Retrial case concerning dispute over container demurrage in a contract on carriage of goods by sea

Legally Determining the Shipping Container Demurrage and Maintaining the Fair Shipping Trade Order
--A.P. Moller-Maersk A/S v. Shenzhen Branch of Shanghai Cicada Transport Logistics Co. Ltd. and Shanghai Cicada Transport Logistics Co. Ltd. (Retrial case concerning dispute over container demurrage in a contract on carriage of goods by sea)

[Basic Facts]
In January 2010, Shenzhen Branch of Shanghai Cicada Transport Logistics Co. Ltd. (hereinafter referred to as “Shenzhen Branch of Cicada Company”) authorized A.P. Moller-Maersk A/S (hereinafter referred to as “Maersk A/S”) to carry goods in five containers from Huangpu, Guangdong Province to New Delhi, India. On February 23, the goods arrived at the destination port and the consignor constantly changed the consignee, but there was no party taking delivery of such goods. On February 21, 2011, the goods in such containers were auctioned by the Customs of Nhava Sheva of India. On February 28 of the same year, the Customs signed the bill of lading and required Maersk A/S to deliver such goods to the purchaser. On February 27, 2012, Maersk A/S filed a lawsuit with the Guangzhou Maritime Court and requested the Court to order that Shenzhen Branch of Cicada Company and Cicada Company should jointly bear the container demurrage starting from March 1, 2010, 8,026,425 rupees (converted to CNY1,029,554.51 at the exchange rate on the day of the lawsuit-filing).

[Adjudication]
This case was tried by the Guangzhou Maritime Court for the first instance and the Higher People's Court of Guangdong Province for the second instance. The courts at these two levels held that: This case was about dispute over a contract on carriage of goods by sea and the limitation of action was one year starting from the day when the obligee knew or should know the infringement upon its rights. The infringement upon the rights of Maersk A/S was caused by the extended use of containers provided by Maersk A/S. Such fact of infringement continued in an uninterrupted manner and the extended use of containers was not ceased until the goods were auctioned by the Customs. By that time, the amount of charges was finally fixed. Therefore, the limitation of action for Maersk A/S to exercise the right of claim should start from the day when the Customs of Nhava Sheva issued to Maersk A/S the notice on delivery of goods, namely, February 28, 2011. Up to January 27 when Maersk A/S filed the lawsuit with the court of first instance, it did not exceed the limitation of action of one year. Since there was no party taking delivery of the goods, the containers involved were used for a long term and could not be put into transport and production. The consignor Shenzhen Branch of Cicada Company should assume the compensation liability and the container demurrageshould not exceed the prices for repurchasing new containers. Therefore, both the courts of first instance and second instance rendered the judgment that Shenzhen Branch of Cicada Company and Cicada Company should jointly compensate Maersk A/S the charges of CNY150,000 for extended use of the five containers involved. Shenzhen Branch of Cicada Company and Cicada Company filed an application for retrial with the Supreme People's Court. The Supreme People's Court ruled to bring the case before the court.
Upon retrial, the Supreme People's Court held that: After the goods involved arrived at the destination port, since the consignee designated by Shenzhen Branch of Cicada Company failed to take delivery of such goods, the containers provided by Maersk A/S for the performance of the carriage contract were extensively used and failed to be put into normal circulation. The acts of Shenzhen Branch of Cicada Company constituted breach of contract. According to the contract on carriage of goods by sea, Maersk A/S had the right to raise a claim for container demurrage to the consignor Shenzhen Branch of Cicada Company with regard to the loss caused by breach of contract due to Shenzhen Branch of Cicada Company's delayed performance of the obligation of returning containers. In accordance with the provisions of the  HYPERLINK "javascript:ESLC(18619,0)" Official Reply of the Supreme People's Court on the Limitation of Action for the Carrier's Claim for Compensation to the Consignor, Consignee, or Holder of the Bill of Lading with Regard to Carriage of Goods by Sea, the limitation of action for the claim should be one year, starting from the day when Maersk A/S knew or should know the infringement upon its rights. As confirmed by all parties, the consignor Shenzhen Branch of Cicada Company should pay Maersk A/S the container demurrage from March 1, 2010. The right of claim of Maersk A/S for the payment of container demurrage was created. In other words, Maersk A/S knew or should know the infringement upon its rights from March 1, 2010. On March 30, 2010, by e-mail, Shenzhen Branch of Cicada Company promised that the consignor would bear the container demurrage, which constituted interruption of limitation of action as prescribed in  HYPERLINK "javascript:ESLC(6023,267)" Article 267 of the  HYPERLINK "javascript:ESLC(6023,0)" Maritime Law of the People's Republic of China. Therefore, the limitation of action of this case should start from March 30, 2010. When Maersk A/S filed a lawsuit on February 27, 2012, it has exceeded the limitation of action of one year and Maersk A/S lost the prevailing right for this claim. The Supreme People's Court rendered a new judgment that the judgments of first instance and second instance should be set aside and Maersk A/S's claim should be dismissed.

[Significance]
With the slowdown of growth in global trading, the shipping market also experiences a sustained downturn, causing a large amount of maritime disputes. In terms of categories of disputes, conventional goods damage disputes and marine insurance disputes are spread to the upstream and downstream chains. In recent years, disputes over container demurrage accounted for an increasing proportion in maritime cases and the emerging problems are also on the rise, including definition of legal relationship, standards for calculation of container demurrage, and starting time of the limitation of action. There are no uniform standards of judicial practice in China and the handling opinions on such disputes are also different around the world. Therefore, the relevant shipping enterprises are undisciplined in practical operations. By bringing this case before the court and rendering a new judgment, the Supreme People's Court specified the nature of dispute over the container demurrage involved in the contract on carriage of goods by sea and the limitation of action. Since the judgment of this case is a foreign-related maritime judgment, it has attracted extensive attention and great concerns of the Chinese and foreign shipping enterprises. At the same time of legally protecting the shipping enterprise's claim for compensation with regard to container demurrge, the judgment of this case specified how the shipping enterprise should raise a claim to the consignor or the consignee in a timely manner during the statutory limitation of action, which has provided legal support to foreign and domestic shipping enterprises' active adoption of legal measures and effective guarantee of their lawful rights and interests and established uniform standards for China's maritime judicial practice. As a maritime power and a large trade country, China owns extensive maritime strategic interests. The strategy of the “Belt and Road” is an important measure to build a maritime power. Fair and efficient justice is an indispensable element in guaranteeing the sound economic environment for the strategy of the “Belt and Road.” The trial of this case has given full play to the functions and roles of maritime trial for providing judicial guarantee for the construction of the “Belt and Road”; and legally and equally protected the lawful rights and interests of foreign and Chinese parties, enhanced the international credibility of the Chinese maritime trial, and created a good legal environment for the construction of the “Belt and Road.”