Tianjin Explosion - the Chinese Law Position

August 2015

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By way of a follow up to the recent article on the shipping issues arising out of the Tianjin Explosions this article discusses the Chinese law implications as a result of this incident. This is an edited version of an original preliminary opinion provided by Zuoming Liu of the law firm Hai Tong & Partners, which has offices in Tianjin, Beijing and Qingdao.

As reported by various media around the world, the mass explosion accident in Tianjin has caused property damage and personal death/injury unprecedented in Chinese ports. While the cause of the accident is being investigated, it is envisaged that claims of different types will gradually emerge.  As one of the most important ports in China, many ships call at and depart from Tianjin and a huge volume of cargo is handled at the port. In addition to mass damage and loss to other property, such as cars and nearby residential apartments, the shipping industry will also suffer huge losses. As such, it is sensible to make early preparations to respond to potential claims or put forward recourse claims.  

Latest news regarding this accident

  • On 13 August 2015, the Tianjin Municipal Transportation Commission published a notice ordering all related departments to cease dangerous cargo export operations.  In terms of import operation for bulk liquid terminals, operations from 0900-1800 hours were prohibited. 
  • On 15 August, all terminals in Tianjin port apart, with the exception of Huisheng Terminal, resumed normal operations, but time will be needed to resume operations at normal speed.
  • On 16 August, oil spill response vessels were ordered by the Maritime Safety Administration to conduct emergency pollution responses.
  • On 18 August, about 10 key persons from the Ruihai depot/warehouse were arrested by the Police.

Possible Claims

In terms of carriers, foreseeable claims or recourse claims may include:

  1. Claims by cargo interests against carriers for cargo damage;
  2. Claims by container owners against carriers for container damage;
  3. Claim by carriers for their own containers damaged in the incident;
  4. Carriers’ economic losses, such as loss of profit due to the prohibition on movements of dangerous cargo to and from Tianjin Port and having to discharge dangerous goods at nearby ports;
  5. Loss of life, personal injury and associated recourse claims regarding carriers’ employees.

In summary, carriers’ involvement in this matter will include defending claims, or making claims or recourse claims.  A carrier’s major concern will be how to deal with a proliferation of cargo claims in the near future.  In this respect, some carriers have already issued notice to customers invoking force majeure clauses.  In general, before the facts of the accident are fully investigated and the cause of the accident is known, it is commercially sensible to issue such a “without prejudice” notice to customers.  In addition to possible force majeure defences, other defences available to carriers may include “period of responsibility”, fire exemption, “other cause not involving fault of carrier or its agent/employee”, and limitation of liability.

Carriers’ Period of responsibility for Cargo

According to Article 46 of the Chinese Maritime Code, the responsibility of the carrier with regard to goods carried in containers covers the entire period during which the carrier is in charge of the goods, starting from the time the carrier has taken over the goods at the port of loading, until the goods have been delivered at the port of discharge. The responsibility of the carrier with respect to non-containerised goods covers the period during which the carrier is in charge of the goods, starting from the time of loading of the goods onto the ship until the time the goods are discharged therefrom.

Generally, in terms of container cargo, the dividing line for responsibility of carrier versus cargo interests is the issuing of the Equipment Interchange Receipt (“EIR”), which will record the time and date the container is delivered by shipper to carrier, or by carrier to consignee.  Such information may also be stored in online tracking systems. 

For inbound containers, normally there is little dispute over the period of responsibility as this ends when consignees take delivery of containers from the depots. However, for outbound containers, disputes may arise as to when the carrier’s period of responsibility starts because it is often the case that shippers and the depots enter directly into a contract.  As far as the ocean carrier is concerned, the period of responsibility should not commence before the depot shifts the container to the terminal’s container yard.  Nevertheless, it can be envisaged that the shipper might raise a claim against both the depot and the ocean carrier, in which case the ocean carrier may raise, inter alia, a defence that their period of responsibility had not yet commenced.

Force Majeure

As defined by the General Principles of Civil Law of the PRC (Article 153), force majeure is an objective phenomenon unforeseeable, unavoidable, and insurmountable.  Basically, force majeure usually refers to a natural disaster and even in terms of a natural disaster, the courts will take a very strict view in examining whether the event is unforeseeable, unavoidable, and insurmountable.  In terms of an accident caused by human error, we opine it may be difficult to rely on the general force majeure defence.

Under the PRC Tort Liability Law, where damage is caused by a third party’s fault, that third party shall be liable.  The same Law also provides where damage is caused by force majeure, the defendant shall not be liable unless otherwise provided by the Law.  By logical deduction from these two provisions, an event caused by a third party’s fault is not covered by force majeure although the consequences are the same; i.e. the defendant shall not be liable under either circumstance.  However, the liability of a carrier under a contract is different from that that under a tort. Under PRC Contract Law, a carrier can only be exonerated from liability when the damage is caused by force majeure, the fault of shipper/consignee or inherent vice of the cargo (as maritime law is a special law, under carriage of goods by sea the PRC Maritime Code shall apply in the first instance and prevail over the Contract Law if there is any difference between the two).  It is clear that liability for damage caused by a third party’s fault is not exempted under the Contract Law.

