Case of disputes over contract of carriage of goods by sea between AIG UNION Y DESARROLLO, S. A. and Guangzhou Ocean Shipping Company

Updated：2018-01-26 Views：33197

　　　　　　　　　　　The Higher People’s Court of Guangdong Province 
　　　　　　　　　　　　　　 The People’s Republic of China
　　　　　　　　　　　　　　　　　　　Civil Judgment
　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　(2011) Yue Gao Fa Min Si Zhong Zi No. 24

Appellant (Plaintiff of first instance): AIG UNION Y DESARROLLO, S. A.
Address: Calle Loma Linda No.265, San Salvador, El Salvador, C.A.
Legal representative: Francisco P. R. De Sola，chairman
Agent ad Litem: Sun Jing Liang, male, the Han nationality, born on 15th May 1974，ID No.440301197405156975, residing at Rm304, Building 1, Shekou Binhai Garden, Nanshan District, Shenzhen, the P. R. C.

Appellee (Defendant of first instance): Guangzhou Ocean Shipping Company
Address: 412 Huanshi Avenue East, Guangzhou, the P.R.C
Legal representative: Xu Hui Xing, general manager 
Agents ad Litem: Huang Hui / Zhang Jing, lawyers of Huang & Huang Co. Law Firm

By virtue of dissatisfaction with Civil Judgment under ref: (2008) Guang Hai Fa Chu Zi No.101 issued by Guangzhou Maritime Court (“the court of first instance”) with respect to the case arising f rom disputes over a contract of carriage of goods by sea lodged by the appellant AIG UNION Y DESARROLLO, S. A. (“AIG”) against the appellee Guangzhou Ocean Shipping Company (“Ocean Shipping”), AIG filed an appeal against the aforesaid judgment before this court. A collegial panel was duly formed by this court to try the case which has now been concluded. 

AIG at the first instance claimed that: In July 2001, three lots of cargo insured by the AIG were carried by M.V. “Heng Shan” owned by Ocean Shipping who issued B/L No.F-02, B/L No.S202 and B/L No.S203 accordingly. During the course of carriage, the cargo under B/L No.S203 and B/L No.S202 suffered a total loss. AIG paid a indemnity sum of USD479,187.00 for such loss and cargo disposal fee of USD1,365.41 to the insured. Meantime, AIG effected payment of USD14,638.57 as general average contribution to Ocean Shipping for the cargo under B/L No.F-02 in accordance with the Adjustment Report issued by Richards Hogg Lindley. After issuing the bills of lading in question, Ocean Shipping was under the obligation to properly and carefully stow and care for the cargo as well as deliver the cargo in the same condition as specified on the bills of lading at the port of destination. Now Ocean Shipping failed to perform such obligation, causing the holders of the bills of lading to incur losses as a result. AIG as the insurer of the goods in question, after indemnifying the holders of B/L No.S202 and B/L No,203 for loss of goods according to the insurance policy and paying the adjusted general average contribution on the part of the holder of B/L No. F-02 has been duly subrogated to the insured’s right of recovery against the Ocean Shipping and therefore requested the court of first instance to adjudge and order: (1) Ocean Shipping to indemnify AIG for loss of goods in the amount of USD480,552.41 (equivalent to RMB3,433,643.08 as per the USD-RMB exchange rate on 20th February 2008) and interest thereon (calculated on a principal of RMB3,433,643.08 as per the short-term (half to one year) lending rate promulgated by People’s Bank of China over the corresponding period counting f rom 5th April 2002 to the date of actual payment,); (2) Ocean Shipping to pay AIG the general average contribution in the amount of USD14,638.57 (equivalent to RMB104,595.51 as per the USD-RMB exchange rate on 20th February 2008) and the corresponding interest (calculated on a principal of RMB104,595.51 as per the short-term (half to one year) lending rate promulgated by People’s Bank of China over the corresponding period counting f rom 13th July 2004 to the date of actual payment); and (3) Ocean Shipping to bear the court fees and other legal costs pertaining to this case.

AIG submitted the following evidences to the court of first instance: Evidence No.1 - documents of insurance claims, to prove payment of indemnity sums regarding the goods in question; Evidence No.2 - Survey Report on Fire Incident on M/V “Heng Shan” issued by GWF Franklin, S. A., to prove that the fire in question taking place in hold No.2 of M/V “Heng Shan” has led to a total loss of the cargo under B/L No.S202 and B/L No.S203 and to prove the value of the cargo; Evidence No.3 - Adjustment Report issued by Richards Hogg Lindley, to prove that the goods under B/L No.F-02 had to contribute 25.606% of its value to the general average losses; Evidence No.4 - Charter Party dated 28th June 2001，to prove the Ocean Shipping and the shipper were both parties to the charter party which was incorporated into the bills of lading in question; Evidence No5 - Ship Declaration Form, to prove that Ocean Shipping willfully concealed the actual quantity of the dangerous goods carried; and Evidence No.6 - Dangerous Cargo List, to prove that Ocean Shipping misrepresented the quantity of the dangerous goods and thus was at fault for the fire incident. Among the evidences above, except for Open Policy No.042866, Insurance Certificate No.035031, the Extended Terms and Conditions in Evidence No.1, as well as Evidence No.3 that were certified to be in the conformity with the originals, all others are merely duplicated copies.

Ocean Shipping contended in the hearing held by the court of first instance that: (1) AIG was not a proper plaintiff and had no title to lodge this lawsuit. The so-called insurance policy submitted by AIG was in fact unilaterally issued by AIG itself, instead of an insurance contract. AIG failed to discharge the burden of proving that the insured it alleged were legal holders of the bills of lading in question or consignees of the goods in question who had an insurable interest in the goods at the material time. (2) AIG’s claims had already been time-barred, AIG was deprived of the right to win and therefore its litigation requests shall be rejected accordingly. (3) AIG failed to adduce evidence to prove that the goods under B/Ls No.S202 and B/LNo.S203 had become a total loss and thus had no right to claim for the alleged loss against Ocean Shipping. (4) Even if the goods under B/Ls No.S202 and B/L No.S203 had indeed become a total loss, the carrier shall be exonerated f rom all liability for such loss caused by fire in accordance with the law and hence shall not bear any liability for compensation. (5) The incident that gave rise to general average was caused by fire for which the carrier was entitled to exoneration f rom the liability for compensation, thus AIG had no title to claim against Ocean Shipping for its general average contribution. In view of the above, Ocean Shipping requested the court of first instance to reject AIG’s claims and/or submissions against Ocean Shipping and order AIG to bear the court costs.

