading was Nanchang Port, Jiangxi, China; and the port of discharge was Mexico City, Mexico. Afterwards, COSCO Jiangxi issued to the defendant, by means of fax, a draft of a telex release B/L. The draft B/L incorporates the same information as the booking note with respects to the shipper, consignee, port of loading and port of discharge, and that the carrier was the plaintiff. The goods concerned arrived at the destination port on August 15 and September 3, 2008 respectively. On September 25 of the same year, the defendant sent to the plaintiff a request in writing of the storage charge for the goods. In the request, it stated that the foreign buyer had given up the goods, and that it had sent its personnel to the destination port to negotiate with potential new buyers of the goods. It required the plaintiff to cooperate in changing the consignee at the destination port. It also confirmed the storage fee and demurrage by the end of October 5. During the period that the goods were stored at the destination port of Mexico City, the total pier storage charge incurred was USD 25,090.34. On November 11, 2008, the plaintiff had the goods returned, and on January 15, 2009, notified the defendant as such, requesting the latter to take delivery of the goods at the pier of Nanchang Port not later than February 6. The goods were returned to the pier of Nanchang Port on January 31, 2009. On April 1, the plaintiff sent a letter to the defendant, urging the latter to effect the payment as soon as possible. The goods are still stored at the pier of Nanchang Port now.

The plaintiff argues that since no one took delivery of the goods after the goods arrived at the destination port, the plaintiff returned them to Nanchang Port, Jiangxi. The defendant has not picked up them to date, causing them to be left stored at the pier of Nanchang Port. The long-term non-pickup by the defendant has caused the plaintiff to sustain an economic loss. Therefore, the plaintiff requested the court to order the defendant to compensate the plaintiff for the following: 1. the storage charge and container detention charge at the destination port, that is, the pier of Mexico City, and the cost of returning the goods from the destination port, in a  total amount of USD 35,698.34; 2. the storage charge, port-surcharge, security charge, container detention charge and pier surcharge, which have occurred at Nanchang Port, in a total amount of RMB 287,940.erefore, the plaintiff requests the court to order the defendant to compensate the plaintiff for the following: 1. the storage charge and demurrage at the destination port, that is, the pier of Mexico City, and the cost of returning the goods from the destination port, totally USD 35,698.34; 2. the storage charge, port incidental charges,ISPS charges, container demurrages and port surcharge, totally RMB 287,940.

 

The defendant argues as follows: 1. The defendant was only an freight forwarder of the actual shipper, and there was no marine transportation contract relation between the plaintiff and the defendant; 2. The goods concerned were returned not by the instruction of the defendant, but were done by the plaintiff without authorization, which constitutes a breach of contract; 3. As the goods were picked up by none at the destination port, the plaintiff failed to perform its duty to mitigate the damage, but acted on its own to return the goods, leading to further damage to them. This loss is irrelevant to the defendant.

 

【Judgment】

After the trial, Shanghai Maritime Court held:

I. In the relationship of contract of carriage by sea, the carrier and the shipper are identified mainly on the basis of the information on the B/L, and the acts of the parties in the conclusion and performance of the contract. The B/L shows the shipper as the defendant and the carrier as the plaintiff, which was confirmed by the defendant through fax. Therefore, a relationship of contract of carriage by sea has been established between the plaintiff and the defendant.

II. Evidence shows that the defendant confirmed that the consignee on the shipped B/L refused to take delivery of the goods, but said that it “had sent its personnel to the destination port to negotiate with potential new buyers of the goods”. Thus, the defendant obviously intended to re-sell the goods at the destination port, instead of requesting the goods to be returned. Therefore, the plaintiff returned the goods without the prior consent or instruction of the defendant. It was an unauthorized act.

