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CASE 1: WHETHER DAMAGE CAUSED BY FIRE FALLS
UNDER THE SCOPE OF THE INSURANCE COVERAGE
(a) Facts
The claimant, as a shipyard, insured with the respondent, an insurance company, for the ship repair¡¯s liability insurance on 24 August 2006. At the same time, the claimant and the respondent concluded and signed the ship repair¡¯s liability insurance agreement through the insurance broker. The claimant paid the insurance premium. The duration of insurance coverage was from 00:00 11 September 2006 to 24:00 31 December 2006. The scope of the insurance covered the following: damage for which the claimant should be liable according to the agreement or other related rules; direct damage caused by fire or engine; damage due to the fault of the repairing workers or technical workers except the damage of inherent vice; as well as the indirect damage of the ship repaired arising from the period of shifting, in and out of dock, collision with port facility, dock and other ships, due to the fault of the repairing workers or technical workers, for which the claimant should be liable according to the agreement or other related rules.
When the Mv XXX was under repair in the claimant¡¯s shipyard, on 31 December 2006, the lacquer thinner and the paint caught fire because welding sparks fell onto the buckets of lacquer thinner and the paint when workers were welding a component panel which was opposite to the aisle deck of No 3 cargo hold aft bulkhead. The claimant notified the respondent. The respondent surveyed the fire site of Mv XXX on 1 January 2007. The respondent issued to the claimant a notice of insurance exclusions on 18 December 2007. The reasons were that the accident was caused by the fault of workers of another company named as C within the duration when the claimant subcontracted the part of the work to Company C, which was contained in art VI of ship repair¡¯s liability insurance agreement, ie the insurer would not be liable for all the damage caused by fire or engine damage of the ship repaired due to the fault of another company, as well as the responsibilities and fees due to the damage of the ship repaired arising from the period of shifting, in and out of dock, collision with port facility, dock and other ships, if the part of the work was repaired by another company or was subcontracted to another company by the claimant.
The claimant applied to the CMAC for arbitration and requested insurance compensation.
In the claimant¡¯s opinion, the claimant subcontracted to Company C, which was essentially a change of employment, but not a change of the issue on ship repair. The ship had not been removed from the shipyard water area during the repair. In addition, the ship repair¡¯s liability insurance which the claimant insured with the respondent was in standard insurance term. According to the law, if there was any exclusion clause within the insurance term, the insurer should expressly specify this to the insured, otherwise, the exclusion clause would be deemed invalid.
The respondent believed that, according to art VI of ship repair¡¯s liability insurance agreement, the insurer would not be liable for any damage of the ship repaired due to the fire or engine damage caused by another company if the part of the work was repaired by another company or was subcontracted to another company by the claimant. In this case, the subject of subcontracting was with Company C, which was referred to as ¡°another company¡± in the exclusion clause. Furthermore, there was no restriction on the working place of another company. In other words, the insurer would not be liable for the damage of the ship repaired due to the fire or engine damages caused by Company C whether it was inside the claimant¡¯s shipyard or not.
(b) Award
The ship repair¡¯s liability insurance agreement contained no provision clause on the application of the law for settlement of disputes; and given that both parties were companies registered in China, and the ship repair¡¯s liability insurance agreement was also signed in China, the tribunal found that the settlement of dispute in this case should apply Chinese law. The tribunal also found that the ship repair¡¯s liability insurance agreement met the effective conditions provided in the Contract Law of the PRC and therefore was effective and should be protected by law.
The tribunal found that the fire was not caused by the workers of the claimant but workers of Company C after verification. The claimant and Company C were two different companies and had separate legal entities. The business scope of Company C included shipbuilding and ship repair. It indicated that Company C could engage in and had the qualification to engage in ship repair. Therefore, Company C was identified to be another company as referred to in art VI of the ship repair¡¯s liability insurance agreement.
In addition, the ship repair¡¯s liability insurance agreement was concluded and signed by both parties through an insurance broker. It was not a standard term provided by the respondent. Therefore, the tribunal found that it was not necessary to specify the exclusion clause, given that the parties knew the definition of the exclusion clause.