Ocean Shipping submitted the following evidences to the court of first instance: Evidence No.1 – ship certificates of M/V “Heng Shan” (including Cargo Ship Safety Construction Certificate, Cargo Ship Safety Equipment Certificate, International Oil Prevention Certificate, Hull Classification Certificate, Classification Certificate by China Classification Society, Minimum Safe Manning Certificate), a name list of crew members on the voyage in question, Document of Compliance, Maintenance and Inspection Report by China Classification Society and Statutory Survey Report, etc. to prove that the seaworthiness of M/V “Heng Shan” on the voyage in question; Evidence No.2 - Deck Logbook of M/V “Heng Shan”, to prove Ocean Shipping has discharged the obligations of properly and carefully keeping and caring for the goods carried; Evidence No.3 - Cargo Survey Report, to prove that no damage to the goods under B/L No.S202 and B/L No.S203 was found after completion of the discharge operations; Evidence No.4 - Certificate of Survey (extract), Attachment 6 of the Adjustment Report issued by Richards Hogg Lindley, to prove that no damage was incurred by the goods under B/L No.S202 and B/L No.S203; Evidence No.5 – Survey Report, Attachment 3 of the Adjustment Report issued by Richards Hogg Lindley, to prove that no damage was incurred by the goods in question; and Evidence No.6 - Survey Report on Fire Incident on MV “Heng Shan” issued by Burgoyne Incorporated Dated 22nd August 2001, to prove that the carrier of the goods in question was not at fault or negligent for the fire. Evidence No.2, No.3 and No.6 were certified to be in conformity with the originals，while others are duplicated copies.　　　　　　　　　　　　 

Both parties submitted the pertinent extracts of the International Maritime Dangerous Goods Code, 2000 (“IMDG Code 2000”).

After investigation and examination, the court of first instance ascertained that the followings:

1. With regard to the carriage and loss/damage condition of the goods in question

MANUCHAR chartered M/V “Heng Shan” f rom Ocean Shipping on GENCON form on 28th June 2001 (“Charter Party”). In July, M/V “Heng Shan” owned by Ocean Shipping loaded goods f rom Shanghai and Tianjin among some other places in China for discharge at ports including El Salvador Port. On 13th July, Ocean Shipping issued B/L No.S203, naming MANUCHAR as the shipper, “ To Order Of” as the consignee and INDUSTRIAS UNISOLA S.A as the notify party, for carriage of a cargo of 800 kilograms of trimetric sodium phosphate packed into 800 bags. On 14th July, Ocean Shipping issued B/L No.S202, specifying MANUCHAR as the shipper, “To Order of LEVER DE EL SALVADOR,S.A.” as the consignee and LEVER DE HONDURAS S.A. as the notify party, for carriage of a cargo of 200 tons of sodium tripolyphosphate Ⅱ packed into 4000 bags with each weighing 50 kilograms. The port of loading under B/L No.S202 and B/L No.S203 was Shanghai, China. On 19th July, Ocean Shipping issued B/L No.F-02, naming MANUCHAR as the shipper, INDUSTRIAS UNISOLA S.A. as the notify party and Tianjin Port of China as the port of loading，for a cargo of 1 ton of sodium sulphate packed into 500 bags. B/L No.S202, B/L No.S203 and B/L No.F-02 covering the three lots of cargo mentioned above all named Port of Acajutla, El Salvador as the port of destination and the Charter Party concluded on 28th June 2001 was incorporated into the bills of lading in question. At 1425 hours of 20th August 2001, M/V “Heng Shan” arrived at Port of Manzanillo, Mexico, and cargo discharge operations were commenced at 1700 hours of the same day. At 0730 hours of 22nd August, hold No.2 of the ship was on fire whereupon the ship was shifted to anchorage to extinguish the fire. At 1420 hours of 24th August, the fire was put out, followed by removal of explosive/toxic gases f rom hold No.2. On 31st August, Ocean Shipping declared General Average. The discharge operations were resumed on 20th September and finished on 11th October whereupon the ship left Port of Manzanillo, Mexico for the next scheduled port. Richards Hogg Lindley, as the general average adjuster issued the Adjustment Report on 30th January 2004. Though Ocean Shipping refused to recognize the Adjustment Report, it quoted the said report’s attachments to support its defence and confirmed the general average loss therein. Hence the court of first instance recognized the report which stated that the cargo under B/L No.F-02 contributed 25.606% of its value to the general average losses. AIG paid USD14,638.57, as the general average contribution to the adjuster on behalf of its insured INDUSTRIAS UNISOLA S.A. under B/L No.F-02. Ocean Shipping confirmed receipt of the above sum of money through the adjuster. After arrival at Port of Acajutla, El Salvador, the goods in question were surveyed by GWF Franklin S.A. who issued the Survey Report of Fire Incident on M/V “Heng Shan” No. 0110-131. Ocean Shipping rejected the said survey report on the grounds that it was provided in copies without availability of the original for verification and submitted the Cargo Survey Report and attachments of the Adjustment Report as evidence to the contrary. The court of first instance held that although the three reports above all contained a statement to the effect that the cargo was in apparent good order and condition, they also mentioned that the cargo was fumigated. The Survey Report and attachments of the Adjustment Report furnished by Ocean Shipping gave no mention of any possible impact of the fumigation on the intended application of the goods or how to dispose of the fumigated cargo, while the survey report provided by the AIG further contained that the goods in question became a constructive total loss, since they had lost their intended use as a result of being fumigated. Some facts stated in the reports were corroborated with each other and no contradictions were found yet. Thus, the Survey Report and attachments of the Adjustment Report furnished by Ocean Shipping were admitted by the court of first instance, and the contents therein were confirmed by the court accordingly. According to the Survey Report submitted by Ocean Shipping, the attending surveyor witnessed the discharge operations on 18th October 2001 at the port of discharge and found that although the goods were contaminated, they sustained no substantial damage. So the Survey Report concluded that all goods in question were discharged, inspected and found to be in good order and condition, without any appearance of damage, expect for some stains. According to Adjustment Report, some unknown residues was found on the top of packages stowed the bottom compartment of hold No.2, and the cargo packed in unsealed bags may have been contaminated by the carbon dioxide or other gases produced during the fire accident However, the conditions of goods inside sealed bags remained unknown and must be ascertained by experts. The adjuster failed to give a detailed description on the extent of damage to each cargo stowed in hold No.2, which was left to be ascertained by each consignee at the time of taking delivery of the cargo. According to the survey report issued by GWF Franklin S.A., on 24th October 2001, its attending surveyor, at the application of AIG proceeded to survey the cargo in question that were stored in warehouse No.1 at Port of Acajutla, EL Salvador after arrival on 16th October 2001, followed by discharge which was completed on 22nd October. In light of the stowage plan in question, the goods under B/L No.S202 and B/L No.S203 were stowed in the bottom compartment of hold No.2, while those under B/L No.F-02 were stowed on the upper compartment of hold No.1. Paraffin wax together with some other goods was stowed on the upper compartment of hold No.2. The goods under B/L No.S203 were placed in the bottom compartment of hold No.2, while the goods under B/L No.S202 were stored on top of those under B/L No.S203. Pertinent information showed that the fire broke out in hold No.2, which accorded with the surveyors’ findings, but it seemed that the fire took place in upper compartment of hold No.2. Though the goods under B/L No.S202 and B/L No.S203 were found to be in apparent good order and condition, they were actually fumigated, and some were damaged as a result. As test results by independent labs would be affected by such varying factors as sample sources, visible condition of the goods and other results hard to be explained，the test results provided by the consignees shall be the most reliable ones. The test results provided by the consignees showed that the goods were under specifications in respect of size and density, etc.. On 11th February 2002, representatives of different companies concerned, including the consignees LEVER DE EL SALVADOR, S.A., INDUSTRIAS UNISOLA S.A. and the insurer AIG held a meeting at a factory in EL Salvador, during which, the consignees claimed that the smoky flavor was the major problem for the goods which were intended to be used as the basic ingredient to produce detergent. It was estimated that the re-processing fees, counting out all fringe costs and other incurred during transportation, would amount to USD447,100 approximately, and by taking into consideration of other factors regarding the claims, the consignees’ surveyors concluded that the goods under B/L No.S203 and B/L No.S202 constituted a total loss. The CIF invoice value of the goods under B/L No.S203 was USD386,400.00, while the CIF invoice value of the goods under B/L No.S202 was USD97,600, resulting in a total of USD484,000. Since the goods under B/L No.F-02 were stowed in hold No.1 and not affected by the fire, they were duly delivered upon arrival at the port of destination.

