Jianwei Hangzhou: Supreme People's Court Guiding Case No. 21

No. 3 [2019]

Supreme People's Court

Notice on the Release of the 21st Batch of Guiding Cases

To the Higher People's Courts of all provinces, autonomous regions, and municipalities directly under the Central Government, the Military Court of the People's Liberation Army, and the Production and Construction Corps Branch of the Xinjiang Uygur Autonomous Region Higher People's Court:

After discussion and decision by the Judicial Committee of the Supreme People's Court, six cases (Guiding Cases No. 107-112), including the case of Sinochem International (Singapore) Co., Ltd. v. ThyssenKrupp Metallurgical Products Co., Ltd. concerning disputes over international goods sale contracts, are now released as the 21st batch of guiding cases for reference when trying similar cases.

Supreme People's Court

February 25, 2019

Guiding Case No. 107

Sinochem International (Singapore) Co., Ltd. v. ThyssenKrupp Metallurgical Products Co., Ltd. Dispute over International Goods Sales Contract

(Approved by the Judicial Committee of the Supreme People's Court, released on February 25, 2019)

Keywords

Civil/International Goods Sales Contract/United Nations Convention on Contracts for the International Sale of Goods/Applicable Law/Fundamental Breach

Key Judicial Points

1.If the parties to an international goods sale contract are located in countries that are contracting states to the United Nations Convention on Contracts for the International Sale of Goods, the provisions of the Convention should be applied preferentially. If the Convention does not provide for a certain matter, the law agreed upon in the contract should apply. If the parties to an international goods sale contract clearly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods, the Convention should not apply.

2.In an international goods sale contract, even if the goods delivered by the seller have defects, as long as the buyer can use the goods or resell the goods through reasonable efforts, it should not be considered a fundamental breach as stipulated in the United Nations Convention on Contracts for the International Sale of Goods.

Relevant Articles of Law

Article 145 of the General Principles of the Civil Law of the People's Republic of China

Article 1 and 25 of the United Nations Convention on Contracts for the International Sale of Goods

Basic Case Facts

On April 11, 2008, Sinochem International (Singapore) Co., Ltd. (hereinafter referred to as Sinochem Singapore) and ThyssenKrupp Metallurgical Products Co., Ltd. (hereinafter referred to as ThyssenKrupp Germany) signed a Purchase Contract for the purchase of petroleum coke, stipulating that the contract should be established, governed, and interpreted in accordance with the laws then in effect in New York State, USA. Sinochem Singapore paid the full purchase price as agreed, but the HGI index of the petroleum coke delivered by ThyssenKrupp Germany was only 32, which did not conform to the agreed HGI index of 36-46 in the contract. Sinochem Singapore believed that ThyssenKrupp Germany constituted a fundamental breach of contract, and requested that the contract be terminated, and that ThyssenKrupp Germany return the purchase price and compensate for losses.

Trial Outcome

The Jiangsu Provincial Higher People's Court held in the first instance that, according to the relevant provisions of the United Nations Convention on Contracts for the International Sale of Goods, the HGI index of the petroleum coke provided by ThyssenKrupp Germany was far lower than the contractually agreed standard, resulting in the difficulty of selling the petroleum coke in the domestic market, and the expected purpose of signing the sales contract could not be achieved; therefore, ThyssenKrupp Germany's conduct constituted a fundamental breach. On December 19, 2012, the Jiangsu Provincial Higher People's Court rendered a civil judgment (2009) Su Min San Chu Zi Di 0004: 1. Declared the Purchase Contract signed on April 11, 2008 between ThyssenKrupp Metallurgical Products Co., Ltd. and Sinochem International (Singapore) Co., Ltd. invalid. 2. Ordered ThyssenKrupp Metallurgical Products Co., Ltd. to return US$2,684,302.90 to Sinochem International (Singapore) Co., Ltd. within thirty days from the effective date of this judgment, and to pay interest from September 25, 2008 to the date of payment determined by this judgment. 3. Ordered ThyssenKrupp Metallurgical Products Co., Ltd. to compensate Sinochem International (Singapore) Co., Ltd. for losses of US$520,339.77 within thirty days from the effective date of this judgment.

After the verdict, ThyssenKrupp Germany, dissatisfied with the first-instance judgment, appealed to the Supreme People's Court, arguing that the first-instance judgment had misapplied the law. The Supreme People's Court held that the first-instance judgment's findings of fact were basically clear, but that the application of the law in some aspects was wrong and the determination of liability was inappropriate, and should be corrected. On June 30, 2014, the Supreme People's Court rendered a civil judgment (2013) Min Si Zhong Zi Di 35: 1. Revoked the first item of the Jiangsu Provincial Higher People's Court's civil judgment (2009) Su Min San Chu Zi Di 0004. 2. Amended the second item of the Jiangsu Provincial Higher People's Court's civil judgment (2009) Su Min San Chu Zi Di 0004 to: ThyssenKrupp Metallurgical Products Co., Ltd. shall compensate Sinochem International (Singapore) Co., Ltd. for losses of US$1,610,581.74 in the purchase price within thirty days from the effective date of this judgment and pay interest from September 25, 2008 to the date of payment determined by this judgment. 3. Amended the third item of the Jiangsu Provincial Higher People's Court's civil judgment (2009) Su Min San Chu Zi Di 0004 to: ThyssenKrupp Metallurgical Products Co., Ltd. shall compensate Sinochem International (Singapore) Co., Ltd. for storage fee losses of US$98,442.79 within thirty days from the effective date of this judgment. 4. Rejected Sinochem International (Singapore) Co., Ltd.'s other litigation requests.

