【Lead Attorney】I. Case Recap

In August 1994, Liu Caiyun, a business representative of the defendant China Electronics Material Shenzhen Company, signed an "Agency Import and Export Agreement" with the Yantai Office of the plaintiff Hong Kong Kangda Shipping Co., Ltd. in the defendant's name, affixing the defendant's customs declaration seal. The agreement stipulated that the defendant entrusted the plaintiff to transport containers of ceramic cups to Los Angeles, USA. Upon receiving the defendant's export plan, the plaintiff was responsible for transporting the goods from the defendant's delivery warehouse to Yantai Port via rail or road, with a lump-sum fee including port charges of 4,200 RMB per 40-foot container; the full sea freight from Yantai Port to Los Angeles was 2,700 USD per 40-foot container, with delivery at the port warehouse. These costs were borne by the defendant (excluding DDC fees, where "DDC" stands for "Destination Delivery Charges"), and the defendant provided customs clearance documents while the plaintiff handled the procedures. After accepting the entrustment, the plaintiff arranged for vessels to transport fifteen containers of ceramic cups, shipped by Liu Caiyun in the defendant's name, to the destination port. The defendant paid the plaintiff for the first eleven containers on August 26, 1994, October 12, 1994, and January 14, 1995, covering sea freight of 2,700 USD per container and DDC fees of 420 USD per container, totaling 34,320 USD. However, for the four containers actually carried by the plaintiff's entrusted Shenzhen Shekou Dayang Shipping Co., Ltd. on the "Yuyang" vessel voyages V413S and V414S, the bills of lading, like those for the other eleven containers, indicated "freight and DDC prepaid," but the defendant did not pay the sea freight and DDC fees for these four containers. After multiple unsuccessful attempts to recover the fees, the plaintiff filed a civil lawsuit with the Guangzhou Maritime Court, requesting the court to order the defendant to compensate the plaintiff for freight costs of 12,480 USD, trailer fees and port charges of 12,600 RMB, and related interest losses, as well as to bear the litigation costs.

II. Case Outcome

The Civil Judgment of Guangzhou Maritime Court [(1996) Guang Hai Fa Shen Zi No. 72] states:

"In accordance with Article 58, Paragraph 1, Item (5) and Article 61, Paragraph 1 of the General Principles of the Civil Law of the People's Republic of China, the judgment is as follows:

The defendant, China Electronic Materials Shenzhen Company, shall pay the plaintiff, Kangda Shipping Co., Ltd., freight and other fees totaling USD 12,480 and RMB 12,600, along with interest losses calculated at the loan interest rate of the People's Bank of China for the same period from July 22, 1996, to the date this judgment takes effect.

The litigation costs of this case, HKD 4,560, shall be borne by the defendant."

III. Case Analysis

The focus of the dispute in this case lies in the validity of the contract, related fees, and procedures. The defendant, China Electronic Materials Shenzhen Company, argued in rebuttal:

"The plaintiff's lawsuit is completely unfounded:

1. In December 1994, the defendant did not entrust the plaintiff with the transportation of goods; rather, it was entrusted by Liu Caiyun, a temporary employee of the defendant.

2. According to the defendant's management practices, employees like Liu Caiyun had no authority to sign agreements externally, and agreements signed using the customs declaration professional seal were invalid.

3. According to international practice and domestic norms, an agreement must be signed for each shipment of goods. The plaintiff's use of the August 1994 agreement to infer the freight charges for December 1994 is inconsistent with normal practice.

4. According to international practice and relevant U.S. customs regulations, DDC is paid by the consignee. Moreover, in the agreement signed between Liu Caiyun and the plaintiff, the fees paid by the defendant did not include DDC charges. Therefore, the plaintiff's demand that the defendant pay $420 per container in DDC fees is completely unreasonable."

5. The plaintiff requests the defendant to pay the freight charges for the goods, but has not yet provided the defendant with the export tax rebate and foreign exchange verification forms, which are necessary conditions for paying the freight.

6. The defendant requests the plaintiff to refund the DDC fee of $420 per container overpaid in the 11 containers' freight already paid.

7. Attorney Wang Tengfeng, relying on his proficient legal knowledge and extensive experience in handling maritime transport contract disputes, refuted the defendant's arguments one by one:

8. "First, the issue of the agreement's validity.

9. The agent believes: Although the maritime transport agreement between the plaintiff and defendant appears incomplete and non-standard on the surface, considering the actual performance of both parties in light of the law, there is no doubt: the maritime transport agreement in this dispute certainly has legal effect, and both parties must fully fulfill their corresponding obligations. In this case, the defendant should fulfill all its payment obligations. We have solid legal provisions as evidence. Therefore, the agent can only express sympathy for the defendant's legal liability and economic losses caused by internal mismanagement and improper hiring.