III. The plaintiff argued that even if the defendant did not instruct to have the goods returned, the returning constituted a reasonable act to mitigate possible damage to the goods. Article 88 of the Maritime Law provides that “If the goods under lien in accordance with the provisions of Article 87 of this Code have not been taken delivery of within 60 days from the next day of the ship's arrival at the port of discharge, the carrier may apply to the court for an order on selling the goods by auction.” This provision provides a basis on how to dispose of the goods and mitigate the loss of them when they are picked up by none at the destination port. In the event that the carrier disposes of the goods in ways other than specified in relevant law, it should, before doing so, notify and obtain the consent of the shipper, or do as required by the shipper. Article 119 of the Contract Law provides that “Where a party breached the contract, the other party shall take appropriate measures to prevent the losses from increasing; where the other party’s failure to take appropriate measures results in additional losses, it shall not demand compensation for the additional losses.” In the existing case, when the goods were picked up by none at the destination port, the plaintiff, as the carrier, failed to obtain the consent of the defendant for selling the goods by auction at the destination port. Instead, ignoring the explicit demand of the defendant to dispose of the goods at the destination port, the plaintiff had the goods returned unauthorized. This was not the “appropriate action” under Article 119 of the Contract Law, but violated the fundamental purpose of the contract of carriage. It constituted a breach of contract. Therefore, the court does not support the argument of the plaintiff that the plaintiff's returning the goods was an appropriate action to mitigate the loss of the goods.

To sum up, Shanghai Maritime Court decided that the defendant shall compensate the plaintiff for the storage charge at the destination port, and the demurrage, totally USD 25,685.54. The other claims of the plaintiff are disaffirmed. Neither party appealed after the first-instance judgment.

 

【Analysis】

This case is concerned with many legal issues on the non-delivery at the destination port.

I. Legal consequences from the carrier’s returning the goods unauthorized

(I) The responsibility period for a carrier of container goods

Generally speaking, the responsibility period for a carrier means a time period when the carrier is liable in civil law for its breach of a contract of carriage of goods by sea.

Article 46 of the Maritime Law provides that “The responsibilities of the carrier with regard to the goods carried in containers covers the entire period during which the carrier is in charge of the goods, starting from the time the carrier has taken over the goods at the port of loading, until the goods have been delivered at the port of discharge.” The term “delivery” here means physical delivery, other than constructive delivery or depositing the goods with a competent authority. Therefore, in the event of non-delivery, the liability period of a container carrier will last until the consignee picks them or waives its right of pickup, or the goods are sold by auction according to law.

(II) The right of control of the shipper

In the carriage of goods by sea, after all, the right of control is a means by which the right holder may request changing the content of the contract of carriage. It is a claim of obligatory right.

Article 308 of the Contract Law provides that “Before the carrier delivers the goods to the consignee, the shipper may require the carrier to suspend the transportation, return the goods, change to another destination port, or deliver the goods to another consignee, by compensating the carrier for the loss from such doing.” But, the right of control of the applicable right holder over the goods is not specified in the Maritime Law. Although this provision of the Contract Law is not directed to the carriage of goods by sea, it supplies the gap of the Maritime Law on the right of control of the applicable right holder in the carriage of goods. Thus, according to the general rule in the application of laws, the right of control of the shipper should be governed by relevant provisions of the Contract Law.

Therefore, in the existing case, before the goods were delivered to their intended consignee, the defendant might use its right of control under the Contract Law, to require the plaintiff to return the goods, change to another destination port, or have the goods delivered to another consignee, by compensating the plaintiff for any loss from such doing.

(III) It is a breach of contract that the carrier had the goods returned unauthorized

The responsibility period of a carrier of container goods will last until the goods are delivered to the consignee. Before the end of this period, the shipper holds the right of control over the goods according to law. Unless any legal cause crops up or upon expiration of the prescribed time period, the carrier should not, for purposes whatever, dispose of the goods without previously notifying the shipper and obtaining its consent, or following the requirement by the shipper. In the existing case, the unauthorized returning of the goods violates the fundamental purpose of the contract of carriage between the carrier and the shipper. Therefore, the carrier does not have the right to claim against the shipper for the freight charge of returning, and the storage charge and port surcharges that occurred after the goods were returned.

In the existing case, the plaintiff had the goods returned after the consignee did not take them. It deems it as an appropriate action to mitigate the loss of the goods, and had notified the defendant in advance. But, since the control right over the goods rested in the defendant (during this period), the plaintiff did not have the right to return them without first obtaining the consent of the defendant. The unauthorized returning of the goods constituted a breach of contract, and the plaintiff is not entitled to claim for the charges and losses from such doing against the shipper, that is, the defendant.