Reasons for the Judgment

The Supreme People's Court held that this case is a dispute over an international contract for the sale of goods, both parties are foreign companies, and the case involves foreign-related factors. Article 2 of the Supreme People's Court's Interpretation (I) on Several Issues Concerning the Application of the Law of the People's Republic of China on the Application of Law to Foreign-Related Civil Relations provides: "For foreign-related civil relations that occurred before the implementation of the Law of the People's Republic of China on the Application of Law to Foreign-Related Civil Relations, the people's courts should determine the applicable law according to the relevant legal provisions at the time of occurrence of the foreign-related civil relations; if there are no provisions in the then-existing law, the provisions of the Law of the People's Republic of China on the Application of Law to Foreign-Related Civil Relations may be referred to." The Procurement Contract in question was signed on April 11, 2008, before the implementation of the Law of the People's Republic of China on the Application of Law to Foreign-Related Civil Relations. Article 145 of the General Principles of the Civil Law of the People's Republic of China at the time the parties signed the Procurement Contract stipulated: "The parties to a foreign-related contract may choose the law applicable to the settlement of disputes arising from the contract, unless otherwise provided by law. In the absence of a choice by the parties to a foreign-related contract, the law of the country most closely connected with the contract shall apply." In this case, the parties agreed in the contract that it should be established, governed, and interpreted in accordance with the laws of the State of New York then in effect. This agreement does not violate legal provisions and should be deemed valid. Since the countries where the parties are located, Singapore and Germany, are both contracting states to the United Nations Convention on Contracts for the International Sale of Goods, and the United States is also a contracting state to the United Nations Convention on Contracts for the International Sale of Goods, and during the first-instance proceedings, both parties unanimously chose to apply the United Nations Convention on Contracts for the International Sale of Goods as the basis for determining their rights and obligations, and did not exclude the application of the United Nations Convention on Contracts for the International Sale of Goods, the Jiangsu Provincial Higher People's Court's application of the United Nations Convention on Contracts for the International Sale of Goods in the trial of this case was correct. For issues involved in the trial of the case that are not covered by the United Nations Convention on Contracts for the International Sale of Goods, the law of New York, USA, chosen by the parties, shall apply. The Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods is not part of the United Nations Convention on Contracts for the International Sale of Goods and cannot be used as a legal basis for the trial of this case. However, it can be used as a suitable reference in accurately understanding the meaning of the relevant provisions of the United Nations Convention on Contracts for the International Sale of Goods.

The petroleum coke HGI index typical value agreed upon by both parties in the Purchase Contract is between 36 and 46, while the actual HGI index of the petroleum coke delivered by thyssenkrupp Germany is 32, which is lower than the minimum value of the HGI index typical value agreed upon by both parties and does not comply with the contract. The Jiangsu Provincial Higher People's Court's determination that thyssenkrupp Germany is in breach of contract is correct.

On the issue of whether the above-mentioned breach of contract by thyssenkrupp Germany constitutes a fundamental breach. First, from the content of the agreement on the chemical and physical properties specifications of the petroleum coke required by both parties in the contract, the contract stipulates seven aspects of petroleum coke: moisture content, sulfur content, ash content, volatile content, size, calorific value, and hardness (HGI value). However, from the current facts, for the petroleum coke delivered by thyssenkrupp Germany, Sinochem Singapore only believes that the HGI index does not meet the contract agreement, while for the other six indicators, Sinochem Singapore has not raised any objections. Combining the witness testimony submitted by the parties and the statements made by the witnesses in court, the HGI index indicates the grindability index of petroleum coke. The lower the index, the greater the hardness of the petroleum coke, and the greater the grinding difficulty. However, the statement issued by the School of Materials Science and Engineering of Shanghai University submitted by Sinochem Singapore does not deny that petroleum coke with an HGI index of 32 can be used, but only believes that its use is limited. Therefore, it can be determined that although the HGI index of the petroleum coke in question does not conform to the contract agreement, this batch of petroleum coke still has use value. Secondly, during the first-instance trial of this case, in order to reduce losses, Sinochem Singapore made positive efforts to resell the petroleum coke in question, and in its letter to thyssenkrupp Germany on the relevant issues, it clearly stated that the price at which this batch of petroleum coke was resold "was not lower than the reasonable market price." This fact shows that the petroleum coke in question can be sold at a reasonable price. Third, considering other countries' judicial interpretations of the fundamental breach clause in the United Nations Convention on Contracts for the International Sale of Goods, as long as the buyer can use or resell the goods through reasonable efforts, even at a discount, non-conformity in quality is still not a fundamental breach. Therefore, it should be considered that thyssenkrupp Germany's delivery of petroleum coke with an HGI index of 32 does not constitute a fundamental breach. The Jiangsu Provincial Higher People's Court's finding that thyssenkrupp Germany constituted a fundamental breach and its judgment declaring the Purchase Contract invalid is an incorrect application of the law and should be corrected.

（Judges of the effective judgment: Ren Xuefeng, Cheng Mingzhu, Zhu Ke）

Guiding Case No. 108

Zhejiang Ronda Stainless Steel Co., Ltd. v. A.P. Moller-Maersk Co., Ltd. Maritime Transport Contract Dispute Case

(Approved by the Judicial Committee of the Supreme People's Court, released on February 25, 2019)

Keywords

Civil/Maritime Transport Contract/Contract Modification/Port Change/Return/Defense

Decision Key Points of the Judgment

In a maritime transport contract, in accordance with Article 308 of the Contract Law, before the carrier delivers the goods to the consignee, the consignor has the right to request a change to the transport contract, but both parties must still follow the principle of fairness stipulated in Article 5 of the Contract Law to determine the rights and obligations of each party. When the consignor exercises this right, the carrier may also exercise certain rights of defense. If it is difficult to change the maritime transport contract or if it will seriously affect the normal operation of the carrier, the carrier may refuse the consignor's request to change the port or return the goods, but it should promptly notify the consignor of the reasons for the inability to change.

