[January 17, 2019]

The trucks were on fire during the course of carriage, causing damage to over 300,000 LCDs. The insured destroyed all the goods before the insurer and the logistics company reached an agreement over the handling of loss of the goods and the amount of loss. Then after compensating the insured over USD 1.35 million for the loss, the insurer exercised its right of subrogation to demand compensation from the logistics company, but the logistics company refused to compensate. Shanghai Maritime Court ruled on this case concerning dispute over a multimodal transport contract that, as the amount of loss was not able to be confirmed in a reasonable manner due to the fault of the insured, the unfavorable consequences of the ¡°additional loss¡± shall be borne by the insurer who exercised the right of subrogation and the Defendant shall compensate the Plaintiff (namely the insurer) over USD 530,000 and relevant lost interests.

[Case Review]

In December 2014, a batch of LCDs insured by the insurer was transported from Korea to Nanjing by the logistics company as entrusted by the insured. The goods were supposed to be transported from Korea to Weihai Port of China by sea and then to Nanjing by truck. Unfortunately, during the transportation to Nanjing, the rear tires of the truck got on fire and then the container was set alight. As a result, serious damage was caused to the LCDs in the container.

It was identified that, the reason why the truck got on fire was that: the reset spring of brake shoes in the inner sides of the truck tires was broken, causing that the brake shoes cannot return, and the brake shoes rubbed against the brake drum, thus producing high temperatures, and then the overheating brake drum set the tires on fire. The breakage of reset spring of brake shoes was an accident that happened rarely.

There were 47 trays and over 300,000 pieces of goods in the container. After the accident, the insurer entrusted an insurance assessor, the logistics company and representatives of the insured to jointly carry out an inspection. During the inspection, they found that the goods in 20 trays were seriously damaged and goods in the other 27 trays were slightly damaged and that the internal conditions of goods slightly damaged were unclear and cannot be confirmed until a quality test was carried out. The parties all agreed to destroy the goods in the 20 trays which were seriously damaged, but they failed to reach an agreement on the handling of goods in the other 27 trays. Then, the quality inspection personnel of the consignee carried out strict visual inspection, highlight test, power-on test and other performance tests on the goods in the other 27 trays and the result was that 72.79% of these goods were unqualified. As the logistics company refused to accept the inspection plan proposed by the insured, no following inspection was carried out. At the end, all the goods were destroyed by the insured and the insurer compensated the insured over USD 1.35 million in accordance with the terms of the insurance policy.

The insurer brought a case to Shanghai Maritime Court on the ground that the damage to goods was caused due to the logistics company¡¯s failure to take good care of the goods during the course of carriage.

The Plaintiff (namely the insurer) claimed that, the loss of goods caused by the truck tires which got on fire shall be borne by the logistics company; according to the report of the insurance assessor, the price of goods in 20 trays which were seriously damaged was over USD 580,000 and the loss of goods in the other 27 trays was over USD 700,000; the insurer had already compensated the insured over USD 1.35 million and acquired the right of subrogation. Therefore, the Plaintiff requested the Court to order the logistics company to fully compensate it.

The Defendant (namely the logistics company) argued that, the fire was included in the ¡°force majeure¡± set forth in the Contract Law of the People¡¯s Republic of China and may relieve the logistics company from its liabilities thereunder; the insurance assessor employed by the Plaintiff was not qualified to carry out inspection and the personnel carrying out the inspection did not have the qualification and expertise necessary to carry out inspection on the LCDs; therefore the inspection was not scientific and the assessment report of the Plaintiff shall not be accepted as a basis of confirming the amount of loss; according to the assessment report of the Defendant, the loss of the goods in 20 trays which were seriously damaged was over USD 450,000 and the loss of the goods in the other 27 trays which were slightly damaged was over USD 80,000, over USD 530,000 in total.

[Case Study]

Shanghai Maritime Court held upon trial that, the fire involved in this Case was an ¡°accident¡± caused by the broken reset spring of the brake shoes, but the section carrier employed by the Defendant (namely the logistics company) was a transport operator who shall have the obligations to inspect, maintain and safely use the trucks; the Defendant failed to provide evidence to prove that it had performed its duty of care and that the accident involved cannot be avoided even if it performed its duty of care; therefore the fire involved shall not constitute ¡°force majeure¡±.