II. Analysis of the consignee’s duty to take delivery of the goods

(I) Relevant legal provisions in China

Although it does not specify whether to take delivery of the goods at the destination port constitutes a duty of the consignee, the Maritime Law stipulates in its Article 86 that “If the goods were not taken delivery of at the port of discharge or if the consignee has delayed or refused the taking delivery of the goods, the Master may discharge the goods into warehouses or other appropriate places, and any expenses or risks arising therefrom shall be borne by the consignee.” According to legal principles, in a legal relation of non-tort, liability means legal consequences on a party that has breached its legal duty, that is, liability cannot be without a duty, and the one that is liable must have breached its duty. From this perspective, the Maritime Law provides for the duty of the consignee to pick up the goods in the form of liability.

Article 309 of the Contract Law provides that “Upon arrival of the cargoes, if the carrier has the knowledge of the consignee, it shall timely notify the consignee and the consignee shall timely take delivery. Where the consignee takes delivery exceeding the time limit, it shall pay such expenses as storage of the goods, etc.” This provision specifies the duty of the carrier to notify the consignee, and the duty of the consignee to pick up the goods, after the goods arrive at the destination port.

Despite the controversy in the scholastic circle of China over whether the Maritime Law provides for the pickup duty of the consignee, it is accepted beyond doubt that in the event that no specific provision is found in the Maritime Law, the Contract Law, which is the general law of the Maritime Law, will become applicable.

On the basis of the above, according to the relevant laws of China, the consignee has the duty to take delivery of the goods at the destination port, and will bear any cost and risk from its not timely picking up the goods.

(II) Preconditions ought-to-be for the duty to take delivery of goods

In the carriage of goods by sea today, usually the shipper is not the consignee, and the consignee achieves the right to take delivery of the goods on the basis of the contract of carriage, or the document of tile or its negotiation. There is not any relationship of contract of carriage between the consignee and the carrier. If the consignee obtains the document of title by means of Document against Payment, it certainly achieves the status to receive the goods. However, if the consignee obtains the right to take delivery by means of a sea waybill or a contract of carriage, the shipper may, taking advantage of the asymmetry of information, force on the consignee the receiver’s identity and the duty to take delivery of the goods. The consignee may not know the existence of the goods, or may not want to accept them even if it knows. The consignee may not even exist. For instance, a foreign company ships to China a shipment of electronic wastes. The shipper may find a scapegoat, and give it the right and identify of consignee in the contract of carriage or the sea waybill. In this way, the shipper can get away unnoticed. In this situation, it would be overly stringent to require the consignee to perform the duty to take delivery, and bear the liability for its delay or rejection to take the goods. Thus, the law should give appropriate protection to the consignee.

Article 43 of the Rotterdam Rules provides that “When the goods have arrived at their destination, the consignee that demand delivery of the goods under the contract of carriage shall accept delivery of the goods at the time or within the time period and at the location agreed in the contract of carriage, or failing such agreement, at the time and location at which, having regard to the terms of the contract of carriage, the customs, usages or practices of the trade and the circumstances of the carriage, delivery could reasonably be expected.” While imposing the pickup duty on the shipper, this provision adds a condition precedent, that is, the consignee is not obligated to take delivery of the goods unless it so demands. I comment is that despite its different approach, it works in the same way as a doctrine in the civil law theory, that is, “any obligation created on a third party will not be binding until it has the consent of the third party”. It helps the consignee to effectively avoid the risk of marine carriage of goods, without affecting its related rights in international trade. The legislative thinking can be borrowed into China.

Therefore, the pickup duty of the consignee should be appended to its right to take delivery of the goods; before it exercises this right, it may not be required to bear the pickup duty, or the liability from the delay or refusal to take delivery of the goods.

III. Duty ought-to-be on the carrier in case of non-delivery

As one of fundamental duties, the carrier should use its reasonable effort to take good care of the goods during its period of responsibility. Article 46 of the Maritime Law provides that “The carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.” Article 86 provides that “If the goods were not taken delivery of at the port of discharge or if the consignee has delayed or refused the taking delivery of the goods, the Master may discharge the goods into warehouses or other appropriate places…” In view of the above, the carrier is not discharged of its duty to take care of the goods even if the delivery fails. However, the extension of the period for the carrier to care the goods is directly caused by the failure of the consignee to perform its pickup duty. The Maritime Law lowers it requirements on the care of the goods by the carrier, and also provides that the costs and risks from such doing are borne by the consignee.