Relevant Articles of Law

Article 308 of the Contract Law of the People's Republic of China

Article 86 of the Maritime Law of the People's Republic of China

Basic Case Facts

In June 2014, Zhejiang Ronda Stainless Steel Co., Ltd. (hereinafter referred to as "Ronda Company") exported a batch of stainless steel seamless products from Ningbo Port, China, to Colombo Port, Sri Lanka. The declared value of the goods was US$366,918.97. Ronda Company booked space with A.P. Moller-Maersk Co., Ltd. (hereinafter referred to as "Maersk Company") through a freight forwarder. The goods in question were loaded onto four containers and shipped on June 28 of the same year. At the time of shipment, Ronda Company requested electronic release. On July 9, 2014, Ronda Company sent an email to Maersk Company through the freight forwarder stating that the goods had been shipped to the wrong destination and requesting a change of port or return of the goods. On the same day, Maersk Company replied that because the goods were less than two days away from arriving at the port of destination, it was impossible to arrange a change of port. If return was required, it would need to confirm with the port of destination and reply later. The next day, Ronda Company's freight forwarder inquired whether the goods could be returned on the same vessel. Maersk Company replied on the same day that "Returning the goods on the same vessel is not feasible. After the goods are unloaded at the port of destination, the current consignee needs to clear customs at the port of destination before applying to the local customs for return. After approval by the customs, the return arrangements can be made." On July 10, 2014, Ronda Company again stated that "The goods need to be returned because customs clearance cannot be completed, so they need to be returned to Ningbo. Are there any other ways?" After that, Maersk Company did not reply to the email.

The goods in question arrived at the port of destination around July 12, 2014. At the request of Ronda Company, Maersk Company issued a full set of original bills of lading numbered 603386880 on January 29, 2015. According to the bill of lading, the shipper was Ronda Company, the consignee and notify party were both VENUSSTEEL PVT LTD, the port of loading was Ningbo, China, and the port of discharge was Colombo. On May 19, 2015, Ronda Company emailed Maersk Company stating that it had applied for return transportation as requested by Maersk Company. Maersk Company subsequently informed Ronda Company that the goods in question had been auctioned.

Trial Outcome

On March 4, 2016, the Ningbo Maritime Court made a civil judgment (2015) Yonghai Fa Shang Chu Zi Di 534, holding that Ronda Company should bear the risk of loss of goods because it failed to take effective measures such as picking up the goods itself, resulting in the goods being auctioned by the customs, therefore rejecting Ronda Company's lawsuit. After the first-instance judgment, Ronda Company appealed. On September 29, 2016, the Zhejiang Provincial Higher People's Court made a civil judgment (2016) Zhe Min Zhong 222: revoking the first-instance judgment; Maersk Company shall compensate Ronda Company for the loss of goods of US\$183,459.49 plus interest within ten days of the service of the judgment. The second-instance court held that, according to Article 308 of the Contract Law, Ronda Company had the right to request a change of port or return transportation before Maersk Company delivered the goods. After Ronda Company requested return transportation, Maersk Company neither explicitly refused to arrange return transportation nor notified Ronda Company to handle it itself, so it should bear corresponding compensation liability for the loss of the goods in question, and the responsibility ratio is determined to be 50%. Maersk Company was dissatisfied with the second-instance judgment and applied to the Supreme People's Court for retrial. On December 29, 2017, the Supreme People's Court made a civil judgment (2017) Supreme People's Court Min Zai 412: revoking the second-instance judgment; upholding the first-instance judgment.

Reasons for the Judgment

The Supreme People's Court held that the provisions of the Contract Law and Maritime Law on maritime transport relations and ship relations are the relationship between general law and special law. According to Article 89 of the Maritime Law, before the vessel sets sail from the port of loading, the shipper may request termination of the contract. In this case, Ronda Company requested the carrier to return or change the port during the maritime transportation of the goods in question. Since the Maritime Law does not stipulate the right of the shipper to change the transportation contract during the voyage, Article 308 of the Contract Law on the right of the shipper to change the transportation contract can be applied in this case. Based on the basic principle of the application of law that special law takes precedence over general law, Article 308 of the Contract Law stipulates general transportation contracts. When this provision is applied to maritime cargo transportation contracts, it should be subject to the basic value orientation and mandatory provisions of the Maritime Law. The shipper's right to claim a change of the transportation contract under Article 308 of the Contract Law shall not result in a significant imbalance of interests among the parties to the maritime cargo transportation contract, nor shall it cause the carrier to violate its obligations to other shippers such as arranging reasonable routes, or deprive the carrier of its corresponding right of defense regarding the changes in the performance of the maritime cargo transportation contract.