Meanwhile, the Court held that, according to the inspection report submitted by the Plaintiff, the Plaintiff confirmed the amount of loss almost solely on the result of the inspection carried by the Insured. The insured refused to provide the pre-delivery inspection standards of the goods involved and to provide the damaged goods to a third party for inspection, and applied strict inspection standards to the damaged goods and destroyed the goods regardless of whether the goods had any residual value. Meanwhile the insurer recognized all loss claimed by the insured, which was understandable; however, since the loss of the damaged goods were not able to be confirmed in a fair and reasonable manner due to the fault of the insured, the corresponding unfavorable consequences shall be borne by the insurer who exercised the right of subrogation. As the Plaintiff (namely the insurer) failed to fully prove the loss of goods, the Court recognized the probative force of the assessment report submitted by the Defendant (namely the logistics company) and determined the loss of goods involved as over USD 530,000.

In conclusion, the Court ruled that the Defendant (namely the logistics company) shall compensate the Plaintiff (namely the insurer) over USD 530,000 and relevant lost interests.

[Relevant Laws]

I.     Contract Law of the People¡¯s Republic of China

Article 39     Where standard terms are adopted in a contract, the party providing the standard terms shall observe the principle of fairness in defining the rights and obligations of the parties, draw the attention of the other party in a reasonable manner to the terms that exclude or restrict the other party¡¯s liabilities, and explain the standard terms at the request of the other party.

Standard terms are clauses which are prepared in advance for repeated use by a party and which are not a result of consultation with the other party in concluding a contract.

Article 40     Where a standard term falls under any of the circumstances provided in Articles 52 and 53 of the Law, or the party providing such term exempts itself from its liabilities, increases the liabilities of the other party, or excludes the primary rights of the other party, the term shall be null and void.

Article 117   Where a contract is not able to be performed due to force majeure, the liabilities shall be exempted in part or in whole in light of the effects of the force majeure, except as otherwise provided by law. If the force majeure occurs after one party has delayed its performance, the liabilities of the party shall not be exempted.

For the purpose of the Law, force majeure refers to the objective circumstances that are unforeseeable, unavoidable and insurmountable.

Article 311   A carrier shall be liable for compensation for damages for the damage to or loss of goods during the course of carriage unless the carrier proves that the damage to or loss of goods was caused by force majeure, inherent nature of the goods per se, reasonable wear and tear, or the fault on the part of the consignor or consignee.

II. Maritime Code of the People¡¯s Republic of China  

Article 104   The multimodal transport operator shall be responsible for the performance of the multimodal transport contract or the procurement of the performance therefor and shall be responsible for the entire transport.

The multimodal transport operator may enter into separate contracts with the carriers of the different modes defining their responsibilities with regard to the different sections of the transport under the multimodal transport contracts. However, such separate contracts shall not affect the responsibility of the multimodal transport operator with respect to the entire transport.

Article 105   If loss of or damage to the goods has occurred in a certain section of the transport, the provisions of the relevant laws and regulations governing that specific section of the multimodal transport shall be applicable to matters concerning the liability of the multimodal transport operator and the limitation thereof.

Article 252   Where the loss of or damage to the subject matter insured within the insurance coverage is caused by a third person, the right of the insured to demand compensation from the third person shall be subrogated to the insurer from the time the indemnity is paid.

¡­¡­

III. Provisions of the Supreme People¡¯s Court on Several Issues about the Trial of Cases Concerning Marine Insurance Disputes

Article 14     The people¡¯s court accepting a case where the insurer exercises its right of subrogation shall only consider the legal relationship between the third person who causes the insurance accident and the insured.

IV. Civil Procedure Law of the People¡¯s Republic of China

Article 64     A party concerned shall be responsible for producing evidence to prove his/her claim.

¡­¡­

V. Interpretation of the Supreme People¡¯s Court on the Application of the Civil Procedure Law of the People¡¯s Republic of China

Article 91     A people¡¯s court shall determine the carrying of burden of proof under the following principles, unless it is otherwise prescribed by any law: 

(I)   A party claiming the existence of a legal relationship shall carry the burden of proof on the basic facts giving rise to the legal relationship;

(II)  A party claiming the modification or extinction of a legal relationship or the impairment of a right shall carry the burden of proof on the basic facts about the modification or extinction of a legal relationship or the impairment of a right.

(Writer: Ge Pei, Shanghai Maritime Court)