Guiding Case No. 232 [REDACTED] Animal Husbandry Co. Ltd. v. Pa[REDACTED] Maritime Inc.
(Cargo Damage Dispute under Voyage Charter)

Keywords: civil; voyage charter; cargo damage; burden of proof; claused bill of lading

Key Points of Judgment

In accordance with the provisions of Article 76 of the Maritime Law of the People's Republic of China, where the carrier makes no note in a bill of lading regarding the poor apparent order and condition of the goods loaded at the time of issuing the bill of lading, it shall bear the legal consequences arising therefrom.. However, whether the carrier makes a truthful note regarding the apparent order and condition of the goods shall be taken into full account according to whether the objective conditions for observing the apparent order and condition of the goods at the time of issuing a bill of lading are met and whether the judgment made is in line with normal standards.

Basic Facts

Plaintiff [REDACTED] Animal Husbandry Industry Co., Ltd. (hereinafter referred to as "[REDACTED] Animal Husbandry Industry Company") alleged that it imported a batch of distillers dried grains with soluble ("DDGS") from the United States and such DDGS was carried by the MV [REDACTED]ba owned by Pa[REDACTED] Maritime Inc. Pa[REDACTED] Maritime Inc. issued a bill of lading for the goods involved, with the weight of 54,999.642 tons. Upon arrival of the goods at the Xinsha Port in Guangzhou City, it was identified at the time of discharge that some goods in the cabin seriously changed color, got lumpy, and smelled burnt. According to the results of survey and testing by the relevant testing agencies, the Hunter L value, the content of crude protein were seriously inconsistent with the original quality of the goods. The quantity of damaged goods totaled 20,931.98 tons. It thus requested the court to order Pa[REDACTED] Maritime Inc. to compensate for the losses and interest and bear the litigation cost.

Defendant Pa[REDACTED] Maritime Inc. contended that the goods involved did not change color or suffer damage. The Hunter L value requires professional laboratory testing. The captain and the carrier were under no obligation of testing the quality indexes of this batch of goods, nor were they responsible for making a note in the bill of lading. The goods involved had been of a different color at the time of loading and the ship's crew had exercised the duty of reasonable and prudent care in the management of goods, making the goods not change color or the Hunter L value be reduced. The losses claimed by [REDACTED] Animal Husbandry Industry Company had no factual basis. Pa[REDACTED] Maritime Inc. requested the court to dismiss the claims of [REDACTED] Animal Husbandry Industry Company.

The court found upon trial that [REDACTED] Animal Husbandry Industry Company entered into a sales contract with [REDACTED] Grains (the USA) Co., Ltd., according to which [REDACTED] Animal Husbandry Industry Company purchased DDGS with a total weight of 50,000 tons and the Hunter L value of 50 or above. On August 26, 2015, Nan[REDACTED] Agency issued a bill of lading on behalf of the captain of the MV [REDACTED]ba (Motor Vessel). The bill of lading was headed "bill of lading for North American grains and it was indicated that the bill of lading shall be concurrently used with the Standard Voyage Charter Party for North American Grains 1973. The goods were loaded by Lan[REDACTED] Trade Group Company on behalf of [REDACTED] Grains (the USA) Co., Ltd. and the apparent order and condition of the goods were good at the time of loading. The consignee was subject to order and [REDACTED] Animal Husbandry Industry Company was the notify party. Description and loading of the goods: DDGS, 54,999.642 tons, loaded in holds No. 1-7, a clean bill of lading, freight payable as per charter party dated on March 11, 2015, terms of carriage as per overleaf, and unknown of the weight, quality, and quantity claimed by the shipper. Pa[REDACTED] Maritime Inc. was the bare boat charterer of the ship involved MV [REDACTED]ba. On August 28, 2015, La[REDACTED] Maritime Group issued a report on the quality of this batch of DDGS, indicating that after analyzing the DDGS samples taken at the port of loading, the Hunter L value of the goods involved loaded on the MV [REDACTED]ba was 50.8.