The basic principles stipulated in the general provisions of the Contract Law are the guidelines for the legislation of the Contract Law, which apply to all fields of the Contract Law and are also the basis for specific systems and regulations of the Contract Law. According to Article 308 of the Contract Law, before the carrier delivers the goods to the consignee, the shipper has the right to request a change to the transportation contract, but both parties shall still follow the principle of fairness stipulated in Article 5 of the Contract Law to determine the rights and obligations of each party. Maritime cargo transportation has special characteristics such as large transportation volume, predetermined voyage, and relatively fixed route. The shipper's request to change the port or return the goods is sometimes not only difficult to operate, but also hinders the normal operation of the carrier or causes significant damage to other shippers or consignees. In this case, if the carrier is required to unconditionally obey the shipper's request to change the transportation contract, it is obviously unfair. Therefore, under the maritime cargo transportation contract, the shipper cannot exercise the right to request changes without limit, and the carrier is not required to unconditionally obey the shipper's request to change the instructions in any case. In order to reasonably balance the interests of the parties to the maritime cargo transportation contract, while the shipper exercises the right to request a change, the carrier also has a corresponding right of defense. If it is difficult to change the transportation contract or it will seriously affect the normal operation of the carrier, the carrier may refuse the shipper's request to change the port or return the goods, but shall promptly notify the shipper of the reasons for non-performance. If the carrier's defense regarding the reasons for non-performance is established, the carrier's failure to follow the shipper's instructions to return or change the port is not improper.

The goods in question were transported by international liner shipping. In addition to the 4 containers shipped by Ronda Company, the cargo vessel also carried numerous goods shipped by other cargo owners. The goods in question were shipped on June 28, 2014, and arrived at the port of destination around July 12, 2014. Ronda Company did not request Maersk Company to return or change the port until July 9, 2014. Maersk Company, with more than half of the voyage completed and only two or three days away from the port of destination, used the voyage and other reasons as grounds for its defense, claiming that it was not operational to arrange a change of port or return the original vessel. This defense is in line with the facts of the case and is therefore valid. Maersk Company's failure to arrange return transportation or a change of port was not improper.

After Maersk Company transported the goods in question to the port of destination, because no one picked up the goods, unloading the goods to the port terminal in accordance with Article 86 of the Maritime Law. On July 9, 2014, Maersk Company replied to Ronda Company by email that it was less than 2 days away from arriving at the port of destination. Ronda Company was aware of the approximate time of arrival of the goods and knew that the goods in question were not picked up at the port of destination, but it did not take any measures to deal with the goods for 8 months, which resulted in them being auctioned by the customs. Although Ronda Company claimed that Maersk Company failed to fulfill its due diligence obligation, it did not provide evidence to prove that Maersk Company's handling of the goods was improper. This claim by Ronda Company lacks basis. According to Article 86 of the Maritime Law, the costs and risks incurred after Maersk Company's unloading should be borne by the consignee, and Maersk Company, as the carrier, does not need to bear the corresponding risks.

Original Text

Guiding Case No. 109

Anhui Foreign Economic Construction (Group) Co., Ltd. v. Oriental Real Estate Co., Ltd. - Letter of Credit Fraud Dispute Case

(Approved by the Judicial Committee of the Supreme People's Court, released on February 25, 2019)

Keywords

Civil/Letter of Credit Fraud/Underlying Transaction Review/Limited and Necessary Principles/Independent Counter-Guarantee Letter

Key Judicial Points

1. When determining whether independent letter of credit fraud constitutes, if a review of the underlying transaction is necessary, the limited and necessary principle should be adhered to. The scope of review should be limited to whether the beneficiary knew that the counterparty to the underlying contract did not breach the contract under the underlying contract, and whether the beneficiary knew that it did not have the right to request payment.

2. The beneficiary's breach of contract under the underlying contract does not affect its right to submit documents and request payment according to the provisions of the independent letter of credit.

3. When determining whether there is fraud under an independent counter-guarantee letter, even if there is fraud under the independent letter of credit, and payment has already been made in good faith under the independent letter of credit, the People's Court shall not order the suspension of payment under the independent counter-guarantee letter.

Relevant Articles of Law

Article 8 and Article 44 of the Law of the People’s Republic of China on the Application of Law to Foreign-Related Civil Relations

Basic Case Facts

On January 16, 2010, Dongfang Real Estate Development Co., Ltd. (hereinafter referred to as "Dongfang Real Estate"), as the developer, signed the "Costa Rica Lakeside Mansion Project Construction Contract" (hereinafter referred to as the "Construction Contract") with Anhui Foreign Economic Construction (Group) Co., Ltd. (hereinafter referred to as "Foreign Economic Construction Group") as the contractor and Anhui Foreign Economic Construction Central America Co., Ltd. (hereinafter referred to as "Foreign Economic Construction Central America") as the construction contractor in San Jose, Costa Rica. The contract stipulated that the contractor would construct three 14-story integrated commercial and residential buildings. On May 26, 2010, Foreign Economic Construction Group applied to the Anhui Branch of the China Construction Bank Corporation (hereinafter referred to as "CCB Anhui Branch") and, using a Costa Rican bank as a correspondent bank, opened a performance bond for Dongfang Real Estate as the beneficiary, guaranteeing the Costa Rica Lakeside Mansion project. On May 28, 2010, the Costa Rican bank issued a performance bond numbered G051225, with CCB Anhui Branch as the guarantor, Foreign Economic Construction Group as the applicant, and Dongfang Real Estate as the beneficiary. The bond amount was US\$2,008,000, with an effective period until October 12, 2011, later extended to February 12, 2012. The bond statement: unconditional, irrevocable, mandatory, on-demand payment. To execute this bond, the beneficiary needs to submit two copies of a supporting document to the Foreign Trade Department of the Costa Rican bank's central office, stating the reason for execution. In addition, the beneficiary needs to provide a notarized statement indicating the date of the notification to Foreign Economic Construction Central America due to breach of contract, along with the original bond certificate and any amendments. CCB Anhui Branch also issued a counter-guarantee letter numbered 34147020000289 to the Costa Rican bank, promising to pay the amount under the bond within twenty days of receiving notification from the Costa Rican bank. The counter-guarantee letter is "unconditional, irrevocable, and payable on demand," and stipulates "compliance with the Uniform Rules for Demand Guarantees (Publication No. 458) of the International Chamber of Commerce."