Moreover, though AIG refused to recognize the ship’s certificates and some other documents produced by Ocean Shipping on the grounds that they were duplicated copies, the court of first instance found that those certificates and documents corroborated with one another. Therefore in the circumstances that there was no any evidence to the contrary, those certificates and documents were admitted by the court of first instance as effective evidence. It was ascertained that MV “Heng Shan” owned by Ocean Shipping was a multi-purposed steeled cargo ship, built in 1983, with registration No.84D1113, IMO No.8225357, gross tonnage 12,448, net tonnage 6,548, her certificates such as Minimum Safe Manning Certificate and Cargo Ship Safety Equipment Certificate remained valid at the material time and that her voyage in question satisfied the requirements regarding minimum safe manning. China Classification issued the Survey Report to certify that the ship’s carbon dioxide system was in a satisfactory condition upon survey by a company accredited by members of the International Association of Classification Societies. By clause 12 of the Charter Party dated 28th June 2001, Ocean Shipping guaranteed that when loaded to capacity, the ship was able carry at least 12,500 metric tons of goods including chemicals, steel materials and paraffin wax, among which, her deck was able to stow not more than 230 metric tons of dangerous cargo and her holds not more than 1000 metric tons of dangerous cargo, while clause 28 of the Charter Party stipulated that Master was responsible for making stowage plans and supervising the transshipment, stowage and discharge operations.　

2. With regard to the causes of the alleged loss of cargo

Ocean Shipping submitted the Survey Report on Fire Incident on M/V “Heng Shan” issued by Burgoyne Incorporated and the vessel’s Deck Logbook to contend that it had fulfilled its obligations as the carrier. The entries of the deck logbook were consistent with the contents of the survey report which stated that Burgoyne Incorporated was instructed by the ship’s P&I club to handle the matter and investigate the causes of the fire. MV “Heng Shan” extended 157.64 meters in length, 22.90 meters in width, 12.995 meters in depth f rom her bottom to the upper deck. The ship had 4 cargo holds, each owning a tweendeck and a bottom compartment. The tweendeck of hold No.2 was divided into left part and right part. The left part had a capacity of 1608.3 cubic meters, the right party 1669.8 cubic meters, and the bottom compartment 4729 cubic meters. All cargo space was equipped with a total flooding carbon dioxide system and suction-type smoke detectors as well. The fire broke out in hold No.2 of MV “Heng Shan” on voyage No.26 when discharge of cargo shipped f rom China was in progress after arrival at Port of Manzanillo, Mexico. All details regarding the loading and unloading operations as well as crew members’ observations on the fire were obtained through interviews with different crew members onboard at the material time. The vessel on the material voyage commenced loading of goods at Shanghai on 13th July. The goods loaded first into the bottom of hold No.2 were trimetric sodium phosphate for discharge at Guayaquil and Acajutla, followed by ascorbic acid, neotocite and trimetric sodium phosphate. After that, a cargo of paraffin wax was loaded into hold No.2 as well. On 18th July, loading began in the tweendeck of hold No 2. The goods loaded first were several bags of paraffin wax, followed by some buckets of sodium sulfite and a few more bags of paraffin wax and pig lead. On 21st July, a cargo of paraffin wax was loaded into the tweendeck of hold No.2 at Dalian Port for discharge at Manzanillo of Mexico. The sea was calm and tranquil during the material voyage, all ventilation baffles of the cargo holds were open, and the pressure ventilation system was at work to air the cargo holds. No one had ever entered into the tweendeck or bottom of hold No.2 during the material voyage. The cargo holds’ smoke detection system installed on the bridge remained in working condition all the time and was checked and examined every 4 hours. During the discharge operations at the port of discharge, apart f rom the crew members executing standard supervision and monitoring，no other crew entered into the tweendeck or bottom of hold No.2 or engaged in the discharge operations. The discharge operations in hold No.2 began with the unloading of bagged paraffin wax, which was still in progress at 0730 hours of 22nd August when the fire was first discovered in hold No.2. It is said that before the fire, no other goods except for the paraffin wax were discharged f rom hold No.2, and no strange smell was detected. At 0730 hours of 22nd August when a crew member on patrol took out the headlight f rom the tweendeck of hold No.2 on the starboard, he noticed a mass of red light with some smoke in the bottom compartment of the hold through the seam on the tweendeck hatch. The chief engineer immediately brought out a 6-kilogram dry powder fire extinguisher f rom boatswain’s storeroom to hold No.2 to fight the fire, and found a small flame shooting out through the seam on the tweendeck hatch. It was then determined that the flame was located at the right front part of the tweendeck, just a little bit in front of the buckets of sodium sulfite. And it turned out the fire was too fierce to put under control with the fire extinguisher, then the hatch of hold No.2 was closed and the ventilation system switched off. Four fire hoses were used to cool the hatch’s edge on the right. After that, hold No.2 was flooded with carbon dioxide. Shortly after the fire broke out, several tugboats came near the ship and assisted in cooling the hatch cover with fire-fighting monitors. At about 1333 hours, the ship was shifted to anchorage. The above information obtained f rom the crew members concluded that the fire broke out in hold No.2, and the goods involved included the bucketed sodium sulfate and bagged paraffin wax. After a series of efforts, including of closing the hold’s hatch, flooding the hold with carbon dioxide, and applying fire hoses to cool the hatch’s edge, the fire was put under control in the end. Then inert gas generators were used to remove all toxic and combustible gases f rom hold No.2. Later, the hatch was opened and the discharge operations were resumed. Upon investigation, it was found that the fire initially started on the top of goods stored at the right front part of the bottom of hold No.2 and flames were first discovered through of the seam on the tweendeck hatch. Relevant surveys showed that no equipment/device of the ship installed in hold No.2 was responsible for the fire. There was no physical evidence that could immediately lead to the true cause of the fire. Upon investigation, it was ascertained that the fire was not attributed to any defect or functional failure of the ship’s equipment, devices or systems. Nor was there any evidence proving that the fire arose f rom any act or omission of the crew. By exclusion, only the following causes may lead to the fire: the fire might have something to do with the damage to or spillage of sodium sulfate during the discharge operations at Port of Manzanillo, Mexico, or the hot particles generated by the diesel-driven forklift used by stevedores to discharge the goods in hold No.2. In light of all information available at the present stage, the most possible cause was the spillage and combustion of sodium sulfate, because a lit cigarette or hot particles could hardly set fire to the bags that contained the paraffin wax. However, AIG did not accept such cause mentioned above. AIG argued that Ocean Shipping misrepresented the quantity of the dangerous cargo carried on MV “Heng Shan” to the port authority of Manzanillo, Mexico, causing the port authority and stevedores company to fail to exercise due supervision and caution over the discharge operations; the stowage of the dangerous goods in question was improper and failed to satisfy the requirements of the IMDG Code 2000 regarding stowage of dangerous goods; and that the ship was not equipped with fire-fighting system, which led to the loss of the cargo in question. To support its above arguments, AIG provided copies of the Ship Declaration Form issued by the Navigation and Supervision Bureau of Manzanillo, Mexico. However, Ocean Shipping refused to recognize such evidence. The court of first instance held that the vessel’s name on the copies of the declaration form was revised while the ship’s number thereon was not in accord with that shown on the ship’s certificates provided by Ocean Shipping; Master’s signature and stamp were illegible; no relevant evidence was available for corroboration, and therefore the said declaration form was not recognized by the court of first instance.

