Taking the initiative
Taking the initiative
The Chinese legal environment is under constant review. Wang Jing and Chen Xin, of Wang Jing & Co, discuss two recent cases in which the judiciary has taken the initiative to spur on changes in the existing legal framework.
IN a number of cases over recent years, Chinese courts took the view that, since the straight bill of lading is not a document of title, the named consignee under the straight bill of lading is the party to whom the carrier undertakes to deliver the cargo. The shipper may therefore not assign rights and obligations under the contract of carriage to any third party. As long as the cargo is delivered to that named consignee, the undertaking of the carrier should be regarded as accomplished and discharged under the contract of carriage.
This judicial practice seems likely to be negated. The Commission of Legislative Affairs of the Standing Committee of the National People’s Congress, China’s main legislative body, has reportedly suggested that China’s courts should follow the view that the original bills of lading, whether straight or not, are to be surrendered to the carrier, against delivery of the cargo to the consignee. If the goods are delivered without surrender of the bills of lading, the carrier should be held liable to the holders for damages. It has been our understanding that, subsequent to this suggestion, certain maritime courts - including the Guangzhou Maritime Court - have already rendered civil judgments holding the carrier liable for delivery of cargo to the named consignee without the original straight bill of lading.
On September 17, 2004, judges representing the Chinese Supreme Court and all the maritime and higher courts (as courts of appeal) came together in Qingdao to attend the Thirteenth National Seminar on Maritime Adjudication. One of the focal points of discussion was whether the carrier could deliver cargo without collecting the original straight bills of lading. A conclusion was reached that, where the Maritime Code of the People’s Republic of China is applicable, delivery of cargo under straight bills of lading should be against surrender of the original bills of lading, regardless of the nature and negotiability of straight bills.
The nature of a straight bill of lading has been controversial. The prevailing view among Chinese scholars, which has been repeatedly accepted and adopted by Chinese courts, was that, pursuant to Article 79 of the Maritime Code, a straight bill of lading is not negotiable, and therefore it is not a document of title but functions merely as a cargo receipt. The counter-argument relies on Article 71 of the Maritime Code to maintain that a bill of lading, whether straight or not, is a document of title so the carrier should always be obliged to deliver the cargo upon presentation of the original bill of lading.
It seems that this controversy has finally been settled, at least at judiciary level. Although not yet confirmed in legislation of any sort, it is assumed that the Chinese courts will henceforth make their judgments in accordance with these guidelines. Some bills of lading holders who have lost lawsuits because the carrier was held not to be obligated to deliver against surrender of the original straight bills of lading may apply for retrial within the two-year time limit from the date when the court judgment became effective.
Limitation of liability for personal injury claims
In 1999, a Chinese pilot suffered serious injuries on board the Spring Trader when he fell due to a broken pilot ladder. He eventually filed a claim against the shipowner with the Ningbo Maritime Court for RMB 6.8 million ($820,000) in damages (later increased to RMB 7.59 million or $915,000) for current and future medical and other expenses, emotional damages, loss of future earnings and so forth. The main ground was that the shipowner had failed to maintain the vessel’s pilot ladder in a safe condition.
In its defence, the shipowner laid considerable stress on the fact that the claim exceeded by far the limitations for liability set by the Supreme Court in its Specific Provisions on Compensation for Loss of Life and Personal Injury at Sea Involving Foreign Interests on 1 July 1992. According to Article 7 of these special provisions, the limitation for personal injury shall be RMB 800,000 ($97,000) per person.
The Ningbo Maritime Court surprised many by awarding the plaintiff damages of RMB 3,685,581.53 ($445,000), thereby negating the prevailing limitations of liability under the specific provisions of the Supreme Court. The lower court cited as grounds that the specific provisions were based on a price index that was no longer applicable, and that since then the Maritime Code had come into effect. On appeal, the Higher Court of Zhejiang Province in Hangzhou upheld the first-instance ruling, arguing that the established limitations conflicted with the General Principles of Civil Law and the Maritime Code, and were therefore null and void.
Pursuant to the Legislative Law of the People’s Republic of China, the Supreme Court is a judiciary body rather than a legislative one. Its role is to make judicial interpretations on the application of laws and regulations, and such interpretations shall not conflict with law. At its most basic level, the limitations set in the specific provisions seem to contradict Chapter VI of the Civil Law, which determines that compensation for damages shall comply with the principle of complete compensation unless otherwise provided by law. Such limitations unfairly restrict the rights of claim of the suffering party.
Most countries – including China – have laws which limit liability for shipowners. The Maritime Code primarily adopts the provisions of the Convention for the Limitation of Liability for Maritime Claims, 1976, with limitations designed to prevent bankruptcy of the liable party following enormous claims arising from a single accident. As such there is no reference to a limitation of damages that can be awarded to a particular claimant, but limitations of liability are based on the liable party’s characteristics. In this case, the provisions of the Maritime Code would limit liabilities at some RMB 30 million ($ 3.6 million). At least in approach, this seems to conflict with the rulings of the special provisions.
Furthermore, a basic legislative principle in many countries is that, in case of personal injury, the weaker party should be protected fully. In this respect, too, especially in light of the rise in the price index over the past fifteen years, the application of an RMB 800,000 liability limitation seems unreasonable.
On the other hand, the specific provisions are a judiciary interpretation, and formal guidance for specific issues encountered in the application of law by the Supreme Court, China’s highest level of judiciary. Indeed, as far as legal effectiveness is concerned, a judiciary interpretation is inferior to laws and regulations, and may not be contradictory, but a lower court’s authority to negate an interpretation of the Supreme Court in favour of its own interpretation is highly controversial. Before any given judicial interpretation of the Supreme Court is expressly nullified by notice, it shall be regarded effectively as the opinion of all of China’s judiciary. If an interpretation is no longer practical in application, it is up to the Supreme Court, and not the lower courts, to address the issue.
From a judicial point of view, it is unfortunate that the parties reached a settlement before the case could be retried by the Supreme Court – denying China’s highest judicial authority the chance to have the last word. As yet, it remains unclear how courts, including the Supreme Court, will settle the next case. However, in light of the unpredictability of the current situation, it is hoped that the Supreme Court will take the initiative to resolve this matter sooner rather than later.