On 18 March 2012, the Supreme Court of PRC released provisions on the trial of sea freight forwarding disputes which will become effective on 1 May 2012 (“Provisions”). Below are our comments on the Provisions, which we believe are helpful for a good understanding of this Provisions and well guiding parties how to proceed when faced with freight forwarding disputes.
Scope of freight forwarding disputes and applicable lawsThe Provisions apply to the five disputes over the carriage of goods by sea freight forwarding services between the principal and the freight forwarding companies: (1) to provide booking, customs clearance, entry-exit inspection and quarantine and insurance agency services; (2) for providing the goods’ packaging, supervision of the loading and discharging, destuffing containers, distribution and transshipment services; (3) due to making and delivery of relevant documents and settlement of cost and expenses disputes; (4) to provide warehousing and road transport services; (5) dealing with other sea freight forwarding agency services. The Chinese Maritime Courts have jurisdiction to the above five disputes.
A wide range of freight forwarding business may form a variety of legal relationships between the freight forwarding companies and the principal, and if so, the relevant legal provisions in China Civil Rules, China Contract Laws and China Maritime Laws shall apply to such relationships as agency, transport and warehousing etc.
However, it should be noted that this provisions shall not be applicable to the freight forwarding disputes occurring in Chinese coastal and inland water carriage.
Identity of freighter forwarder and carrierThe Courts shall decide whether a freight forwarding contract is established according to the clauses in the written contract, the identity and ways of charging the fees by freight forwarder, the type and item of invoices, the course of dealing between parties and the performance of the contract.
However, the freight forwarder may be deemed as carrier by the principal under the following two circumstances:
(1) The freight forwarder issued in his own name the bill of lading, sea waybill or other transport documents;
(2) The freight forwarder who issued on the name of carrier the bill of lading, sea waybill or other transport documents failed to prove that he has obtained such authority from the carrier.
Sub-entrustmentIt is normal in freight forwarding business that the principal Freight Forwarder sub-contracts partial execution of his tasks ordered by the principal to a sub forwarder, however which caused many problems and disputes. The provisions regulate that unless the scope of sub-entrustment is clearly agreed by parties or the principal’s actions indicate that the sub-entrustment has been accepted, the courts cannot uphold the freight forwarder’s arguments that the sub-entrustment has been accepted by the principal on the ground that the principal knows the sub-entrustment but no objection to it.
Detention of documentsIn Chinese judicial practice, it has been longstanding controversial whether the freight forwarder could detain such documents as bill of lading, customs clearance sheet and foreign exchange verification sheet if the principal fails to pay them. The provisions confirm the freight forwarder’s right of detention of all documents when such detention has been agreed by parties. However, if no agreement on the detention of all documents, such documents as customs clearance sheet and foreign exchange verification sheet except the transport documents can be detained.
Delivery of transport documentsUnder FOB terms, it is also debatable who are entitled to require the delivery of transport documents, contractual shipper (buyer) or actual shipper (seller). The provisions state that the actual shipper is entitled to require the delivery of transport documents. It further clarify that contractual shipper means the person by whom or in whose name or on whose behalf a sea carriage contract has been concluded with a carrier; and actual shipper means the person by whom or in whose name or on whose behalf the goods has been delivered to a carrier.
Presumption of faultThe Provisions confirms the presumption of fault, that is to say that freight forwarder shall be liable for the principal’s losses unless he can prove he is innocent.
Liability of without NVOCC qualificationAccording to the International Maritime Transportation Regulations of PRC (“regulations”), a freight forwarder engaged in NVOCC business in China shall have his bill of lading registered in the Ministry of Communication and accordingly obtain the NVOCC qualification. However, some freight forwarders without NVOCC qualification are actually engaged in the NVOCC business, which not only violates the regulations, at the same time very likely harm the interests of shippers. The provision clearly stipulates that the freight forwarder should bear the corresponding liability to the principal if he improperly selects a NVOCC whose bill of lading is not registered in the Ministry of Communication.
In addition, the provision make it clear that the principal is entitled to require the freight forwarder bear a joint and several liability with the unqualified NVOCC for the losses occurred under bill of lading when the freight forwarder issued on the unqualified NVOCC’s behalf the bill of lading.
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