3. With regard to the trading and insurance of the cargo in question

Such insurance documents as Open Policy No.042866, Insurance Certificate No.035031, the Extended Terms and Conditions submitted by AIG to the court of first instance to evidence its settlement of claims with MANUCHAR regarding the cargo in question were the originals, while invoices and other similar documents issued by MANUCHAR were duplicated copies. The carriage particulars shown on the invoices agreed with those on the bills of lading, and the Open Policy, Insurance Certificate and other insurance documents mutually corroborated with one another. Therefore the above evidence was recognized by the court of first instance in the circumstances of no evidence to the contrary. In light of the above evidence in this paragraph, the court of first instance ascertained the following facts: LEVER DE HONDURAS S.A. purchased the cargo under B/L No.S202 at a total price of USD97,600.00, CFR Acajutla, f rom MANUCHAR in Belgium. LEVER DE EL SALVADOR, S.A. took out marine cargo (import/export) insurance and inland transit insurance on the goods under B/L No.202 and AIG as the insurer, issued Insurance Certificate No.035351 dated 20th November 2001 to LEVER DE EL SALVADOR, S.A., one of the insurance certificates under Open Policy No.044479. By the said insurance certificate, the insured goods were shipped by several suppliers for delivery to LEVER DE EL SALVADOR, S.A., carried by M/V “Heng Shan” by sea to Central America and Panama. According to the Notice of Insurance Claim dated 31st October 2001, the insurance period was f rom warehouse to warehouse. By the said notice, the goods in question were the raw materials purchased by LEVER DE EL SALVADOR, S.A. f rom a subsidiary company of LEVER in October 2001. And according to AIG, the shipment was purchased by LEVER DE EL SALVADOR, S.A. f rom LEVER DE HONDURAS S.A., a subsidiary company of LEVER GROUP. Since the insured first learned the damage to the shipment after its arrival at Salvador in October 2001, it integrated the damage to the notice dated October. In April 2002, AIG indemnified the insured LEVER DE EL SALVADOR, S.A. USD976,624.00 in accordance with the insurance contract, and the insured then issued a receipt to confirm receipt of the said indemnity sum. The cargo under B/L No.S203 was purchased by INDUSTRIAS UNISOLA S.A. f rom MANUCHAR in Belgium, at a total price of USD386,400.00, C&F Acajutla, El Salvador. GROUP UNISOLA took out marine cargo (import/export) insurance and inland transit insurance on the goods under B/L No.203, with Group UNISOLA and its subsidiary companies in Central America as the insured, while AIG, as the insurer, issued Open Policy No. DM-42866 to cover the goods owned or kept by or under the supervision and control of the insured against risk of loss while in transit f rom warehouse to warehouse during the period f rom 1st May 2001 to 30th April 2002. By the insurance policy, the insured shall declare monthly the value and movement of the insured goods, and the deductibles for loss of unfrozen goods carried by sea was 1% of the value of the goods. On 25th September 2001, AIG issued Insurance Certificate No.035031 to the insured, naming INDUSTRIAS UNISOLA S.A. as the insured and several supplies as the shipper, goods to be delivered to INDUSTRIAS UNISOLA S.A., carried by M/V “Heng Shan” f rom places including America and Mexico to places including Salvador. In the Notice of Insurance Claim dated 31st August 2001, “Belgium” was filled in the box “place of loading”, for which, AIG explained that the seller of the goods was a company established in Belgium and no distinguishment in this regard was made in the scope of cover under the open policy insurance. In April 2002, AIG indemnified the insured INDUSTRIAS UNISOLA S.A. USD382,563.00 in accordance with the insurance contract. The insured then issued a receipt to confirm receipt of the said indemnity sum.

In addition, AIG and Ocean Shipping confirmed that the damaged goods should have been delivered on 29th December 2001, and failed to determine the date on which general average adjustment was completed. AIG alleged that it instituted legal proceedings in the Second Maritime Court of Panama against Ocean Shipping on 15th October 2002, and on 17th October, Ocean Shipping provided a security to the court through its P&I club. On 22nd May 2003, the 2nd Maritime Court of Panama ruled that the dispute shall be handed over to the jurisdiction of the court of first instance and thereby ordered to suspend the proceedings. However, AIG’s such allegation was rejected by Ocean Shipping on the grounds that AIG failed to submit any evidence in support. Pending the hearing of first instance, AIG filed an application before the court of first instance for a separate decision regarding the issue of limitation period alone, which was challenged by Ocean Shipping. Both parties agreed that the disputes over the contract of carriage of goods by sea shall be subject to Chinese law.

The court of first instance held: this was a case arising f rom disputes over the contract of carriage of goods by sea and lodged by an insurer who was subrogated to the rights of the insured under bills of lading incorporating the said contract of carriage of goods by sea after indemnifying the insured for loss of goods and general average contribution in accordance with insurance contracts which covered the goods; at all material times, AIG was/is a company incorporated in EL Salvador, and goods in question were shipped f rom China to places including EL Salvador, so this was a case involving foreign-related elements; Under Article 6.2.2 of the Special Maritime Procedure Law of the People’s Republic of China and Article 28 of the Civil Procedure Law of the People’s Republic of China, the lawsuit instituted by AIG arose f rom dispute over carriage of goods by sea and thus shall be under the exclusive jurisdiction of maritime courts, and considering that the place of shipment under the contract in question and the place where the domicile of Ocean Shipping was/is located are within the scope of jurisdiction of the court of first instance, the court of first instance has jurisdiction over this case. Both parties concerned selected Chinese law to settle the disputes in this case and therefore in accordance with the provisions of Article 269 of the Maritime Code of the People’s Republic of China, Chinese law shall apply to this case.