On October 14, 2015, the MV [REDACTED]ba arrived at the Xinsha Port in Guangzhou City and the goods were discharged. In the discharge, [REDACTED] Animal Husbandry Industry Company deemed that there was damage of goods and it claimed compensation to the carrier. For this regard, [REDACTED] Animal Husbandry Industry Company filed an application with China [REDACTED] Certification Group Guangdong Co., Ltd. (hereinafter referred to as "China [REDACTED] Certification Company") for testing 20,931.98 tons of DDGS in the warehouses 6-2B and 7-4B. On March 14, 2016, China [REDACTED] Certification Company issued an inspection report, according to which inspectors went to the warehouses at the Xinsha Port in Guangzhou City on October 24, 2015, conducted a site inspection on 20,931.98 tons of DDGS stored in the warehouses 6-2B and 7-4B applied by [REDACTED] Animal Husbandry Industry Company, took representative samples, and determined that the Hunter L value was 42.5.

Dalian [REDACTED]jie Marine Insurance Assessment Co., Ltd. accepted an entrustment, got aboard the MV [REDACTED]ba from October 16 to 24, 2015, conducted inspection and investigation on behalf of the ship owner, and arranged inspectors from S[REDACTED] Standard Technical Services Co., Ltd. (hereinafter referred to as "S[REDACTED] Standard Technical Company") to supervise the discharge, inspect the apparent order and condition of the goods involved, and take samples. During the inspection, the inspectors identified no abnormal condition that may affect the seaworthiness of the ship involved and merchantability of the goods involved and the watertight integrity of the cargo holds of the ship involved was good. According to the inspection report issued by S[REDACTED] Standard Technical Company, the inspectors supervised the discharge of the goods involved at the Xinsha Port in Guangzhou City from19-24 October , 2015, took samples in the warehouses, and determined that the Hunter L value of mixed samples of the goods on board was 48.66.

In addition, according to the inspection report at the port of loading, loading records, and loading photographs in August 2015, the goods involved were partially loaded on a conveyor belt at the quay and the other part was loaded on barges by using grab cranes. At the time of loading, the 42 barges was loaded with goods in different colors and the goods were loaded to various cabins of the MV [REDACTED]ba (Motor Vessel).

Judgment

On December 29, 2018, the Guangzhou Maritime Court entered a civil judgment (No. 705 [2016], First, Civil Division, 72, Guangdong) that (1) Pa[REDACTED] Maritime Inc. shall compensate [REDACTED] Animal Husbandry Industry Company for its damage of goods in an amount of RMB 9,862,112.57 Yuan and the interest thereof; (2) other claims of [REDACTED] Animal Husbandry Company shall be dismissed. After the judgment of first instance was pronounced, Pa[REDACTED] Maritime Inc. refused to accept it and appealed. On April 8, 2020, the High People's Court of Guangdong Province entered a civil judgment (No. 807 [2019], Final, Civil Division, HPC, Guangdong) to dismiss the appeal and affirm the original judgment. After the judgment of second instance was pronounced, Pa[REDACTED] Maritime Inc. filed an application for retrial. The Supreme People's Court retried this case and entered a civil judgment (No. 14 [2022], Retrial, Civil Division, SPC) on June 21, 2023 that (1) the civil judgment (No. 807 [2019], Final, Civil Division, HPC, Guangdong) entered by the High People's Court of Guangdong Province and the civil judgment (No. 705 [2016], First, Civil Division, 72, Guangdong) entered by the Guangzhou Maritime Court shall be set aside;and (2) the claims of [REDACTED] Animal Husbandry Industry Company shall be dismissed.

Reasons for Judgment

This case is about dispute over a contract for the carriage of goods by sea and there are two issues: 1. whether the goods involved suffered damage during the period in which the carrier was in charge of the goods; and 2. whether Pa[REDACTED] Maritime Inc. was liable for the damage due to its failure to truthfully make a note in the bill of lading.