The tribunal dismissed all the claimant's claims, and the cost of the award would be paid by the claimant.
(c) Analysis
Whether the damage caused by fire was within the scope of the insurance coverage or the exclusion clause is the key to resolve the problem of this case and we should consider the following three points:
1. The reason for the accident: the fire was caused by the fault of the workers of Company C. This was confirmed by the Fire Accident Alert and the Accident Analysis Record provided by the claimant and was confirmed by both parties.
2. Whether Company C was another company as referred to in the exclusion clause or not: how to define the other company would be one of the key issues. Generally, we can distinguish one legal entity from another by examining the names, addresses and the business scopes. Obviously, Company C had its own name, address and business scope, including ship building and repair, according to the documents provided by the claimant. Company C was not the same entity as the claimant, but another company mentioned in the exclusion clause.
3. Whether the exclusion clause was effective or not: in light of art 39 of the Contract Law, where a contract is concluded by way of standard terms, the party supplying the standard terms should abide by the principle of fairness in prescribing the rights and obligations of the parties and shall, in a reasonable manner, call the other party¡¯s attention to the provision(s) whereby such party¡¯s liabilities are excluded or limited, and shall explain such provision(s) upon request of the other party.
Standard terms are contract provisions which were prepared in advance by a party for repeated use, and are not negotiated with the other party in the course of concluding the contract.
According to art 41 of the Contract Law in case of any dispute concerning the construction of a standard term, such term shall be interpreted in accordance with common sense. If the standard term is subject to two or more interpretations, it shall be interpreted against the party providing it. If a discrepancy exists between the standard term and a non-standard term, the non-standard term prevails.
Obviously, the ship repair¡¯s liability insurance agreement was not a standard term constituted and provided by the respondent, while only concluded and signed by both parties through the insurance broker. In other words, it was not necessary to specify the exclusion clause as both of the parties knew the definition of the exclusion clause clearly. The exclusion clause did not fall within the scope as stated in the articles of the Contract Law and it was effective.
Consequently, we can come to the conclusion that the insurer was not liable for the damage caused by the fire, since it was provided in the exclusion clause of art VI of the ship repair¡¯s liability insurance agreement.
This is a typical case where the claimant had not really understood the contents of the contract and lost his case. In practice, such cases happen frequently. The main reason is that the insured usually signs the contract through a broker, without knowing what they are not allowed to do according to the contract and usually neglect the importance of the contract. The tribunal makes an award mainly on the basis of the contract and, as a result, parties often get into trouble after an accident happens. This case represents a warning for the insured.
CASE 2: WHETHER THE CONTRACT IS A TRANSPORTATION
AGREEMENT OR AN AGENCY CONTRACT
(a) Facts
The claimant (shipper) entered into a welded steel pipe export transportation agreement (transportation agreement) with the respondent (carrier), for the carriage of 12,498.505 tons of welded steel pipe, FIO Tartous Syria£¬from Xingang port, Tianjin, China. The contract price was US$182.00 per ton subject to the actual quantity loaded.
The claimant claimed that, due to the faults of the respondent and a third party the shipowner was not able to arrange the timely carriage and delivery of the goods. After negotiation, the claimant, the respondent and the third party concluded a tripartite memorandum in Taiyuan on condition that all the three parties confirmed the transportation agreement and admitted the existence of the disputes over the freight calculation method.
Article 1 of the memorandum provided that, ¡°¡all parties admit and confirm the agreements between them¡¡± which expressed their intention to respect and perform the original agreement. That was, the claimant still paid the freight to the respondent in accordance with the weight, while the respondent in turn paid the freight to the third party in accordance with volume.
Pursuant to the same article, to simplify the payment process, the claimant would transfer the freight discrepancy, if any, directly to the bank account designated by the respondent or the third party, and the respondent would repay to the claimant later. In light of this article and the facts of this case, the additional payment of US$413,463.55 by the claimant was made on behalf of the respondent. The payment was neither an obligation under the transportation agreement, nor was it the claimant¡¯s own free will. It was just an advance freight payment conducted by the claimant for the respondent.