With regard to AIG’s right of subrogation and the limitation period

1. AIG’s right of subrogation

AIG as the insurer indemnified the insured LEVER DE EL SALVADOR, S.A. and INDUSTRIAS UNISOLA S.A. for loss of the cargo in question and was accordingly subrogated to the rights of recovery of the foregoing two companies regarding the cargo in question. The court of first instance heard contractual relationship with respect to carriage of the cargo in question between the insured and the carrier, while the issue that whether the consignees had insurable interest in the cargo in question at the time of the insured event did not fall within the hearing scope of the present case and thus was not heard by the court of first instance. By the bills of lading in question and the Charter Party, Ocean Shipping was as the carrier of the cargo in question. B/L No.S202 named “To Order of LEVER DE EL SALVADOR, S.A.” as the consignee, while B/L No.203 and B/L No. F-02 named “To Order of” as the consignee. The notify parties named by the three sets of bills of lading were LEVER DE EL SALVADOR, S.A. and INDUSTRIAS UNISOLA S.A. respectively. Although the bills of lading submitted by AIG contained no terms and conditions on the reverse, they together with the insurance certificates whose contents were in conformity with those shown on the aforesaid bills of lading, demonstrated that the consignees of the two shipments in question carried by Ocean Shipping were LEVER DE EL SALVADOR, S.A. and INDUSTRIAS UNISOLA S.A. After the accident, the Cargo Survey Report issued by GWF Franklin S.A. also stated that the two companies participated in handling the matters related to the loss of the cargo in question as the consignees, which is a preliminary indication that LEVER DE EL SALVADOR, S.A. and INDUSTRIAS UNISOLA S.A. were the legitimate holders of the three bills in question. Ocean Shipping, as the carrier of the goods carried, was obliged to deliver to the goods, which usually would be evidenced by relevant documents. Since Ocean Shipping failed to provide any evidence to the contrary in this regard, the court of first instance ascertained that LEVER DE EL SALVADOR, S.A. was the consignee under B/L No.S202, while INDUSTRIAS UNISOLA S.A. was the consignee under B/L No.S203 and B/L No.F-02. In view of the above, AIG was entitled to exercise the rights of the consignees under the three bills of lading which it had been duly subrogated to against Ocean Shipping, and therefore the submission of Ocean Shipping in this respect was dismissed accordingly.　　　　　　　　 

2. With respect to the limitation of action

Pursuant to the provisions of Article 257.1 of the Maritime Code of the People’s Republic of China, the limitation period for an action lodged by AIG after being subrogated to the consignees’ rights under the bills of lading in question with regard to the contract of carriage of goods by sea is one year, counting f rom the day on which the goods were delivered or should have been delivered by the carrier. In the present case, it was confirmed by both parties concerned that the date when the goods under B/L No.S202 and B/L No.S203 should have been delivered was 29th November 2001 and the limitation period should run f rom that day. Thus the action filed by AIG against the carrier for the alleged loss of goods under B/L No.S202 and B/L No.S203 became time-barred on 29th November 2002, while the time limit for AIG to institute a recourse claim against the carrier Ocean Shipping after obtaining the right of subrogation by paying the adjusted general average contribution is one year as well running f rom the day on which the adjustment was finished according to the provisions of Article 263 of the Maritime Code of the People’s Republic of China. Neither AIG nor Ocean Shipping could determine when the adjustment completed, while the Adjustment Report was issued after completion of the adjustment, thus it is appropriate to select its issuance date, i.e. 30th January 2004 as the beginning date of the limitation period for this recourse claim which accordingly became time-barred on 30th January 2005. In view of the above, the action instituted by AIG against Ocean Shipping before the court of first instance on 22nd February 2008 for loss of cargo and general average contribution was time-barred. AIG failed to discharge the burden of proving that causes of discontinuance or suspension of the limitation period as provided for by Article 267 of the Maritime Code of the People’s Republic of China existed in this case, and therefore AIG’s claims for loss of cargo and general average contribution in this case shall be dismissed in accordance with the law. 

3. With regard to other issues

(1) As to whether the goods under B/L No.S202 and B/L No.S203 became an actual total loss

The Adjustment Report and Cargo Survey Report and the Survey Report issued by GWF Franklin S.A. submitted by AIG to support its allegation of total loss of the goods in question accorded with the Survey Report on Fire Incident on MV “Heng Shan” furnished by Ocean Shipping in respect of contents regarding, inter alia, cargo condition during transportation, information on the fire and that the goods were fumigated. In addition, the Survey Report issued by GWF Franklin S.A. pointed out that the consignees claimed that smoky flavor became the major problem for the cargo’s intended use, which is, as basic ingredient for producing detergent. It was estimated that the costs for re-processing the fumigated goods, counting out all additional costs/expenses incurred by the goods during transportation, would be a very large amount, and by taking the matters regarding this claim into consideration, the goods under B/L No.S202 and B/L No.S203 already constituted a total loss. In the circumstances that Ocean Shipping failed to submit evidence to overturn the Survey Report issued by GWF Franklin S.A., the court of first instance relied upon the said Survey Report and ascertained that the goods in question became a total loss owing to fumigation consequent on the fire. 

(2) The causes of loss of the goods under B/L No.S202 and B/L No.S203

Among all the reports provided by AIG and Ocean Shipping, only the Survey Report on Fire Incident on MV “Heng Shan” issued by Burgoyne Incorporated and submitted by Ocean Shipping gave analysis on the causes of the loss. In such circumstances that AIG failed to provide evidence to the contrary, the court of first instance ascertained that the loss was most likely due to the spillage and combustion of sodium sulfite in reliance upon the survey report issued by Burgoyne Incorporated.

(3) As to whether Ocean Shipping, as the carrier, had provided a seaworthy vessel, and had properly and carefully stowed and discharged the goods and whether Ocean Shipping was entitled to invoke the fire defence to exonerate it f rom liability

The ship’s certificates and other relevant documents submitted by Ocean Shipping demonstrated that before and at the beginning of the voyage in question, MV “Heng Shan” it provided to carry the goods was seaworthy, cargo-worthy and sufficiently and efficiently manned. The vessel was also equipped with a carbon dioxide extinguisher system satisfactory to the requirements of her classification society. In pursuance of the provisions of the IMDG Code (2000), sodium sulfite is categorized as Class 4.2 and neotocite as Class 4.3. The two kinds of products should be kept in a cool and dry condition during transportation and stowed in a place “away f rom” all heat sources. They can be stored in one hold, but they must maintain a horizontal distance of 3 meters between the perpendiculars of two closest points. On the voyage in question, the sodium sulfite and neotocite were stowed separately in the tweendeck and bottom compartment of hold No.2, thus not violating the requirements in respect of stowing dangerous goods under the IMDG Code (2000). In light of the ship’s deck logbook and the Survey Report on Fire Incident on MV “Heng Shan” issued by Burgoyne Incorporated, at the time when the fire broke out and thereafter, Ocean Shipping took reasonable actions to extinguish the fire, and properly and carefully cared for the goods by ventilation, air renewal, cleaning, smell removal and so on. AIG’s allegation that Ocean Shipping misrepresented the goods to Port of Manzanillo, Mexico, as a result of which, the port authority and the stevedores company failed to exercise due supervision and caution over the discharge operations was groundless and thus was not supported by the court. In view of the above, the loss of the goods in question was not attributed to fault or negligence on the part of Ocean Shipping, but to the fumigation ensuing f rom the fire. In pursuance of the provisions of Article 51.1.2 of the Maritime Code of the People’s Republic of China, Ocean Shipping is not liable for such loss resulting f rom fumigation consequent on the fire not attributed to Ocean Shipping. 

