PICC P&C Quanzhou Branch v Haikou Harbour Container Terminal Co., Ltd. in respect of disputes over terminal cargo storage contract
PICC P&C Quanzhou Branch v Haikou Harbour Container Terminal Co., Ltd. in respect of disputes over terminal cargo storage contract
Case No.: (2016) Q72 MC No.113
Cause of action: Dispute over terminal cargo storage contract
Sea area involved: N/A
Date: 26 August 2016
- A party shall not bear the civil liabilities for failure of performing contract or causing damage to other party due to a force majeure, except as otherwise provided by law.
- In dispute over terminal cargo storage contract, the port operator shall be held liable to the extent it is at fault for the damage.
- Where the occurrence of an insured event is caused by a third party, after paying the insurance indemnity to the insured, the insurer may exercise by subrogation the right of the insured to demand indemnity against the third party up to the limit of insurance indemnity.
Article 107 and Article 153 of the General Principles of the Civil Law of the People’s Republic of China
On 1 January 2014, Antong (a party not involved in the case) signed the Harbor Liner Agreement with the defendant Haikou Harbour Container Terminal Co., Ltd., whereby Antong agreed to assign the domestic container liners and stevedore, barge, and storage operations for domestic containerized goods within Haikou Port area to the defendant. The agreement was valid until 31 December 2014. From 12 September 2014, abundant media coverage in Hainan province especially Haikou began to warn against the coming of Typhoon Kalmaegi. It was reported that Kalmaegi would hit the island from the afternoon of September 15 to the noon of September 16, with the highest wind near center at scale 12-13. At 1900hrs of September 12, according to the company’s typhoon special contingency plan, the defendant began to send emails to the container owners and shipping lines (including Antong) that used its container yard, calling them to take delivery or unpack containers as soon as possible to avoid loss. On September 14, the defendant held a typhoon control meeting to make detailed arrangements. At 2100hrs of the same day, the defendant sent emails to the cargo owners and shipping lines (including Antong) to inform that the terminal gate would be closed from 0800hrs of the next day. On September 15, the defendant held another typhoon control meeting to prepare for the coming typhoon. In the meeting, it was made clear that laden containers shall be stowed not more than three tiers to resist the strong wind, and that the laden containers shall be stored and secured in a different place from the empty ones. At about 0940hrs of September 16, Kalmaegi made landfall in the coastal waters of Wengtian, Wenchang City. The typhoon, combined with the astronomical tide and storm tide brought by it, caused the tidal level of Haikou up to 4.37 meters, 1.47 meters beyond the warning line and the highest level in 66 years. The tide drowned a large area of Haikou, and the container yard of the defendant was also flooded and caused damage to some containers of Antong placed in the laden box area as well as cargoes stuffed inside.
At 0900hrs of September 17 after the typhoon died down, the defendant called on the shipping lines to deal with cargo issues. Antong also attended the meeting. At 1000hrs of the same day, the defendant sent email to Antong to notify the numbers of bottom-tier containers that might have been damaged and to require Antong to ship the damaged containers from the port as soon as possible. At about 2200hrs late in the day, Antong sent an email to the defendant to request the defendant to arrange shipment for the affected containers, and Antong also issued a Statement on Typhoon Kalmaegi to the defendant on the next day to confirm that it had received the defendant’s emails on picking the containers, numbers of the bottom-tire containers, and the cargo meeting.
Upon the accident, the claimant PICC P&C Quanzhou Branch (cargo insurer of Antong), as per the Insurance Cooperation Agreement dated 31 December 2013 and upon the site survey and insurance assessment by Zhengdaxing Insurance Surveying Services Co., Ltd., Ejoy Insurance Surveyors & Adjusters Co., Ltd. and Ever Grown (Fujian) Surveyor Corp., confirmed that the cargo damage in the case was caused by typhoon. The claimant PICC P&C Quanzhou Branch indemnified Antong in the amount of RMB4,426,343.35 and obtained a subrogation receipt.
The court also found that the terminal container yard of the defendant was completed and accepted in 2009. It covered an area of 280,000m2, with 860m apron shoreline, 4.8m top elevation, and 5.5m top elevation for the north and west revetments and 4.8m top elevation for the east revetment. The drainage facilities of the container yard measured up to the state’s construction standard. During the hearing, the defendant stated that before the landfall of Kalmaegi there were more than 6000 laden containers, 13 fixed cranes, and 12 mobile cranes in the container yard. From September 12 of the forecast of the typhoon until 0800hrs of September 15 of the closing of the terminal gate, the container yard was working as usual, dispatching about 2500 containers each day.
The claimant PICC P&C Quanzhou Branch lodged a lawsuit before the court, requesting that: 1. the defendant shall indemnify the claimant for the insured event in the amount of RMB4,426,343.35 plus interest accrued from 18 September 2014 until the date of actual payment (temporarily calculated at RMB427,674.74 by the date of 17 May 2016 at the 1-3 year working capital loan interest rate published by the People’s Bank of China), totaling RMB4,854,018.09; 2. the defendant shall bear the litigation costs of the subject case.
Opinions of the effective judgment: the case was a dispute over terminal cargo storage contract. The disputed issues of the case included: 1. whether the container terminal was an appropriate defendant in the case; 2. whether the typhoon concerned constituted a force majeure; 3. whether the defendant was at fault and shall be held liable to make compensation to the claimant.