During the performance of the Construction Contract, on January 23, 2012, architects Jose Brenes and Mauricio Mora issued a "Project Engineering Inspection Report." This report identified "poor construction" and "inferior quality" in the construction project, requiring modifications or repairs. On February 7, 2012, Foreign Economic Construction Central America submitted an arbitration request to the Dispute Resolution Center of the Costa Rican Association of Architects and Engineers, naming Dongfang Real Estate as the respondent. Foreign Economic Construction Central America claimed that Dongfang Real Estate owed payments for completed construction work and corresponding interest, requesting contract termination and compensation for losses. On February 8, Dongfang Real Estate submitted a claim statement, breach of contract notice, breach of contract declaration, and the Project Engineering Inspection Report to the Costa Rican bank, requesting bond payment. On February 10, the Costa Rican bank sent a telex to CCB Anhui Branch, stating that Dongfang Real Estate had filed a claim, requesting payment of US\$2,008,000 under bank bond G051225. The Costa Rican bank further requested that CCB Anhui Branch pay the above amount before February 16, 2012. On February 12, at the request of Foreign Economic Construction Central America, the Second Court of the Administrative Litigation Court of the Republic of Costa Rica issued a temporary protective measure prohibiting the Costa Rican bank from enforcing bond G051225.

On February 23, Foreign Economic Construction Group filed a lawsuit for bond fraud with the Hefei Intermediate People's Court, simultaneously applying to suspend payment under bonds G051225 and 34147020000289. On February 27, the court of first instance issued ruling (2012) Hefei Min Si Chu Zi Di 00005-1, ordering the suspension of payments under bonds G051225 and 34147020000289, and delivered the ruling to CCB Anhui Branch on February 28. On February 29, CCB Anhui Branch sent a telex to the Costa Rican bank informing them of the court's ruling and sent a copy of the ruling to the Costa Rican bank on the same day. The Costa Rican bank received the copy on March 5.

On March 6, the Second Court of the Administrative Litigation Court of the Republic of Costa Rica ruled against Foreign Economic Construction Central America's application for preventive measures, lifting the temporary protective measure. On March 20, at the request of the Costa Rican bank, CCB Anhui Branch extended the validity of bond 34147020000289. On March 21, the Costa Rican bank paid Dongfang Real Estate the amount under bond G051225.

On July 9, 2013, the Costa Rican Association of Architects and Engineers issued an arbitration award. The award determined that Dongfang Real Estate had seriously breached the contract and ordered the termination of the Construction Contract. Dongfang Real Estate was ordered to pay Foreign Economic Construction Central America US\$800,058.45 plus interest for progress payments 1 through 18. The claim for payment 19 was not supported due to the lack of developer acceptance. The request for the return of the bond was not supported since the amount under bond G051225 had already been paid.

Trial Outcome

On April 9, 2014, the Hefei Intermediate People's Court of Anhui Province issued a civil judgment (2012) Hefei Min Si Chu Zi Di 00005: 1. Dongfang Real Estate's claim regarding bond G051225 constituted fraud; 2. CCB Anhui Branch was to stop paying the US\$2,008,000 under bond 34147020000289 to the Costa Rican bank; 3. Other claims by Foreign Economic Construction Group were dismissed. Dongfang Real Estate appealed the first-instance judgment. On March 19, 2015, the Anhui Provincial Higher People's Court issued a civil judgment (2014) Wan Min Er Zhong Zi Di 00389, dismissing the appeal and upholding the original judgment. Dongfang Real Estate appealed to the Supreme People's Court for retrial. On December 14, 2017, the Supreme People's Court issued a civil judgment (2017) Supreme People's Court Min Zai 134: 1. Reversal of the civil judgments (2014) Wan Min Er Zhong Zi Di 00389 by the Anhui Provincial Higher People's Court and (2012) Hefei Min Si Chu Zi Di 00005 by the Hefei Intermediate People's Court of Anhui Province; 2. Dismissal of Foreign Economic Construction Group's claims.

Reasons for the Judgment

The Supreme People's Court held: First, regarding the identification criteria, jurisdiction, and applicable law of the independent bond fraud case involved in this case. 本案争议的当事方东方置业公司及哥斯达黎加银行的经常居所地位于我国领域外，本案系涉外商事纠纷。根据《中华人民共和国涉外民事关系法律适用法》第八条“涉外民事关系的定性，适用法院地法”的规定，外经集团公司作为外经中美洲公司在国内的母公司，是涉案保函的开立申请人，其申请建行安徽省分行向哥斯达黎加银行开立见索即付的反担保保函，由哥斯达黎加银行向受益人东方置业公司转开履约保函。根据保函文本内容，哥斯达黎加银行与建行安徽省分行的付款义务均独立于基础交易关系及保函申请法律关系，因此，上述保函可以确定为见索即付独立保函，上述反担保保函可以确定为见索即付独立反担保函。外经集团公司以保函欺诈为由向一审法院提起诉讼，本案性质为保函欺诈纠纷。被请求止付的独立反担保函由建行安徽省分行开具，该分行所在地应当认定为外经集团公司主张的侵权结果发生地。一审法院作为侵权行为地法院对本案具有管辖权。因涉案保函载明适用《见索即付保函统一规则》，应当认定上述规则的内容构成争议保函的组成部分。根据《中华人民共和国涉外民事关系法律适用法》第四十四条“侵权责任，适用侵权行为地法律”的规定，《见索即付保函统一规则》未予涉及的保函欺诈之认定标准应适用中华人民共和国法律。我国没有加入《联合国独立保证与备用信用证公约》，本案当事人亦未约定适用上述公约或将公约有关内容作为国际交易规则订入保函，依据意思自治原则，《联合国独立保证与备用信用证公约》不应适用。

