In international multimodal transport, when goods were seized by customs authorities at a foreign airport due to inaccurate declarations, impeding the completion of transportation and delivery, it may be determined that the goods were lost during the air transport segment. However, if the goods are classified as sensitive cargo and subsequently destroyed by the foreign airport customs authorities, critical legal questions emerge: how should liability be apportioned? And who should bear the resulting losses?

Case Review

On November 9, 2022, Chen negotiated with Company A for the transportation of a batch of electronic cigarettes from South Korea to the UK. However, an issue arose. On November 18, Chen received unexpected information stating that while the factory records indicated the goods were destined for Malaysia, the actual intended destination was the UK. Chen immediately relayed this information to Company A.

Subsequently, on December 9, Chen sent a pro forma invoice to the UK buyer, clearly specifying 10,200 units of Elux Legend 3500-puff electronic cigarettes. On the same day, the seller also provided Chen with a pro forma invoice, but in this version, the product name was recorded as Elux Legend Pro 3500. Chen did not scrutinize this discrepancy.

On December 29, Chen transferred USD 36,800 to the seller, covering the purchase price and bank fees. Simultaneously, Chen confirmed with Company A that the 10,200 electronic cigarettes would be transported to the UK under a delivery duty paid arrangement. Company A quoted a freight rate of RMB 58.50 per kilogram. Finding the price reasonable, Chen proceeded with the shipment.

The transportation process was progressing as planned. On January 4, 2023, Chen provided Company A with the pickup address, confirming that the total gross weight of the electronic cigarettes was 639.20 kilograms, to be transported by land from Dongguan to Weihai. On the same day, Chen transferred a total freight payment of RMB 92,605.50, which included RMB 37,381.50 for this particular shipment. On January 11, the goods were shipped from Incheon Airport, South Korea, to London Heathrow Airport. At this point, Chen felt somewhat reassured, believing that everything was proceeding according to plan.

On January 16, Company A informed Chen that the goods had been subjected to a customs inspection by UK authorities. Feeling uneasy, Chen responded, stating, "Electronic cigarettes are sensitive cargo." On January 19, Chen inquired with Company A as to whether the UK customs had provided any response regarding the inspection. After several weeks of waiting, on February 14, Company A informed Chen that if the goods had been detained by customs, the compensation standard would be RMB 40 per kilogram. Chen expressed disappointment, responding, "This compensation is meaningless; it's far too low…" On February 17, Chen again inquired whether there were any updates from the UK customs regarding the inspection. On April 4, Company A replied to Chen, confirming that the goods had been destroyed by the UK customs. The company also provided Chen with four images that showed that the goods had actually been detained since January 15.

To recover the losses, Chen filed a lawsuit with the Guangzhou Maritime Court (GZMC), requesting that Company A should compensate for cargo losses of RMB 303,543, refund RMB 37,381.50 in freight charges, pay compensation for capital occupation losses, and bear the court acceptance fees.

In response, Company A argued that no contractual relationship existed between Chen and Company A. It asserted that Company B was the principal, while Company A was merely the agent. The invoice file names, content, and billing details all indicated that the counterparty was Company B. Additionally, Company A contended that the goods were sensitive cargo and were detained due to violations of UK customs regulations, and therefore it should not bear liability. It further argued that whether the goods could clear customs depended on compliance with the import regulations of the destination country, and that a freight forwarder is not responsible for ensuring customs clearance. Company A also stated that it had fulfilled all obligations as an agent. Even if it were to assume liability, the compensation standard should be RMB 40 per kilogram.

How would GZMC adjudicate this case?

Court Decision

On May 31, 2024, GZMC rendered a civil judgment as follows: I. Company A shall compensate Chen for cargo losses in the amount of RMB 134,796.79, plus interest (calculated based on RMB 134,796.79, at the LPR published by the National Interbank Funding Center, accruing from April 4, 2023, until the date of full payment); II. Company A shall refund Chen RMB 37,381.50 in freight charges, plus interest (calculated based on RMB 37,381.50, at the LPR published by the National Interbank Funding Center, accruing from April 4, 2023, until the date of full payment); III. Chen's remaining claims are dismissed. Neither party appealed the first-instance judgment, and it has since taken legal effect.