Another issue to be considered is that, if the statutory force majeure defence is not available, how is a contractual force majeure clause to be applied?  In this case, we note some carriers’ bill of lading clauses provide that “…force majeure should include, but not limited to…casualties, lockouts, fire, transportation disasters,…”.  Basically, such a contractual force majeure clause, although using the legal term “force majeure”, may not be viewed as force majeure and may be viewed instead as an exemption clause.

In accordance with Article 39 of the PRC Contract Law, in terms of standard clauses the party that proposes the standard clauses shall consider the rights and obligations between the parties in accordance with the principle of fairness, and shall, in a reasonable manner, call the other party's attention to any exemption and restrictive clauses regarding its liability, and give explanations of such clauses at the request of the other party.  In judicial practice, Chinese courts will also take a strict view towards exemption clauses.  Nevertheless, carriers can also try to put forward this defence to customers or before a court.

Fire exemption

Article 51(2) of the PRC Maritime Code, provides that the carrier is not liable for loss or damage caused by fire, unless the fire is caused by the actual fault of the carrier.  It is disputable whether a carrier can invoke the defence where the fire incident happened on land (and not during sea transit), but in judicial practice some courts have decided that carriers can be exempt from liability for cargo damage caused by fire which occurred in storage yards.

“Other cause not involving fault of carrier or its agent/employee”

Article 51(12) of the Maritime Code is a “saving clause” (or “miscellaneous clause”) providing that the carrier is not liable for “Any other cause not involving fault of carrier or its agent/employee.”  In this case, it makes sense that where goods have been warehoused in duly licensed depots, there should be no element of blame on the carrier regarding cargo damage which occurs in the depot.  As such, carriers may also consider using this “saving clause” as a last line of defence.

Carriers’ claims and recourse claims

Carriers are entitled to bring claims against Ruihai.  Carriers storing containers in Ruhai depot may file claims in contract, whereas carriers storing containers in nearby depots will only be able to file claims against Ruihai in tort.  Although Ruihai’s registered capital amounts to RMB100 million, this is unlikely to be sufficient to fully compensate all victims for this incident.  In addition, according to news media, Ruihai may not have had terminal liability insurance cover in place.

Carriers may bring claims against the depots where they stored their containers on the basis of contract.  We understand many containers stored in depots adjacent to the Ruihai depot sustained extensive damage.  As mentioned above, while the depot is unlikely to be able to invoke the force majeure defence, the PRC Contract Law provides warehouses are to be liable only when the goods are improperly kept.

Carriers may file claims against shippers or freight forwarders who use carriers’ containers.  To our knowledge, carriers often retain local shipping agents, such as Penavico, as general agents for booking and controlling containers.  The local shipping agent will have a Container Usage Agreement with freight forwarders or shippers regarding the use of containers.  Under the terms of such a Container Usage Agreement, the shipper or forwarder has the obligation to return the containers to carrier, and if the container cannot be returned the shipper or forwarder should be liable for compensation.  The shipper or forwarder may argue that it is the explosion which caused the loss of the containers, but as analysed above it may not be possible for the shipper or freight forwarder successfully to invoke the force majeure defence.

A carrier may also sue the government, based on Article 121 of the General Principles of Civil Law of the PRC and other relevant law which says that, if a State organ or its personnel, while executing its duties, infringes upon the lawful rights and interests of a citizen or legal person and causes damages, it shall bear civil liability.  Reports released by some news media so far indicate that the Tianjin Municipal Government may have been at fault in its examination and approval of Ruihai for the storage of dangerous goods.  However, to whom and to what extent the Tianjin Municipal Government may be liable depends largely on the final investigations of the Central Government.

Limitation of Liability

Regarding limitation of liability, as per Article 56 of the PRC Maritime Code the carrier can cap its liability for cargo claims to SDR666.67 per package or SDR2 per kilo (whichever is higher), unless the value of the cargo has been declared and recorded in the B/L, or if the carrier and shipper have agreed for a higher limitation amount.  In this case, carriers may be able to take advantage of package / weight limitation, especially where the cargo is machinery equipment.  However, there may be problems claiming limitation where the loss or damage has occurred on land, instead of during a sea transit.

As always, before taking steps which may have significant consequences in any legal proceedings in China, or elsewhere, legal advice on the particular facts of the claim should be obtained.

We are grateful to Zuoming Liu, of the law firm Hai Tong & Partners, for this opinion.