F rom the foregoing, the court of first instance rejected AIG’s claims in accordance with the provisions of Article 51.1.2, Article 257.1 and Article 263, and ordered AIG to bear the court fee RMB44,712.00.

By virtue of dissatisfaction with the judgment of the court of first instance, AIG brought an appeal before this court, requesting this court: (1) to set aside the judgment of the court of first instance; (2) to order Ocean Shipping to pay AIG a sum of RMB3,433,643.08 for loss of goods and interest thereon counting f rom 5th April 2002 to the date of actual payment; (3) to order Ocean Shipping to pay AIG a sum of RMB104,595.51 for general average contribution and interest thereon courting f rom 13th July 2004 to the date of actual payment; (4) to order Ocean Shipping to bear the court fees and other legal fees of both first instance and second instance, on the following grounds: 

(i) The court of first instance erred in ascertaining that Ocean Shipping was entitled to invoke the fire defence. Subject to the dangerous nature of goods, it is a customary practice for ports worldwide to enforce a strict customs declaration system. In the present case, the Ship Declaration Form tendered by Ocean Shipping to the port authority after the carrying vessel arrived at Port of Manzanillo, Mexico stated that the dangerous goods were merely 32 tons, while the Dangerous Cargo List made by China Ocean Shipping Agency, agent of Ocean Shipping specified that the goods intended for discharge at Port of Manzanillo was 269.226 tons. In fact, the said Dangerous Cargo List was made exclusively for goods for discharge at Port of Manzanillo and not for all the cargo carried onboard. It is plainly apparent that the neotocite, class 4.3 under the IMDG Code, stowed in hold No.2 repeatedly mentioned and confirmed by Ocean Shipping was not recorded on the said Dangerous Cargo List; the vessel's name, call sign, date and time of arrival and other particulars specified on the Ship Declaration Form tallied with those of MV “Heng Shan”. Besides, the Ship Declaration Form was signed and stamped by Master Xu Dewen, the ship's agent and the port authority, and therefore its authenticity, validity and relevancy should be confirmed. In light of ship's operation practices, Ocean Shipping must keep the original copy of the Ship Declaration Form on file. If Ocean Shipping has objection to this submission, it should furnish the original copy to support its contention, otherwise, it should be ascertained that Ocean Shipping misrepresented the quantity of the dangerous cargo carried with an attempt to escape port supervision and control. Owing to Ocean Shipping's failure to truthfully declare the dangerous cargo carried, the port authority and the stevedores company failed to exercise due supervision and caution over the discharge operations. Given the above, Ocean Shipping was obviously at fault in this case and thus shall have no title to the fire exception which enables the carrier to escape liability for cargo damage/loss.

(ii) Ocean Shipping failed to provide a seaworthy vessel and failed to properly and carefully stow and discharge the cargo in question and thus was not entitled to invoke the fire defence. First of all, Ocean Shipping failed to provide a ship equipped with a fire fighting apparatus, emergency installation and fire protection devices, there was existence of potential safety hazard on the vessel provided which actually resulted in the cargo loss. In this sense, MV "Heng Shan" was neither seaworthy nor cargo-worthy. Under the relevant regulations of the Ministry of Communications, a vessel applied to carry dangerous cargo shall be equipped with fire fighting apparatus and emergency installation, and emergency facility and protection devices shall be provided at the place where cargo discharge operations are carried out subject to the nature of the dangerous cargo. According to the Survey Report on Fire Incident on MV “Heng Shan” issued by Burgoyne, evidence 7 of Ocean Shipping, hold No.2 where the discharge operations took place was not equipped with any fire-fighting apparatus or fire protection device, while after the fire broke out, the crew only used a 6-kilogram dry-chemical fire extinguisher fetched f rom boatswain's storage room located in the accommodation area to fight the fire, as a result of which, the fire was not put under control in time, causing serous damage to the goods and posing a grave threat to the safety of the port. In light of relevant evidence provided by Ocean Shipping, at the time when the fire was discovered in hold No.2, a stevedore was sitting on the deck of hold No.2, quite near the fire spot and was not aware of the fire, which means that the fire at that time was still quite small. If there were the required fire-fighting equipment, the fire would have been put out or put under control timely. Secondly, Ocean Shipping failed to exercise reasonable supervision over the discharge operations in hold No.2 stowed with the dangerous cargo and failed to properly and carefully care for the goods carried, which resulted in the losses in this case. In view of the above, Ocean Shipping has no right to run the fire defence. It is provided for in clause 28 of the Charter Party entered into between Ocean Shipping and the charterer (the Charter Party was incorporated into the bills of lading in question) that "Master is responsible for making stowage plans, supervising the loading, stowing and discharge operations", hence supervising the discharge operations was one of the duties on the part of Ocean Shipping. According to the Survey Report on Fire Incident on MV “Heng Shan” issued by Burgoyne, evidence 7 of Ocean Shipping, Ocean Shipping did not arrange for supervision over the discharge operations in hold No.2 but merely performed routine patrols, and what's more, there was an interval of more than one hour between every two patrols. By the time the fire broke out, the discharge of paraffin wax in the upper compartment of hold No.2 had been in progress for nearly 40 hours, and half of the paraffin wax had been unloaded while in the meantime, some sodium sulfite was exposed. In the circumstances, any strike or collision by the unloading tools or articles would result in a leakage/ spillage of the sodium sulfite. Ocean Shipping should have strengthened supervision over the discharge operations to prevent any damage to the dangerous goods and to ensure that the fire could be discovered instantly after occurrence and put out timely by adoption of effective measures. 

(iii) The court of first instance erred in ascertaining that the action lodged by AIG was already time-barred. The cargo in question was delivered on 29th November 2001. And the court of first instance inconsiderately held that the limitation period respecting claims for loss of the cargo in question expired on 29th November 2002. However, the fact is AIG instituted a recourse claim before the Second Maritime Court of Panama against Ocean Shipping in September 2002 who in response provided a security through its P&I club to the Second Maritime Court of Panama on 17th October 2002. The Panama court issued a decision to suspend the proceedings on 22nd May 2003 on the grounds that the case should be handed over to the jurisdiction of the court of first instance. Pursuant to the provisions of Article 267 of the Maritime Code of the People’s Republic of China, the limitation period shall be discontinued as a result of bringing an action by the claimant. Therefore, the time limit of this case was discontinued consequent on AIG's institution of claims before the Second Court of Panama against Ocean Shipping in September 2002, and stays discontinued till to date as a result of the Panama Court's decision to suspend the proceedings. Hence, the action brought by AIG before the court of first instance was not time-barred. In view of the above, AIG requested the court of second instance to reserve the judgment of the court of first instance. 