In accordance with art 3 of the same agreement, ¡°¡any additional payment, which exceeds the contractual payment, by the claimant to the respondent and by the respondent to the third party should be unconditionally returned at an agreed ratio to the claimant¡±. The final payment amount and ratio would be decided by a common agreement reached within 30 days after the full performance of the transportation agreement. The above provision presented explicitly that the respondent should return the advance payment for carriage to the claimant.
On these grounds, the claimant brought the case to arbitration requiring the respondent to repay the advance freight paid by the claimant in the name of the respondent, plus interest, calculated from the day of the payment conducted.
The respondent defended by stating that although by the named transportation agreement, the agreement in question was in nature an agency contract, taking into account the statutes of the subjects, the issuance of the bill of lading (B/L), and the purpose of the agreement. Moreover, after the conclusion of the agreement, the claimant failed to undertake its contractual obligations; consequently, the respondent was not able to fulfil the entrusted matters. There was no actual performance of the agreement, nor was there any necessity to continue with the performance. In light of the above reasons, the claimant had no legal basis to require any repayment from the respondent.
The key issues in the present case included: (1) the nature of the agreement concerned: transportation agreement or agency contract; (2) whether the agreement had been performed or not; (3) whether the respondent should, unconditionally, repay to the claimant the advance payment paid by the claimant on behalf of the respondent.
(b) Award
(i) The nature of the agreement concerned
The claimant argued that the agreement between the claimant and the respondent was a typical transportation agreement with essential characteristics. The art 1(2) of the agreement provided the FIO clause as the shipping term. The fourth paragraph was on the loading period. Article 3(2) stipulated the transit period while art 3(4) was about the notification rules. Article 4 provided the freight calculation methods and art 6 included rules on the demurrage and lien. Either the name or the contents of the agreement were in line with the related regulations of both the Maritime Code and the Contract Law. The agreement should be classified as a voyage charter party, a type of contract of carriage of goods by sea under the Maritime Code.
The respondent defended that: taking the factors such as the statutes of the subjects, the issuance of the B/L, and the purpose of the contract into consideration. The contract in this case was, in nature, a freight agency contract. For one thing, it was the shipowner but not the respondent who issued the B/L. According to art 71 of the Maritime Code, B/L No YH-01 in this case established a contractual relationship between the claimant and the shipowner, for the carriage of goods by sea. For another, the purpose of the contract indicated that, the respondent was authorised to arrange the space booking for export, but not to deliver the goods.
The arbitral tribunal held that, by examining the agreement, especially the articles regarding to the respondent¡¯s obligations and the liabilities for the breach of the contract, the agreement in question did comply with art 41 on the contract of carriage of goods by sea of the Maritime Code.
(ii) Whether the agreement had been performed
Based on the statements of the parties and cross-examination sessions of the hearing, the arbitral tribunal found that, on the top of the transportation agreement between the claimant and the respondent, there was an independent transportation agreement between the respondent and the third party. While performing the agreement, the respondent disclosed the third party to the claimant. Thereafter, the three parties entered into a tripartite memorandum, based on which the claimant paid the advance freight of US$413, 463.55 directly to the third party, on behalf of the respondent. The third party issued a freight invoice to the claimant. The arbitral tribunal paid attention to art 1 of the memorandum, which provided that the claimant could transfer the advance freight to the bank account named by the third party. Based on the bank¡¯s receipt presented by the claimant and the payment proof provided by the third party, the arbitral tribunal concluded that the claimant transferred US$413,463.55 to a bank account of the third party on 28 January 2008 which was also confirmed by the respondent. The majority of the arbitral tribunal held that, the above payment conducted by the claimant was an advance payment based on the tripartite memorandum, which was aimed at facilitating the performance of the transportation agreement, and should be considered as the claimant performing the transportation agreement.
The respondent argued that the agreement in question had not been fulfilled. The relevant transportation service had been undertaken by the third party. The majority of the arbitral tribunal believed that, by concluding the contract with the third party and the memorandum, the respondent had also performed the transportation agreement.