第二，关于东方置业公司作为受益人是否具有基础合同项下的初步证据证明其索赔请求具有事实依据的问题。

人民法院在审理独立保函及与独立保函相关的反担保案件时，对基础交易的审查，应当坚持有限原则和必要原则，审查的范围应当限于受益人是否明知基础合同的相对人并不存在基础合同项下的违约事实或者不存在其他导致独立保函付款的事实。否则，对基础合同的审查将会动摇独立保函“见索即付”的制度价值。

根据《最高人民法院关于贯彻执行〈中华人民共和国民法通则〉若干问题的意见（试行）》第六十八条的规定，欺诈主要表现为虚构事实与隐瞒真相。根据再审查明的事实，哥斯达黎加银行开立编号为G051225的履约保函，该履约保函明确规定了实现保函需要提交的文件为：说明执行保函理由的证明文件、通知外经中美洲公司执行保函请求的日期、保函证明原件和已经出具过的修改件。外经集团公司主张东方置业公司的行为构成独立保函项下的欺诈，应当提交证据证明东方置业公司在实现独立保函时具有下列行为之一：1.为索赔提交内容虚假或者伪造的单据；2.索赔请求完全没有事实基础和可信依据。本案中，保函担保的是“施工期间材料使用的质量和耐性，赔偿或补偿造成的损失，和／或承包方未履行义务的赔付”，意即，保函担保的是施工质量和其他违约行为。因此，受益人只需提交能够证明存在施工质量问题的初步证据，即可满足保函实现所要求的“说明执行保函理由的证明文件”。本案基础合同履行过程中，东方置业公司的项目监理人员Jose Brenes和Mauricio Mora于2012年1月23日出具《项目工程检验报告》。该报告认定了施工项目存在“施工不良”、“品质低劣”且需要修改或修理的情形，该《项目工程检验报告》构成证明存在施工质量问题的初步证据。

本案当事方在《施工合同》中以及在保函项下并未明确约定实现保函时应向哥斯达黎加银行提交《项目工程检验报告》，因此，东方置业公司有权自主选择向哥斯达黎加银行提交“证明执行保函理由”之证明文件的类型，其是否向哥斯达黎加银行提交该报告不影响其保函项下权利的实现。另外，《施工合同》以及保函亦未规定上述报告须由AIA国际建筑师事务所或者具有美国建筑师协会国际会员身份的人员出具，因此，JoseBrenes和Mauricio Mora是否具有美国建筑师协会国际会员身份并不影响其作为发包方的项目监理人员出具《项目工程检验报告》。外经集团公司对Jose Brenes和Mauricio Mora均为发包方的项目监理人员身份是明知的，在其出具《项目工程检验报告》并领取工程款项时对Jose Brenes和Mauricio Mora的监理身份是认可的，其以自身认可的足以证明Jose Brenes和Mauricio Mora监理身份的证据反证Jose Brenes和Mauricio Mora出具的《项目工程检验报告》虚假，逻辑上无法自洽。因外经集团公司未能提供其他证据证明东方置业公司实现案涉保函完全没有事实基础或者提交虚假或伪造的文件，东方置业公司据此向哥斯达黎加银行申请实现保函权利具有事实依据。

综上，《项目工程检验报告》构成证明外经集团公司基础合同项下违约行为的初步证据，外经集团公司提供的证据不足以证明上述报告存在虚假或者伪造，亦不足以证明东方置业公司明知基础合同的相对人并不存在基础合同项下的违约事实或者不存在其他导致独立保函付款的事实而要求实现保函。东方置业公司基于外经集团公司基础合同项下的违约行为，依据合同的规定，提出实现独立保函项下的权利不构成保函欺诈。

第三，关于独立保函受益人基础合同项下的违约情形，是否必然构成独立保函项下的欺诈索款问题。

外经集团公司认为，根据《最高人民法院关于审理独立保函纠纷案件若干问题的规定》（以下简称独立保函司法解释）第十二条第三项、第四项、第五项，应当认定东方置业公司构成独立保函欺诈。根据独立保函司法解释第二十五条的规定，经庭审释明，外经集团公司仍坚持认为本案处理不应违反独立保函司法解释的规定精神。结合外经集团公司的主张，最高人民法院对上述涉及独立保函司法解释的相关问题作出进一步阐释。

A stand-alone letter of guarantee is independent of the underlying transaction between the principal and the beneficiary. The issuing bank is only responsible for examining whether the documents submitted by the beneficiary comply with the terms of the letter of guarantee and has the right to decide whether to pay. The guarantor's obligation to pay is not affected by the defenses under the underlying transaction between the principal and the beneficiary. As the beneficiary, Dongfang Real Estate Company, upon submitting preliminary evidence proving the existence of engineering quality problems, even without initiating any dispute resolution procedures such as litigation or arbitration and confirmation of the counterparty's breach of contract through such procedures, does not affect the realization of its letter of guarantee rights. Even if there are ongoing litigation or arbitration proceedings in the underlying contract, as long as the relevant dispute resolution procedures have not made a final determination that the debtor in the underlying transaction has no obligation to pay or compensate, it does not affect the beneficiary's rights under the letter of guarantee. Furthermore, even if an effective judgment or arbitration award determines that the beneficiary constitutes a breach of contract under the underlying contract, the existence of such breach of contract does not necessarily constitute a sufficient and necessary condition for the "fraud" of the letter of guarantee.

