Case of Company A v. Company B and Company C Regarding Dispute over Contract of Carriage of Goods by Sea

— Determining Shipper in a Dispute over Contract of Carriage of Goods by Sea

The absence of a written contract is not rare in a dispute over contract of carriage of goods by sea. It is essential to employ other evidence to accurately determine the shipper in the absence of a written contract as the basis for adjudication. In this case, a transport company claimed an additional payment of more than USD 100,000 without a contract signed and in the absence of definite evidence to prove the shipper. It was a very difficult situation.

Case Review

On September 6, 2021, a company called DRE ordered a batch of face masks from Long and Company B. Upon receiving the order, Company B engaged Company C to manufacture the masks, and confirmed that the latter would deliver the goods to the former.

Long and Company A communicated on WeChat about the place and date of loading and other information, with a plan to carry the masks in containers from Yantian Port, China to Port of Los Angeles, USA. The two parties did not sign a contract on the matter. When the goods were loaded for carriage, Company A issued a bill of lading (B/L), which set forth "freight prepaid". Company A engaged Company D to actually carry the goods, and Company D issued a B/L.

Several months later, the goods arrived and were unloaded at the destination Port of Los Angeles on December 27. Because of the failure to pay the freight in time, the goods were detained at the port, which incurred various expenses.

A dispute thus arose over the freight payment for the goods detained at the port. Company A informed on January 6, 2022 that the shipowner required the goods to be picked up before January 8, otherwise the abandonment procedure would be initiated. Upon receiving the message, DRE responded that it had paid USD 34,000 that day and provided a remittance slip, requesting the release of the goods. Company A stated that this payment was for the freight of other container cargo, and the freight of the masks remained unpaid, hence the goods could not be released. The parties were unable to break the deadlock.

On January 25, Company A emailed DRE, Long and other related parties, informing DRE to check the updated container list. The container was in the final warning status of forced abandonment or destruction. All demurrage fees were estimated, and the specific amounts were subject to the final bill from the shipping company. A pick-up plan needed to be provided as soon as possible. However, these communication efforts were fruitless.

Company A believed that Company B and Company C failed to pay the freight and pick up the goods in time, which led to Company A being responsible for the third party and having to pay additional fees. It therefore claimed that Company B, as the contracted shipper, and Company C, as the actual shipper and manufacturer of the goods, should bear the corresponding liabilities. Company A filed a lawsuit with the Guangzhou Maritime Court (GZMC), requiring Company B and Company C to jointly bear the ocean freight of USD 13,000, demurrage of USD 87,565, destination port congestion surcharge of USD 1,500, administrative surcharge of USD 100, and interest on these amounts.

Company B refuted these claims, stating the following: (1) It was not a party to the contract, and the shipper set out in the B/L was JOIN WE, not Company B. (2) Company B was not the contracted shipper. DRE and Company B established a contractual relationship of goods trade, and the shipping terms set out in the trade contract between these two parties were FOB Shanghai/Ningbo, and DRE paid the local costs and trailer costs in China. According to Sub-paragraph 2, Paragraph 3, Article 42 of the Maritime Code of the People's Republic of China and Paragraph 3, Article 8 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Cases Involving Maritime Freight Forwarding Disputes, JOIN WE was the actual shipper and DRE was the contracted shipper. As the actual shipper, JOIN WE was not obligated to guarantee and pay the ocean freight and the expenses incurred by failure to pick up the goods at the destination port.

Company C argued that as the manufacturer, it did not conclude a contract of carriage of goods with Company A, deliver the goods to Company A, and participate in the carriage process and customs declaration, and thus it was not the actual shipper.

Upon hearing the case, GZMC ascertained facts as follows: As set out in the order, Long and Company B were the sellers, and DRE was the buyer. JOIN WE was a Hong Kong company owned by Company B. Company A failed to provide evidence that Company B booked shipping space for the carriage of the goods, nor did it provide a written contract of carriage of goods by sea. Company A failed to provide evidence to corroborate the negotiation process for forming the draft B/L, and the issuer column in the draft B/L was blank. Therefore, the draft B/L alone was insufficient to prove that the two parties had concluded a contract of carriage of goods by sea. After stating the place of loading, Company A asked Company B for the loading date, and Company B confirmed the loading date with Company A. Furthermore, the two parties negotiated and agreed on the loading date of other container cargoes. The aforesaid facts can substantiate that the two parties negotiated on the delivery of goods, but cannot prove the process of the two parties concluding a contract of carriage of goods by sea. Company B set out JOIN WE as the shipper in the blank telex release, for the purpose of delivering the goods through the carrier Company A since the draft B/L set forth JOIN WE as the shipper. This is insufficient to prove that Company B engaged Company A to carry the goods. On the contrary, Company C confirmed that it delivered the goods to Company B, and Company B delivered the goods to Company A. According to Paragraph 3, Article 42 of the Maritime Code of the People's Republic of China, Company B was the actual shipper.