(iii) Whether the claimant had failed to provide the respondent with the correct cargo details
The respondent asserted that, the claimant failed to provide the respondent with correct cargo specifications as required in art 3 of the agreement, including name, certifications, weight and volume, etc. The data provided by the claimant was 23,441.41 cubic meters, while the shipowner calculated the freight based on the figure of 29,868.79 cubic meters. The figure provided by the claimant was significantly lower than that presented in the B/L issued by the shipowner. The claimant¡¯s failure to provide correct cargo details constituted a breach of the contract.
The arbitral tribunal agreed that there was no ground to conclude that the claimant provided false and wrong cargo data and breached art 3(2) of the agreement by not providing the actual volume of the cargo.
(iv) Whether the respondent should repay the claimant the advance freight unconditionally
The majority of the arbitral tribunal held that, the payment made by the claimant was on the ground of the tripartite memorandum. The additional advance freight of US$413,463.55 paid by the claimant was the freight the respondent had to pay to the third party. The respondent should, therefore, return the full amount of US$413,463.55 to the claimant unconditionally.
(c) Analysis
In art 3(2), the parties agreed that: (1) the respondent was responsible for all the related matters for shipping the 12,495 tons of welded steel pipe from the port of shipment (Xingang Port, Tianjin) to the port of destination (Tartous port); (2) the transit period was 35 days from the date of departure, and the risks were transferred to the respondent at the moment when the goods were delivered to the respondent at Xingang Port; (3) within two days after the shipment, the respondent had to provide the original clean B/L and any other related documents, with contents in line with the corresponding letter of credit; (4) the respondent had to give sufficient notice of the position of the ship every five days, and inform the claimant of the arrival 10 days in advance and keep daily contact with the claimant; (5) in the course of transportation, loading and unloading, the respondent would be in charge of keeping the goods in perfect condition and free from any damage. The respondent should take full responsibility for any damage and loss of the goods incurred on account of the respondent and/or the shipping company, if any.
With regard to the liabilities for breach of the contract, in art 6 of the agreement, the parties agreed that: (1) the claimant should compensate the demurrage charges of US$12,000 per day in case of delay of unloading caused by the claimant. In case of breach of the contract by the respondent, the respondent should pay double the deposit amount and take the relevant responsibilities. (2) The respondent was entitled to maritime lien, provided that the respondent was not able to receive the payment in time, resulting from any circumstances that were not attributed to the respondent. All the losses and responsibilities were in the cost of the claimant.
The figure of 23,441.41 cubic meters was measured jointly by the claimant and the respondent. In light of the statement by the claimant, the reason for the discrepancy between the 23,441.41 cubic meters and the 29,868.79 cubic meters was both parties¡¯ negligence on the charge mode. That was, if the carriage was charged by volume, the measurement standard should be the maximum volume of the goods. However, the result of measurement in this case was calculated in accordance with the actual volume of the goods which was registered in the agreement by both parties involved. The parties confirmed during the hearing that the difference in the measurement standard resulted in the differentials of the outcome.
The figure of 23,441.41 cubic meters was an outcome of a joint measurement conducted by the parties in a cooperative manner. The claimant, who provided the respondent with the actual volume of the cargo, did not breach the contract. Second, the claimant had fulfilled its contractual obligation by informing the respondent about the actual cargo details, given that, in light of the agreement, the freight should be calculated by weight, rather than by volume. The respondent, as the carrier, did not disclose the actual usage of the cargo data, and the claimant was not able to know the changed charge mode of the freight under the contract between the respondent and the third party.
The respondent entered the transportation agreement, respectively with the claimant and the third party, on its own name. By concluding the memorandum, the three parties all admitted and confirmed the two transportation agreements. The freight calculation method agreed by the claimant and the respondent, as well as the method agreed by the respondent and the third party, were both on the basis of party autonomy when making the contracts.
In practice, it is sometimes very hard to distinguish a transportation agreement and an agency contract. In the above case, it seems the respondent who had lack of experience at calculating freight, therefore the risk existed when they entered into two different contracts under two different calculation methods. Obviously, an agent would not change such a crucial part of the contract. Therefore, the respondent was not successful when he tried to transfer the risk to the claimant.
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