In this case, the matter guaranteed by the letter of guarantee is the construction quality and other breaches of contract, and the beneficiary's breach of contract of not paying the construction funds has no logical causal relationship with the engineering quality problems. As the beneficiary, Dongfang Real Estate Company's own breach of contract in the performance of the underlying contract does not necessarily constitute fraudulent claim under the stand-alone letter of guarantee. The provisions of Article 12, Paragraph 3, of the Judicial Interpretation of Stand-alone Letters of Guarantee limit the conditions for determining fraud in a stand-alone letter of guarantee to "court judgments or arbitration awards determining that the debtor in the underlying transaction has no obligation to pay or compensate." Therefore, unless otherwise agreed in the letter of guarantee, the examination of the underlying contract should be limited to the performance matters within the scope of the guarantee of the letter of guarantee. Great caution should be exercised when including whether the beneficiary itself has breached the underlying contract in the examination scope of letter of guarantee fraud. Although the Costa Rican Association of Architects and Engineers made an arbitration award that determined Dongfang Real Estate Company breached the contract in the performance of the contract, the above arbitration proceedings were initiated by the Foreign Economic and Trade Group Company on February 7, 2012, and Dongfang Real Estate Company did not file a counterclaim. The arbitration award made on July 9, 2013, only determined that Dongfang Real Estate Company breached the contract in response to the Foreign Economic and Trade Group Company's request, but did not determine that the Foreign Economic and Trade Group Company was exempted from paying or compensating due to the counterparty's breach of contract. Therefore, the content of the above arbitration award cannot be used to determine that Dongfang Real Estate Company constitutes the letter of guarantee fraud stipulated in Article 12, Paragraph 3, of the Judicial Interpretation of Stand-alone Letters of Guarantee.

In addition, the fact that the parties have disputes over the construction quality, and the description of the engineering quality issues in the Arbitration Award issued by the Costa Rican Association of Architects and Engineers Dispute Resolution Center, can prove that the obligations of the Foreign Economic and Trade of Central America Company under the Construction Contract have not been fully fulfilled. In this case, there is no situation where Dongfang Real Estate Company confirms that the underlying transaction debt has been fully performed or that the payment due event has not occurred. The existing evidence also cannot prove that Dongfang Real Estate Company knowingly abused its rights without the right to request payment. As the beneficiary, Dongfang Real Estate Company's own breach of contract in the performance of the underlying contract, although confirmed by the arbitration award, does not exempt the Foreign Economic and Trade Group Company from paying or compensating. In summary, even if the Judicial Interpretation of Stand-alone Letters of Guarantee is applied according to the claim of the Foreign Economic and Trade Group Company, the situation in this case does not constitute letter of guarantee fraud.

Fourth, regarding the independent counter-guarantee issue related to the stand-alone letter of guarantee in this case.

Based on the characteristics of a stand-alone letter of guarantee, the guarantor constitutes a direct payment obligation to the beneficiary in addition to the debtor. There is no subordination in terms of defenses between the stand-alone letter of guarantee and the principal debt. Even if the debtor exercises a defense in a certain dispute resolution procedure, it does not automatically give the stand-alone guarantor the benefit of that defense. In addition, even if there is a fraudulent claim by the beneficiary under the stand-alone letter of guarantee, it cannot be presumed that the guarantor constitutes a fraudulent claim under the stand-alone counter-guarantee. Only when the guarantor knowingly makes a fraudulent payment to the beneficiary in violation of the principle of good faith and claims payment under the stand-alone counter-guarantee to the counter-guarantee bank can the guarantor be determined to constitute a fraudulent claim under the stand-alone counter-guarantee.

The Foreign Economic and Trade Group Company filed this lawsuit on the grounds of letter of guarantee fraud. It should provide evidence to prove that the Costa Rican bank knowingly paid to Dongfang Real Estate Company despite the existence of letter of guarantee fraud, violating the principle of good faith, and then, as a beneficiary, made a claim under the sight-draft stand-alone counter-guarantee and constituted a fraudulent claim under the counter-guarantee. Now, the Foreign Economic and Trade Group Company cannot only prove that the Costa Rican bank's payment to Dongfang Real Estate Company under the stand-alone letter of guarantee was fraudulent, but also has not provided evidence to prove that the Costa Rican bank had fraudulent claims under the stand-alone counter-guarantee. Its claim to stop payment under the stand-alone counter-guarantee has no factual basis.

(Judges of the effective judgment: Chen Jizhong, Yang Honglei, Yang Xingye)

Guiding Case No. 110

Ministry of Transport Nanhai Salvage Bureau v. Achang Gros Investment Company, Hong Kong Anda Olsen Co., Ltd. Shanghai Representative Office Maritime Salvage Contract Dispute Case

(Approved by the Judicial Committee of the Supreme People's Court, released on February 25, 2019)

Keywords

Civil/Maritime Salvage Contract/Salvage Employment/Salvage Reward

Key Judicial Points

1. The 1989 International Convention on Salvage and China's Maritime Law stipulate that a salvage contract is "no effect, no reward," but both allow the parties to make separate agreements on the determination of the salvage reward. If the parties clearly agree that regardless of whether the salvage is successful or not, the salved party should pay the reward, and use the horsepower per hour of the salvage vessel and labor input as the standard for calculating the reward, then the contract is a salvage employment contract, not a salvage contract stipulated in the above international convention and China's Maritime Law.

