regarding the application of the mitigation principle. In a number of cases, shipowners invoking their rights under a lien clause have not been fully compensated for
their failure to mitigate their losses.
The case of Compagnia Sud Americanade Vapores S.A. v. Yifan Biotechnology
Group Co. Ltd.,
100 involved a contract between the claimant carrier and the shipper
for the carriage of 480 barrels of fenamiphos, which was an organophosphorus
pesticide that could easily decompose. The best sale season for the pesticide was
within two months of the date of manufacture. Upon the expiry of this period, it
would begin to degrade which would result in a significant reduction in the sale price
over time. On 14 July 2009, a leakage from the container in which the cargo was
stowed was found by the crew. The container was discharged in Singapore on
19 July 2009. Upon action being brought by the carrier before the Shanghai
Maritime Court, the court found that only one barrel of fenamiphos had leaked.
The shipper had informed the carrier about the nature of cargo. The carrier exercised
the lien on cargo but did not deal with the situation until June 2010 which resulted in
a reduction in the price of the cargo. Furthermore, the carrier failed to prove that it
was not possible to deal with the leakage at Port Chiwan in Shenzhen, but the cargo
had to be shipped to Singapore. The court held that, even though the claimant carrier
was indeed entitled to exercise the lien on cargo, the way in which it exercised the
lien led to increasing losses. The carrier was not entitled to claim to the extent of the
increased losses. The decision was clearly in line with the mitigation principle.
A similarly case was brought to the Qingdao Maritime Court in 2011.
101 The
claimant was the carrier MISC Berhad and the defendant was the consignee
Shangdong Laigang Yongfeng Steel Co. Ltd. (SLYS), who delayed taking delivery
of the cargo. The carrier claimed for container demurrage. The court held that the
defendant SLYS was indeed in breach of contract for not returning the containers to
the carrier which was because it failed to take delivery of the cargo in time. SLYS
was thus liable to pay compensation to the carrier. However, the court did not accept
the whole amount of container demurrage claimed by the carrier but the amount
provided by a third-party agency, operated by the government of Qingdao, calculated according to the market price. The court held that the carrier had a duty to
mitigate its losses where the other party had breached the contract. The carrier should
have rented and used similar containers to mitigate the losses caused by the defendant’s failure to return the containers. The carrier was therefore not entitled to claim
for the amount that could have been mitigated in accordance with Article 119 of
the CLoC.
The judgements in these two cases simply applied Article 87 of the CMC; and not
Article 119 (the mitigation principle) of the CLoC. This would seem to be a cautious
approach taken by the courts where there is no definitive answer. In other words,
when the Chinese courts are unable to find an unequivocal solution, they resort to
judicial silence. Having said that, it appears that Article 119 of the CLoC is the
100 (2010), H.H.F.S.C.Z.D.832.
101 MISC BERHAD v. Shangdong Laigang Yongfeng Steel Co. Ltd. (2011) Q.H.F.H.S.C.Z.D.85.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
335
their failure to mitigate their losses.
The case of Compagnia Sud Americanade Vapores S.A. v. Yifan Biotechnology
Group Co. Ltd.,
100 involved a contract between the claimant carrier and the shipper
for the carriage of 480 barrels of fenamiphos, which was an organophosphorus
pesticide that could easily decompose. The best sale season for the pesticide was
within two months of the date of manufacture. Upon the expiry of this period, it
would begin to degrade which would result in a significant reduction in the sale price
over time. On 14 July 2009, a leakage from the container in which the cargo was
stowed was found by the crew. The container was discharged in Singapore on
19 July 2009. Upon action being brought by the carrier before the Shanghai
Maritime Court, the court found that only one barrel of fenamiphos had leaked.
The shipper had informed the carrier about the nature of cargo. The carrier exercised
the lien on cargo but did not deal with the situation until June 2010 which resulted in
a reduction in the price of the cargo. Furthermore, the carrier failed to prove that it
was not possible to deal with the leakage at Port Chiwan in Shenzhen, but the cargo
had to be shipped to Singapore. The court held that, even though the claimant carrier
was indeed entitled to exercise the lien on cargo, the way in which it exercised the
lien led to increasing losses. The carrier was not entitled to claim to the extent of the
increased losses. The decision was clearly in line with the mitigation principle.
A similarly case was brought to the Qingdao Maritime Court in 2011.
101 The
claimant was the carrier MISC Berhad and the defendant was the consignee
Shangdong Laigang Yongfeng Steel Co. Ltd. (SLYS), who delayed taking delivery
of the cargo. The carrier claimed for container demurrage. The court held that the
defendant SLYS was indeed in breach of contract for not returning the containers to
the carrier which was because it failed to take delivery of the cargo in time. SLYS
was thus liable to pay compensation to the carrier. However, the court did not accept
the whole amount of container demurrage claimed by the carrier but the amount
provided by a third-party agency, operated by the government of Qingdao, calculated according to the market price. The court held that the carrier had a duty to
mitigate its losses where the other party had breached the contract. The carrier should
have rented and used similar containers to mitigate the losses caused by the defendant’s failure to return the containers. The carrier was therefore not entitled to claim
for the amount that could have been mitigated in accordance with Article 119 of
the CLoC.
The judgements in these two cases simply applied Article 87 of the CMC; and not
Article 119 (the mitigation principle) of the CLoC. This would seem to be a cautious
approach taken by the courts where there is no definitive answer. In other words,
when the Chinese courts are unable to find an unequivocal solution, they resort to
judicial silence. Having said that, it appears that Article 119 of the CLoC is the
100 (2010), H.H.F.S.C.Z.D.832.
101 MISC BERHAD v. Shangdong Laigang Yongfeng Steel Co. Ltd. (2011) Q.H.F.H.S.C.Z.D.85.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
335