In addition, Company A negotiated with DRE on the date of freight payment. DRE informed Company A that it had paid the freight and provided the payment voucher, and stated that it prioritized payment to Company A. The responses and pictures sent by Company A to DRE showed that the freight of the container cargo had not been paid. Company A urged DRE to pay demurrage and other fees via email. The abovementioned facts—the carrier Company A demanded payment of freight, demurrage and other fees from the buyer DRE and DRE made such payments to Company A—can be mutually corroborated with the characteristics of the buyer DRE being responsible for concluding the contract of carriage of goods and paying the freight under the FOB trade term. Therefore, Company A's claim that Company B was the contractual shipper was not well-founded, and GZMC as the first-instance court did not support it.

Court Decision

GZMC rendered a civil judgment on November 28, 2022, dismissing Company A's claims.

Company A was not satisfied with the first-instance judgment and filed an appeal with Guangdong High People's Court. On December 18, 2023, Guangdong High People's Court rendered a civil judgment, dismissing the appeal and upholding the first-instance judgment.

Rationale of Judgment

The effective judgment sets out the rationale as follows:

Firstly, Company A failed to provide relevant substantive evidence of the contract of carriage of goods by sea concluded with Company B or Company B's booking of shipping space for the carriage of the goods, to prove that Company B engaged it to carry the goods and that there existed an agreement between the two parties on establishing a contract of carriage of goods by sea or that a contractual relationship of carriage of goods by sea had actually been established. Secondly, in a dispute over contract of carriage of goods by sea, if the shipper set out in the B/L or other transport documents is not the entity that books the shipping space for the carrier or its agent, the information in the B/L or other transport documents merely has preliminary evidentiary effect for both the carrier and the shipper, in which case the people's court should accurately determine the shipper by taking into consideration the conclusion and performance of the contract of carriage of goods. The existing evidence fails to show the entity that booked the shipping space for the carriage of the goods for Company A. Although the draft B/L provided by Company A sets out JOIN WE as the shipper and "freight prepaid", there is no corresponding evidence to prove that it had negotiated with Company B on the contents stated in the draft B/L, nor is there any evidence to prove the entity that should prepay the freight to Company A. The draft B/L alone is insufficient to prove that a contractual relationship on the carriage of goods by sea was established between Company A and Company B.

As shown by the communications between the relevant parties during the delivery and carriage of the goods, although Company A and Company B had communicated on matters such as the place and date of loading for the delivery and shipment of the goods, Company B, as the exporter of the goods, shall perform the duties of the actual shipper stipulated in Sub-paragraph 2, Paragraph 3, Article 42 of the Maritime Code in accordance with the law. The fact that Company B actually delivered the goods to Company A for carriage is insufficient to prove that a contractual relationship on the carriage of goods by sea was established between the two parties or that Company B was the contracted shipper in the contractual relationship. Lastly, the communications between Company A and relevant parties about freight collection after the goods arrived at the destination port show that Company A negotiated with DRE on the date of freight payment; DRE informed Company A that it had paid part of the freight for the goods, provided the payment voucher and stated that it prioritized payment to Company A. The above facts demonstrate that after the goods arrived at the destination port, Company A also claimed that DRE should pay it the freight, demurrage and other fees and demanded payments from DRE.

Related Legal Provisions

Maritime Code of the People's Republic of China

Article 42 (3) "Shipper" means: a) The person by whom or in whose name or on whose behalf a contract of carriage of goods by sea has been concluded with a carrier; b) The person by whom or in whose name or on whose behalf the goods have been delivered to the carrier involved in the contract of carriage of goods by sea.

Civil Code of the People's Republic of China

Article 584 Where a party fails to perform his contractual obligation or his performance does not conform to the agreement so that the other party suffers loss, the amount of compensation shall be equivalent to the loss caused by the breach of contract, including the benefits expected to be obtained should the contract had been performed, except that it shall not exceed the loss that may be caused by the breach that the breaching party foresees or should have foreseen at the time of conclusion of the contract.

Article 591 After a party defaults, the other party shall take appropriate measures to prevent further loss. Where the loss is aggravated due to the failure of taking appropriate measures, no compensation shall be claimed for the aggravated part of the losses.

The reasonable expenses incurred by a party in preventing the aggravation of the loss shall be borne by the breaching party.