Ocean Shipping contended in its written statement of defence that: 

1. Ocean Shipping provided a seaworthy and cargo-worthy vessel for the voyage in question, and properly and carefully stowed, cared for, discharged the goods in question; the alleged cargo loss was attributable to the fire incident on MV "Heng Shan" and the court of first instance was correct in ascertaining that Ocean Shipping was entitled to run the fire defence.

First of all, AIG's allegation that Ocean Shipping misrepresented the quantity of the dangerous goods to Port of Manzanillo was not supported by effective and valid evidence. The only evidence AIG provided to support its allegation was the Ship Declaration Form. However, AIG failed to have such declaration form duly notarized and legalized and even failed to provide the original copy for verification. Consequently, the said evidence’s authenticity should not be recognized. Secondly, AIG claimed that the port authority and the stevedores company failed to exercise due supervision and caution over the discharge operations. However, AIG failed to furnish any evidence to demonstrate the standard of “due supervision and caution”. Nor did AIG presented evidence to prove that the discharge operations failed to satisfy such standard. Therefore, AIG’s such allegation was merely a groundless and irresponsible oral statement. MV "Heng Shan" was seaworthy, cargo-worthy and sufficiently and efficiently manned on the voyage in question, and fire-fighting equipment and devices onboard perfectly met the requirements of the International Convention for the Safety of Life at Sea (SOLAS), 1974 and the requirements of China Classification Society. What’s more, even after that incident, China Classification Society still recognized the class of hold No. 2 where the fire broke out, which shall suffice to prove that the vessel satisfied the requirements of China Classification Society before the fire incident. The only reason AIG gave for its allegation of unseaworthiness was that “the discharging was not equipped with any fire-fighting apparatus or fire protection device”. The fact is however, according to the Survey Report issued by the China Classification Society submitted by Ocean Shipping to the court of first instance, MV “Heng Shan” was at least equipped with 115 bottles of carbon dioxide, 45 kilograms for each bottle, and these bottles was particularly and collectively stored in the carbon dioxide cylinder onboard the vessel, instead of scattered over each cargo holds. In the meantime, the Cargo Ship Safety Equipment Certificate provided by Ocean Shipping to the court of first instance certified that the fire-fighting system and devices as well as fire control plans onboard MV “Heng Shan” fully satisfied the requirements under the International Convention for the Safety of Life at Sea (SOLAS), 1974. In such instance, the locations of all these equipment, apparatus and devices met the requirements in this regard. AIG submitted that Ocean Shipping failed to exercise due supervision over the discharge operations in the cargo hold where the dangerous cargo was contained and failed to properly and carefully cared for the goods carried was not only groundless but also completely contradictory to the facts. The sodium sulfite and neotocite stowed in hold No.2 were labeled as Class 4.2 and Class 4.3 respectively by the IMDG Code, which means they were merely conventional dangerous goods, and yet AIG failed to submit any effective international rules or domestic regulations to prove that crew are obliged to exercise supervision over the discharge operations of these “conventional dangerous goods”. In fact, crew members are only obliged to supervise the loading and unloading operations of extra large units or Class 1 dangerous cargo, whereas in other circumstances, they are merely required to perform regular watch and patrols. Paragraph on page 6 and paragraph 3 on page 7 of evidence 7 provided by Ocean Shipping to the court of first instance proved that the crew members of MV “Heng Shan” exercised due supervision and control over the discharge operations and carefully and strictly carry out regular patrols around the ship. The fire incident was discovered by the crew on duty when performing the regular patrol. Besides, at the time when the fire was discovered, there was a stevedore sitting on the port deck of hold No.2, without discovery of the fire, which indicates that the fire broke out all of a sudden and therefore it was entirely groundless for AIG to allege that the crew member on duty failed to perform patrols and took notice of the fire only when it was too late. In addition, after discovery of the fire, Ocean Shipping promptly took reasonable and effective actions to fight the fire and protect the goods f rom incurring any further loss, and thus was not at fault or negligent. 

2. Similarly, since the incident giving rise to general average was caused by the fire in question which shall relieve Ocean Shipping f rom any liability, AIG has no title to lodge any claim against Ocean Shipping for the alleged general average contribution. 

3. AIG’s claims against Ocean Shipping were already time-barred under the provisions of the Maritime Code of the People’s Republic of China regarding limitation period and consequently AIG has lost the right to win. During the hearing held by court of first instance, AIG confirmed the following items: (1) the disputes in this case should be governed by Chinese laws and (2) the carrier delivered all the goods in question to the consignees on 29th October 2001. Therefore, the time limit for any claim lodged by AIG against Ocean Shipping arising f rom the disputes in this case expired on 28th October 2002 according to the provision of Article 257 of the Maritime Code. Thus the action instituted by AIG against Ocean Shipping before the court of first instance on 22nd February 2008 was time-barred. To say the least, even if it is true that AIG commenced legal proceedings against Ocean Shipping before the Second Maritime Court of Panama in respect of the disputes under this case in September 2002 and that foreign lawsuit sufficed to result in a discontinuance of limitation period regarding actions before Chinese courts, the limitation period of this case shall become discontinued in September when AIG lodged the alleged lawsuit in Panama and recount f rom that day and accordingly became expired in September 2003. Given the above, Ocean Shipping requested the court of second instance to uphold the judgment of first instance.

AIG provided the Professional Survey Certificate issued by port of authority of Manzanillo on 15th October 2001 to the court of second instance to evidence that the fire incident was attributed to improper stowage of the goods in question and hence Ocean Shipping shall be held liable therefore. Ocean Shipping contended that the said certificate was not new evidence and should not be admitted by the court of second instance. Ocean Shipping further contended that the port stevedores were performing the discharge operations when the fire incident occurred, which means that the port authority was an interested party to this case and the certificate issued by it was insufficient to reflect the objective facts. This court held that according to the provisions of Article 41.1.2 of Several Provisions of the Supreme People’s Court on Evidence in Civil Procedures regarding new evidence submitted to the court of second instance, the foregoing certificate submitted by AIG to the court of second instance was not new evidence and thus shall not be admitted by this court. 

Upon examination, this court ascertained that the facts found by the court of first instance were true and correct and thus confirmed by this court.

This court held the present case arose f rom disputes over a contract of carriage of goods involving foreign elements. Both parties concerned had no issue with the jurisdiction and application of Chinese laws in the trial of first instance and this court hereby confirmed this fact.

In light of the grounds of appeal by AIG, the issues in the trial of second instance should be summarized as follows: (1) whether Ocean Shipping was entitled to invoke the fire defence and (2) whether the claim lodged by AIG for loss of goods was time-barred. 

As for issue (1), neither party has issue with the fact that the fire incident led to an actual loss of the goods under B/L No.S202 and B/L No.S203. Pursuant to the provisions of Article 51.1.2 of the Maritime Code of the People’s Republic of China regarding the carrier’s right to run the fire defence, AIG was under the obligation to discharge the burden of proving that Ocean Shipping was at fault or negligent in the fire incident if it submitted that the carrier Ocean Shipping was liable for the loss arising f rom the fire. 