10. Second, the issue of freight rate changes.

Regarding the issue of freight rates, the agent believes that the only ocean shipping agreement available between the plaintiff and defendant is this one, and the cargo shipped consists of 40 containers of porcelain cups, which are specific and clear. In terms of the actual situation, the defendant used the plaintiff's liner service, and the freight rate was relatively fixed, with no issue of signing a new agreement and setting a new rate each time. It is entirely normal for the defendant's shipment of porcelain cups via liner in August and December 1994 to have relatively fixed ocean freight rates. How can there be any reasoning for pricing? Using routine as an excuse everywhere suggests a possible lack of clear understanding of shipping practices. Ocean freight rates are general and unchanging, while relatively fixed prices are specific. This case should not involve any issue of rate changes. In fact, the defendant has also failed to provide evidence that this shipment had different rates.

　Third, regarding the issue of USD420/ton (DDC) fees.

From the contract between the plaintiff and defendant, it is clear that the ocean freight rate of 2700/40 containers is for shipping from China to the port of Los Angeles in the United States, and does not include DDC fees from the port to the warehouse. Regardless of whether these fees should be borne by the shipper or consignee according to international practice, they certainly would not be borne by the carrier. In this case, DDC fees were actually incurred during the shipment and were paid on behalf of the carrier. So, who should actually pay these fees to the carrier (the plaintiff)? This question can be easily answered by looking at the ocean bill of lading itself, as it is a clear shipping contract, and the bill explicitly states that it includes DDC fees. That is to say, when the defendant handled the cargo shipment, it clearly indicated its willingness to bear both the ocean freight and DDC fees. Not only did it repeatedly accept such bills of lading, but it also paid several freight payments under these bills. Now, the defendant's post-hoc refusal to pay freight and raising this issue is merely an attempt to reduce its own losses and shift them to the plaintiff. This should be quite obvious.

　　Fourth, regarding the issue of the shipping route and foreign exchange verification forms.

The defendant claims that the export shipping route and foreign exchange verification form are necessary prerequisites for paying ocean freight. However, the agent has thoroughly reviewed relevant international practices and China's Maritime Law and found no such basis. I wonder what basis the defendant has? Please provide supporting evidence, and if there is any relevant practice text, please present it. Without any corresponding basis, this is merely empty talk. On the contrary, the plaintiff's practice of releasing documents upon payment—i.e., paying freight before receiving the ocean bill of lading—is well-founded and supported by extensive legal evidence. This not only complies with the Uniform Customs and Practice for Documentary Credits in international trade, which requires payment for document release, but also aligns with the business regulations of Chinese shipping companies. The plaintiff's allowance for the defendant to take the documents first and remit payment later was already a business courtesy. The defendant's subsequent refusal to pay and delay in ocean freight is unreasonable and unlawful. How can one fabricate other necessary conditions to refuse payment simply because the freight is unpaid? The intent is obvious, and the agent believes this is not a valid reason for refusing payment, nor is it acceptable.

In summary, the agent believes that the facts of this case are simple and clear, the responsibilities are unambiguous, and the defendant's refusal to pay ocean freight is without legal basis. The plaintiff's legitimate property losses should be protected. Therefore, we respectfully request the court to carefully consider the agent's opinions and adopt them as appropriate, rendering a fair judgment in this case.

The legal opinion of Chief Attorney Wang Tengfeng was fully supported and adopted by the Maritime Court. The judgment [(1996) Guanghai Fashen Zi No. 72] states: "This court holds that—after the defendant's business agent Liu Caiyun signed the transportation contract 'Agency Import and Export Agreement' with the plaintiff in the defendant's name, the defendant had already shipped the goods according to the agreement and paid part of the freight. It should be determined that the defendant confirmed the validity of Liu Caiyun's agency actions through actual performance. Therefore, the responsibility for paying the relevant fees under this transportation contract shall be borne by the defendant. —Since the plaintiff actually transported the defendant's goods, the defendant should pay the plaintiff for all expenses actually incurred in the transportation of the goods in this case. The defendant has already paid the actual carrier responsible for the transportation of the goods in this case a sea freight of USD 2,700 per 40-foot container. Therefore, the sea freight in this case should be determined as USD 2,700 per 40-foot container. The DDC fees indicated on the bills of lading for the four containers of goods in this case were prepaid, and for the other eleven containers of goods transported by the plaintiff, the defendant has already paid the DDC fees of USD 420 per container as recorded on the bills of lading. It should be deemed that the plaintiff and defendant had agreed that the defendant would bear these fees. These fees have been paid by the plaintiff on behalf of the defendant, so the defendant should pay the plaintiff USD 420 per container in DDC fees. —The defendant's claims that the plaintiff should provide export tax refund and foreign exchange verification forms as necessary conditions for the defendant to pay the freight, and that the plaintiff should refund the DDC fees for the eleven containers already paid, lack sufficient evidence and are not supported by this court."

This case shows that lawyers handling international trade, maritime, and shipping cases must not only possess extensive legal expertise and litigation experience and skills but also have corresponding knowledge of international economic and trade law.

(Compiled and commented by Guo Tianxi)

Zhiming Office

May 11, 1996