Rationale of Judgment

The cargo in this case—electronic cigarettes—was transported by land from Dongguan, China, to Weihai, China, then by sea to Incheon, South Korea, and finally by air to London, UK, constituting international multimodal transport. The electronic cigarettes were seized by the UK customs at London Heathrow Airport due to inaccurate declarations, indicating that customs clearance at the destination had not been completed and that the air transport segment had not yet concluded. At that point, the multimodal transport operator had lost control over the goods, and therefore, the electronic cigarettes were deemed lost during the air transport segment. The parties in this case expressly chose the laws of the People's Republic of China as the governing law, though Article 105 of the Maritime Code of the People's Republic of China provides that 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. Therefore, Chinese law applies to this case. According to Article 184 of the Civil Aviation Law of the People's Republic of China, the air transport of the electronic cigarettes from Incheon Airport, South Korea, to London Heathrow Airport, UK, falls within the definition of international carriage by air as stipulated in Articles 1 and Article 18(4) of the Montreal Convention. Moreover, both South Korea and the UK are contracting states to the Montreal Convention. Accordingly, the liability of the multimodal transport operator and its limitation of liability are subject to the mandatory application of the Montreal Convention.

The customs clearance documents provided by the multimodal transport operator were inaccurate and were insufficient to prove that the operator had acted deliberately or recklessly with knowledge that such actions would result in the confiscation of the electronic cigarettes. Hence, the multimodal transport operator is entitled to invoke the limitation of liability. Article 22(3) of the Montreal Convention prescribes the limitation of liability for cargo loss. Furthermore, in accordance with the review of limitation of liability conducted by the International Civil Aviation Organization (ICAO) pursuant to Article 24 of the Montreal Convention, the limitation of liability in Special Drawing Rights (SDR) applicable to the multimodal transport operator can be determined. Pursuant to Article 23(1) of the Montreal Convention, the limitation of liability in Renminbi (RMB) can be established.

Related Legal Provisions

Article 1(1) and (2) of the Montreal Convention

This Convention applies to all international carriage of persons, baggage, or cargo performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking.

For the purposes of this Convention, the expression "international carriage" means any carriage in which, according to the agreement between the parties, the place of departure and the place of destination, whether or not there is a break in the carriage or a transshipment, are situated either within the territories of two States Parties, or within the territory of a single State Party if there is an agreed stopping place within the territory of another State, even if that State is not a State Party. Carriage between two points within the territory of a single State Party without an agreed stopping place within the territory of another State is not international carriage for the purposes of this Convention.

Article 18(1) of the Montreal Convention

The carrier is liable for damage sustained in the event of the destruction or loss of, or damage to, cargo upon condition only that the event which caused the damage so sustained took place during the carriage by air.

Article 22(3) and (6) of the Montreal Convention

In the carriage of cargo, the liability of the carrier in the case of destruction, loss, damage, or delay is limited to a sum of 17 Special Drawing Rights per kilogram, unless the consignor has made, at the time when the package was handed over to the carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if the case so requires. In that case, the carrier will be liable to pay a sum not exceeding the declared sum, unless it proves that the sum is greater than the consignor's actual interest in delivery at destination.

The limits prescribed in Article 21 and in this Article shall not prevent the court from awarding, in accordance with its own law, in addition, the whole or part of the court costs and of the other expenses of the litigation incurred by the plaintiff, including interest. The foregoing provision shall not apply if the amount of the damages awarded, excluding court costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement of the action, if that is later.

Article 23(1) of the Montreal Convention

The sums mentioned in terms of Special Drawing Rights in this Convention shall be deemed to refer to the Special Drawing Right as defined by the International Monetary Fund. Conversion of the sums into national currencies shall, in case of judicial proceedings, be made according to the value of such currencies in terms of the Special Drawing Right at the date of the judgment. The value of a national currency, in terms of the Special Drawing Right, of a State Party that is a Member of the International Monetary Fund, shall be calculated in accordance with the method of valuation applied by the International Monetary Fund, in effect at the date of the judgment, for its operations and transactions. The value of a national currency, in terms of the Special Drawing Right, of a State Party that is not a Member of the International Monetary Fund, shall be calculated in a manner determined by that State.

Article 105 of the Maritime Code of the People's Republic of China

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.

Paragraph 1 of Article 184 of the Civil Aviation Law of the People's Republic of China

Where the provisions of an international treaty concluded or acceded to by the People's Republic of China are different from those of this Law, provisions of that international treaty shall apply, except the provisions for which reservation has been declared by the People's Republic of China.