AIG submitted that Ocean Shipping failed to truthfully present the quantity of the dangerous goods carried to the port authority, causing the port authority and stevedores company to fail to exercise due supervision and caution over the discharge operations onboard the vessel. Nevertheless, the Ship Declaration Form, which was the only evidence submitted by AIG with a hope to support its submission was made in duplicated copies which were not recognized by Ocean Shipping. Besides, there was not any other effective evidence with originals available to corroborate the said evidence. Therefore, the court of first instance did not erred in rejecting the said evidence. What’s more, AIG failed to present any evidence to demonstrate the standard of “due supervision and caution”. Nor did AIG provide any evidence to prove that the discharge operations failed to meet the foregoing standard. Hence, AIG’s such submission was not supported by this court.

AIG further submitted that the vessel provided by Ocean Shipping was not equipped with required fire fighting apparatus, emergency system or fire protection devices, posing potential safety hazards and therefore was not seaworthy or cargo-worthy. Upon examination, the ship certificates and other relevant documents provided by Ocean Shipping explicitly indicated that the Minimum Safe Manning Certificate and Cargo Ship Safety Equipment Certificate among others of MV “Heng Shan” remained valid at time of the incident and the voyage in question satisfied the requirements regarding minimum safe manning. Besides, China Classification Society issued a survey report, stating that the carbon dioxide system onboard the vessel was in satisfactory condition. Moreover, in light of the Survey Report on Fire Accident on MV “Heng Shan” issued by Burgoyne and provided by Ocean Shipping, apart f rom keeping on watch at the ladder way, the crew member on duty performed patrol around the ship when he discovered the fire. He called out loud and started the fire alarm device immediately upon such discovery, while the chief engineer, upon receipt of such warning, immediately brought out a 6-kilogram dry-chemical fire extinguisher f rom boatswain’s storeroom to fight the fire. After finding that the fire was too fierce to be put out by the extinguisher, chief engineer ordered to shut up the hatch of hold No.2 where the fire broke out. Meanwhile, four fire hoses were used to cool the edge of the hatch. Ten minutes after the fire alarm, master ordered to flood the cargo hold with carbon dioxide and finally the fire was put under control. These facts further indicated that MV “Heng Shan” was sufficiently equipped with fire-fighting apparatus and fire protection devices, and master and other crew members had exercised due diligence to apply these apparatus and devices and adopt reasonable actions to put out the fire, and succeeded in the end and accordingly protected the goods f rom incurring further loss/damage. Therefore, Ocean Shipping was not at fault or negligent in this respect. On the contrary, AIG failed to discharge the burden of proving that there was any fault or negligence on the part of Ocean Shipping in respect of seaworthiness and cargo-worthiness of the vessel and therefore AIG’s such submission was not supported by this court. 

In addition, AIG also submitted Ocean Shipping failed to exercise due supervision over the discharge operations in the cargo hold where dangerous goods were stowed, and failed to properly and carefully care for the goods carried. Upon investigation, the sodium sulfite and neotocite in hold No.2 were respectively categorized as Class 4.2 and Class 4.3 by the IMDG Code (2000) and were separately stowed in the tweendeck and bottom compartment of hold No.2, thus not violating the requirements in respect of stowing dangerous goods under the IMDG Code (2000). As to clause 28 of the Charter Party incorporated into the bills of lading regarding master’s responsibility for supervision over the loading, stowing and discharge operations, it was ascertained that the crew member on duty performed regular patrols around the ship when such operations were in progress and the fire was discovered by the said crew member in the process of patrol; whereupon effective and prompt actions were adopted to put out the fire instantly upon discovery of the fire. Therefore, there was no evidence indicating that master and other crew members failed to supervise the discharge operations. Thus AIG’s submission that Ocean Shipping failed to exercise due supervision over the discharge operations in the cargo hold where dangerous goods were stowed and failed to properly and carefully care for the goods carried was groundless and was not supported by this court.

To sum up, AIG’s failed to discharge the burden of proving that Ocean Shipping was at fault or negligent in the fire incident, and therefore Ocean Shipping shall be entitled to invoke the fire defence under Article 51.1.2 of the Maritime Code and be exonerated f rom liability.

As for issue (2), Article 257.1 provides that “The limitation period for claims against the carrier with regard to the carriage of goods by sea is one year, counting f rom the day on which the goods were delivered or should have been delivered by the carrier”. In the instant case, both parties concerned confirmed that the date when the goods under B/L No.S202 and B/L No.S203 should have been delivered was 29th November 2001, as a result, the limitation period for any claim by AIG against the carrier regarding carriage of the goods should run f rom that day and expired on 29th November 2002. Therefore, the lawsuit lodged by AIG against Ocean Shipping for loss of goods before the court of first instance on 22nd February 2008 was time-barred. AIG argued in the trial of second instance that it commenced legal proceedings against Ocean Shipping before the Second Maritime Court of Panama in September 2002 which rendered a decision on 22nd May 2003 to suspend the proceedings, as a result of which, the two limitation periods involving this case were discontinued accordingly, and therefore its claims were not time-barred. However, AIG failed to discharge the burden of proving that the Second Maritime Court of Panama actually entertained the alleged proceedings and rendered a decision to suspend such proceedings. Consequently, AIG’s defence regarding the limitation period was not established and thus was not supported by this court. In addition, AIG did not have issue with the limitation period for the claim regarding the adjusted general average contribution under this case and therefore the court upheld the ascertainment of the court of first instance in this regard.

To sum up, the facts were clearly ascertained and the law was correctly applied in the judgment of the court of instance and therefore should be upheld by this court. AIG’s appeal was groundless and was dismissed by this court. In pursuance of the provisions of Article 153.1.1 of the Civil Procedural Law of the People's Republic of China, this court hereby orders:

AIG’s appeal is dismissed and the judgment of the court of first instance sustained;
The court fee of second instance RMB8,258 is for AIG’s account.
This judgment shall be final. 



Presiding judge: Hou Xianglei
Judge: Mo Fei
Judge: Ye Dan

The Higher People’s Court of Guangdong Province (stamp)

17th June 2011

“This copy is certified to be in conformity with the original.”

Clerk: Ye Liya



Relevant provisions:

The Civil Procedural Law of the People's Republic of China

Article 153 After trying a case on appeal, the peoples court of second instance shall, in the light of the following situations, dispose of it accordingly: "

(1) if the facts were clearly ascertained and the law was correctly applied in the original judgment, the appeal shall be rejected in the form of a judgment and the original judgment shall be affirmed;

(2) if the application of the law was incorrect in the original judgment, the said judgment shall be amended according to the law;

(3) if in the original judgment the facts were incorrectly or not clearly ascertained and the evidence was insufficient, the peoples court of second instance shall make a written order to set aside the judgment and remand to case to the original peoples court for retrial, or the peoples court of second instance may amend the judgment after investigating and clarifying the facts; 

or (4) if there was violation of legal procedure in making the original judgment, which may have affected correct adjudication, the judgment shall be set aside by a written order and the case remanded to the original peoples court for retrial.

The parties concerned may appeal against the judgment or written order rendered in a retrial of their case.