1. Whether the goods involved suffered damage during the period in which the carrier was in charge of the goods

[REDACTED] Animal Husbandry Industry Company failed to effectively produce evidence to prove that the color and quality of the goods involved changed during the period in which the carrier Pa[REDACTED] Maritime Inc. was in charge of carriage, resulting in loss. Specifically, (1) there is no internationally uniform grading system or quality standard for the goods DDGS involved in the case and the Hunter L value is a detection value reflecting the luminance of goods. The color shade is related to raw materials, production process, and temperature. It is also possible that the color is darkened due to heating of heat source or excessive moisture content in the carriage process. Therefore, color variation per se does not constitute a quality problem. (2) Since the scope of goods subject to testing, the methods for taking and preparing samples, and the testing standards adopted by China [REDACTED] Certification Company and La[REDACTED] Maritime Group were not the same, the conclusions were not absolutely comparable. The testing report issued by China [REDACTED] Certification Company was insufficient to prove that the color of the goods involved changed during the carriage, which resulted in damage of goods. (3) The evidence submitted by Pa[REDACTED] Maritime Inc. may prove that the goods involved were in different colors when loaded onto the ship and they were loaded in different cabins of the ship, and the state of the goods at the port of discharge was basically the same to that at the port of loading. (4) There was no evidence proving that the ship involved had any defect that may result in non-merchantability and there was no evidence proving that the carrier's improper management of the goods resulted in darkening of the color of the goods involved due to heating of heat source or excessive moisture content.

2. Whether Pa[REDACTED] Maritime Inc. was liable for damage due to its failure to truthfully make a note in the bill of lading

[REDACTED] Animal Husbandry Industry Company alleged that as Pa[REDACTED] Maritime Inc. failed to carefully verify the apparent order and condition of the goods involved at the port of loading and failed to truthfully make a note in the bill of lading that the goods involved were in such unsatisfactory conditions as mixture of dark and light colors, it shall assume the liability for loss to [REDACTED] Animal Husbandry Industry Company for its failure to truthfully make a note. Article 76 of the Maritime Law provides that: "If the carrier or the other person issuing the bill of lading on his behalf made no note in the bill of lading regarding the apparent order and condition of the goods, the goods shall be deemed to be in good apparent order and condition." Accordingly, the carrier has the right to make a note on any unsatisfactory apparent order and condition of the goods loaded and the carrier shall be liable for any adverse consequence arising therefrom if he or it fails to do so. Therefore, the carrier shall properly and carefully exercise the right to make a note in the bill of lading. However, in this case, whether Pa[REDACTED] Maritime Inc. was liable for damage due to its failure to truthfully make a note in the bill of lading shall be comprehensively considered according to whether the objective conditions for observing the apparent order and condition of the goods were met and whether the judgment made was in line with the normal standards.

First, the goods involved were large bulk cargoes which, according to the records at the port of loading, were loaded via conveyors and grab cranes. During the loading, the cargo holds were filled with dust and canvas was covered over the hatch at the quay, so as to avoid dust contamination. Under such circumstances, it was very difficult for the crew members to observe the apparent order and condition of all goods clearly and comprehensively and there was no objective condition for doubting the apparent order and condition of the goods.

Second, the captain and crew members were not experts in identification of DDGS and they did not have professional ability to judge the color luminance, the Hunter L value must be measured by precise laboratory instruments, and it was very difficult to distinguish the differences with naked eyes in case of similar Hunter L values. So, the carrier's judgment that the goods were in good apparent order and condition according to normal knowledge and standards was consistent with common sense. It was not improper for the carrier Pa[REDACTED] Maritime Inc. to issue a bill of lading with "good apparent order and condition of the goods at the time of loading."

Third, DDGS may be in different colors due to various factors including raw materials and processing methods. Different colors indicate different qualities, but they are not signs for damage of goods and do not represent that the goods are in unsatisfactory apparent order and condition. The law does not provide that a carrier shall be liable for making a note on the intrinsic quality of goods under its carriage. So, the color of the DDGS was not within the statutory scope of notes made by the carrier. Moreover, the shipper did not make specific claims to Pa[REDACTED] Maritime Inc. regarding the color requirement of the goods when booking the shipping space. Even though the goods involved were in different colors at the port of loading, it was not improper for Pa[REDACTED] Maritime Inc. and its agent to receive goods and issue a clean bill of lading that "the goods are in good apparent order and condition at the time of loading."

In conclusion, [REDACTED] Animal Husbandry Company's claim that Pa[REDACTED] Maritime Inc. should be liable for its failure to truthfully make a note lacked factual and legal basis and Pa[REDACTED] Maritime Inc. shall not be liable for damage.

Legal Provisions

Articles 46 and 76 of the Maritime Law of the People's Republic of China