On the other side, Article 119 of the Contract Law provides that “Where a party breached the contract, the other party shall take the appropriate measures to prevent the losses from increasing; where the other party’s failure to take appropriate measures results in additional losses, it cannot demand compensation for the additional losses.” Therefore, the carrier should also have the duty of mitigating the loss to the advantage of the consignee or the shipper.

Moreover, according to the doctrine of good faith, the carrier should also bear any accompanying duty of the contract of carriage. It is required that the carrier should, in a careful and honest manner, store, keep and care the goods, as if it were a bona fide administrator, or as it would do to manage its own affairs.

IV. Rights of the carrier in case of non-delivery

In case of non-delivery, the carrier has the following rights by law or agreement:

(I) The rights granted by the contract of carriage. The carrier has the rights granted by the contract of carriage between the carrier and the shipper.

(II) The lien over the goods. Article 87 of the Maritime Law provides that “and other necessary charges paid by the carrier on behalf of the owner of the goods as well as other charges to be paid to the carrier have not been paid in full, nor has appropriate security been given,the carrier may have a lien, to a reasonable extent, on the goods.” Similarly Article 315 of the Contract Law provides that “Where the consignor or consignee fails to pay the freight, safekeeping fee and other expenses in connection with the carriage of the cargo,the carrier is entitled to a possessory lien on the corresponding portion of the cargo…” As shown in the above provisions, where the goods are picked up by none at the destination port, the carrier may seek for remedies by retaining these goods to protect its own interest.

(III) The right to deposit the goods with a competent authority. Article 316 of the Contract Law provides that “Where the consignee is not known or refuses to take delivery of the cargo without cause, the carrier may place the cargo in escrow under Article 101 hereof.” On this basis, the carrier has the right to place the goods it carries in escrow in order to extinguish the delivery obligation under the contract of carriage.

(IV) The right to claim for the cost of caring the goods. According to Article 86 of the Maritime Law, in case of non-delivery, the captain may unload the goods to an appropriate place, the costs and risks, if any, from which will be borne by the consignee. Therefore, the carrier has the right to claim against the consignee for the cost of caring the goods after their unloading.

(V) The right to apply to a court for selling the goods by auction. Article 88 of the Maritime Law provides that “If the goods under lien in accordance with the provisions of Article 87 of this Code have not been taken delivery of within 60 days from the next day of the ship's arrival at the port of discharge, the carrier may apply to the court for an order on selling the goods by auction; where the goods are perishable or the expenses for keeping such goods would exceed their value, the carrier may apply for an earlier sale by auction.” It is clarified that the carrier may request a court to sell the goods by auction after the non-delivery has lasted for a certain period of time.

V. Remedial approaches available to the carrier

When the goods are picked up by none at the destination port, the carrier will be caught up in a situation where the goods will probably be detained at the destination port for a longer period of time, and such extra costs that should not have occurred as the storage charge and demurrage at the container terminal will increase day by day.

As analyzed, the existing laws grant a few rights to the carrier so that it can get out of the difficult situation from non-delivery. However, it merits our thinking how to employ these remedies available in different situations, so that the true responsible party can be made liable, and the carrier can be protected of the loss from the obstruction to the delivery of the goods.

Regarding this, solutions can be sought from two perspectives. a. the consignee which fails its obligation to take delivery of goods is liable for damages. When the consignee abandons the goods or when the prescribed time period expires, the compensation concerned should inure to the ownership of the goods, that is, the carrier may apply to a court for selling of the goods by auction, and be paid preferably from the proceeds of selling of the goods, with the balance, if any, to be made good by the shipper. When the consignee delays its taking delivery of the goods, the compensation concerned should inure to the carrier's lien, that is, the carrier has the right to retain the goods, and require the consignee to compensate for the costs paid by the carrier on behalf of the consignee during the period of the delivery delay. b. According to the Contract Law, if in a contract for third party liability, the third party fails to perform its obligation or perform not in compliance with the contract, the obligor shall be liable to the obligee for the breach of contract. This breach of contract liability occurs, if the compensation of the goods is insufficient to cover up the entire loss. Thus, if the proceeds from the auction of the goods are not enough to make good the loss of the carrier, the balance should be paid by the shipper.

By DONG Xiaonan