Keywords

Contract of international air freight transport; priority of the application of the Montreal Convention; application of Chinese laws by agreement

 

Case Overview

In January 2022, a Hainan airline company concluded a transport contract with a Beijing international freight forwarder, by which the parties agreed as below: the airline company agreed to fly to and from Beijing to Los Angeles, and the international freight forwarder agreed to pay charter charges; charter price was subject to the change of fuel price; the validity, construction and performance of the contract shall be governed by Chinese laws; and the carrier’s compensation liability to the charterer shall be governed by the Montreal Convention. The parties also concluded a Supplementary Agreement to cut prices in the slack season and raise prices in the busy season. During the performance of the contract, the airline company carried the cargo shipped by the freight forwarder to Los Angeles according to the contract. However, cargo under some airway bills was offloaded (i.e. the failure to load the allotted cargo on aircraft) or missing due to aircraft stowage issues, runway restrictions, or bad weather. The airline company managed to carry the offloaded cargo by immediate flights. In July 2022, the freight forwarder stopped paying the charter charges and terminated the contract, alleging that there was a change of circumstances where the charter price went excessively high due to the surge of global fuel prices. The airline company filed a lawsuit to request the freight forwarder to pay the fuel charges and liquidated damages, whilst the freight forwarder filed a counterclaim to request the airline company to return deposits and compensate for the loss arising from the offloading and missing of cargo.

 

Judgment

The court held that, despite the effectiveness and validity of the contract, the Montreal Convention shall be applied to handle the dispute, as China is a contracting party to a series of international air freight transport conventions, such as the Montreal Convention. The applicable law under the contract shall apply only when there is no provision in the international convention. Upon examination, the court found that the freight forwarder breached the contract by early termination and therefore ordered the freight forwarder to assume the liability by paying the fuel charges of CNY 4,516,550 and charter charges of CNY 3,125,000 plus interest accrued thereon. Other requests of the airline company and all the counterclaims of the freight forwarder were dismissed.

 

Significance

The case is the first international air freight transport contract dispute concluded by a maritime court in China through the application of an international convention. It is a specific example for implementing the Opinions of the Supreme People’s Court on the Provision of Judicial Services and Guarantees by People’s Courts for the Construction of Hainan Free Trade Port, a substantial step in expanding the scope of civil and commercial cases to be accepted by maritime courts and in advancing the modernization of the trial system of courts, and a helpful judicial reference to maritime courts in China to handle air freight transport cases and enhance their professionalism in resolving transport-related disputes.

 

In this case, the court affirms the priority of the international convention and applies the convention despite the governing law agreed in the contract. The application and correct interpretation of the international convention demonstrates China’s commitment to the international convention and efforts to ensure unified, stable and predictable application of international conventions in the judicial practices of China. The court also gives full respect to the right of the parties on the choice of governing law for those issues where there was no provision under the international convention.

 

In this case, the court also carefully examines the conditions for compensation for cargo loss under the Montreal Convention and the applicability of the change of circumstances, setting a good example for the clarification of rules for handling international air freight transport contract disputes and regulating the rights and liabilities of the parties engaged in international aviation logistics.