- As regards whether the container terminal was an appropriate defendant in the case. In accordance with Article 93 of the Special Maritime Procedure Law of the People’s Republic of China, “where the occurrence of an insured event is caused by a third party, after paying the insurance indemnity to the insured, the insurer may exercise by subrogation the right of the insured to demand indemnity against the third party up to the limit of insurance indemnity.” The subrogation right is a statutory right obtained by the insurer after it has indemnified the loss of the insured, and is not conditioned on a contractual relationship between the insurer and the third party. Now that the claimant had obtained the subrogation receipt by paying the insurance compensation as agreed, it was lawfully entitled to claim compensation from the third party that it deemed as the liable party for the insured event. It was not tenable for the defendant to allege that it was not the appropriate defendant as it did not establish a contractual relationship with the claimant, and therefore the allegation of the defendant was not approved by the court. That means, the container terminal was appropriate defendant in the subject case, and the claimant had the right to demand compensation from the defendant based on its agreement with the insured Antong.
- As regards whether the typhoon concerned constituted a force majeure. As per Article 153 of the General Principles of the Civil Law of the People’s Republic of China, “force majeure” means unforeseeable, unavoidable and insurmountable objective conditions. First, the damage to the cargo of Antong was caused by Typhoon Kalmaegi. Although there was abundant coverage to make forecast of the coming typhoon, the actual force of the cyclone went far beyond anticipation. The typhoon also brought up astronomical tide and storm tide that drowned the city of Haikou with a tidal level up to 4.37 meters, 1.47 meters beyond the warning line and the highest level in 66 years. The tide flooded a large area of the city, including the container yard of the defendant. Actually, it was the most serious natural disaster for Haikou in 66 years. The flood was an enormous one for the whole city. Despite the preliminary forecast of Kalmaegi and the tidal level predicted based on the storm tide and coastal wave data of the meteorological department and the Tide Table published by the National Marine Data and Information Service, it did not meant that parties could foresee the disastrous consequences that Kalmaegi would bring to Haikou or the containers in the container yard as well as the cargoes stuffed inside. In other words, the disastrous consequences caused by the typhoon were different from the forecast or prediction, and hence the damage to the cargo of Antong was unforeseeable. Second, given that the highest tidal level was beyond the top elevation of the apron of the container yard, and that the container yard was a flat floor with an area of 280,000m2 and apron shoreline of 860m, and that a large part of the city was in flood, the weather disaster had beaten the designed capacity of the container yard. And it was impossible to stop the flood into the container yard by placing sand bags because sea water would still pour into the yard from the city’s drainage pipe lines or rivers. That means, the flood of the container yard was unavoidable. Last, the typhoon in this case was the most serious natural disaster in Haikou that was not seen for 66 years. From the release of the weather forecasts until the damage to the cargo of Antong, the defendant was not able to protect all cargoes in its custody. Despite that the cargo owners did not request to elevate their containers, for caution’s sake, the defendant required to keep laden boxes away from the empty ones and even required that the laden boxes shall not be stowed for more than three tires. The measures taken by the defendant was in line with the industry practice expected of a port operator. The claimant challenged that the port should have used the empty containers as cushion under the laden boxes to protect the goods against flood damage. However, this was not a proper measure to resist the strong wind. Kalmaegi was a super typhoon that would sweep down the laden boxes stacked on top and caused heavier losses. Therefore, the damage to the cargo of Antong caused by the typhoon Kalmaegi was insurmountable.
Since the damage to the containerized goods of Antong was unforeseeable, unavoidable and insurmountable, the typhoon that caused the damage constituted a force majeure. The opinion of the defendant that the damage was caused by force majeure was based on sufficient evidence and grounds and therefore was upheld by the court.
- As regards whether the defendant was at fault and shall be held liable to make compensation to the claimant. In this case, the containers and cargoes stuffed inside were damaged by typhoon floods. Whether the defendant, as the port operator, shall bear the civil liability was dependant on whether it was at fault for the flood. In fact, the damage to the cargo was caused by unforeseeable, unavoidable and insurmountable objective conditions that constituted force majeure. While keeping normal terminal operations, the defendant had taken substantial measures based on available machinery and equipment prior to and after the landfall of Kalmaegi, including notifying cargo owners to take deliver or unpack their containers, rearranging and securing containers, and demanding cargo owners to dispatch the damaged containers from the terminal. The defendant had exercised due diligence in the care of cargo. Constrained by the rainfall and strong wind and limit of time and machinery, the defendant could not possibly rearrange all the containers of Antong and other owners during the presence of typhoon, which shall be deemed a reasonable inaction. The claimant also could not produce evidence to prove that the defendant as the port operator was at fault for the care of the cargo of Antong during the presence of typhoon, and therefore the defendant shall not be held liable for the cargo damage sustained by Antong.
To conclude, the defendant as the port operator had actively taken measures prior to and after the landfall of typhoon. It had performed the duty of port operator by exercising due diligence in the care of cargo. The damage to the containers involved and cargoes stuffed inside was caused by Typhoon Kalmaegi which was a force majeure, and so the defendant was not at fault for the cargo damage. The request of the claimant to demand compensation from the defendant had no factual or legal basis and therefore was not upheld by the court.
The litigation requests of the claimant PICC P&C Quanzhou Branch were dismissed. (The second instance upheld the original judgment.)