2. In the absence of specific provisions on employment salvage contracts in the 1989 International Convention on Salvage and China's Maritime Law, the relevant provisions of China's Contract Law can be applied to determine the rights and obligations of the parties.

Relevant Articles of Law

Article 8 and Article 107 of the Contract Law of the People's Republic of China

Article 179 of the Maritime Law of the People's Republic of China

Basic Case Facts

The Ministry of Transport Nanhai Salvage Bureau (hereinafter referred to as Nanhai Salvage Bureau) claimed that: After the "Gabriel" ran aground in the Qiongzhou Strait, the Nanhai Salvage Bureau was commissioned by Achang Gros Investment Company (hereinafter referred to as the Investment Company) to provide salvage, transportation, and protection services, but the Investment Company has not paid the salvage fees. The court is requested to order the Investment Company and the Shanghai Representative Office of Hong Kong Anda Olsen Co., Ltd. (hereinafter referred to as the Shanghai Representative Office) to jointly pay the salvage fees of 7,240,998.24 yuan and interest.

The court's investigation found that: The "Gabriel," owned by the Investment Company, is a Greek oil tanker carrying 54,580 tons of Cabinda crude oil. Around 5:00 a.m. on August 12, 2011, it ran aground near the northern waterway of the Qiongzhou Strait, and the vessel and its cargo were in danger, seriously threatening the safety of the marine environment. After the accident, the Investment Company immediately authorized the Shanghai Representative Office to send an urgent email to the Nanhai Salvage Bureau regarding the grounding of the "Gabriel," asking the Nanhai Salvage Bureau to arrange two tugboats for salvage according to its experience, and expressed its agreement to the Nanhai Salvage Bureau's quotation.

On August 12, at 8:40 PM, the Shanghai representative office submitted a letter of entrustment to the Nanhai Salvage Bureau via email, entrusting the Nanhai Salvage Bureau to send the "Nanhai Rescue 116" and "Nanhai Rescue 101" to assist the "Gabriel" in refloating. It was agreed that regardless of the success or failure of the refloating assistance, payment would be made at a rate of RMB 3.2 per horsepower-hour, calculated from the moment the tugboats are ready for departure from their respective duty stations until the Shanghai representative office declares the task complete and the tugboats return to their original duty stations. The "Nanhai Rescue 116" and "Nanhai Rescue 101" are only responsible for towing operations; the Nanhai Salvage Bureau is not responsible for any accidents that may occur during the "Gabriel's" refloating operation. Additionally, the Nanhai Salvage Bureau was requested to dispatch a team of divers to the "Gabriel" for inspection. The costs are: RMB 10,000 for land dispatch; RMB 55,000 for water transportation; RMB 40,000 for work per 8 hours, calculated from the time the divers board the transport vessel until the completion of the work and disembarkation. On August 13, the investment company also requested to charter the "Nanhai Rescue 201" to transport two of its representatives from Haikou to the "Gabriel". The Nanhai Salvage Bureau emailed the Shanghai representative office stating that the rate for the "Nanhai Rescue 201" is RMB 1.5 per horsepower-hour, with the total cost calculated based on the rental time.

Meanwhile, to prevent further deterioration of the dangerous situation and resulting marine pollution, the Zhanjiang Maritime Safety Administration decided to take compulsory lightering and refloating measures for the "Gabriel". Organized by the Zhanjiang Maritime Safety Administration, on August 18, the "Gabriel" successfully refloated using the high tide and subsequently arrived safely at its destination port, Qinzhou Port in Guangxi.

The actual salvage operations participated in by the Nanhai Salvage Bureau are as follows:

The Nanhai Salvage Bureau's "Nanhai Rescue 116" has a gross tonnage of 3681 and a total power of 9000 kW (12240 hp). After arriving at the accident site, the "Nanhai Rescue 116", following the instructions of the investment company, remained at the scene guarding the "Gabriel" for a total of 155.58 hours.

The Nanhai Salvage Bureau's "Nanhai Rescue 101" has a gross tonnage of 4091 and a total power of 13860 kW (18850 hp). This vessel returned before reaching the accident site. The Nanhai Salvage Bureau claims the vessel's working time was a total of 13.58 hours.

The Nanhai Salvage Bureau's "Nanhai Rescue 201" has a gross tonnage of 552 and a total power of 4480 kW (6093 hp). On August 13, this vessel transported two shipowners' representatives to the stranded vessel, working for 7.83 hours. On August 16, it transported personnel and equipment to the stranded vessel, working for 7.75 hours. On August 18, it transported personnel and luggage to the lightering vessel, working for 8.83 hours.

The divers did not actually conduct underwater operations; their working time was 8 hours.

It was further ascertained that the salvaged value of the vessel was US \$30,531,856, and the salvaged value of the cargo was US \$48,053,870. The proportion of the vessel's salvaged value to the total salvaged value is 38.85%.

Trial Outcome

On March 28, 2014, the Guangzhou Maritime Court rendered a civil judgment (2012) Guang Hai Fa Chu Zi Di 898 Hao: 1. The investment company shall pay the Nanhai Salvage Bureau salvage remuneration of RMB 6,592,913.58 plus interest; 2. The other litigation requests of the Nanhai Salvage Bureau are dismissed. Dissatisfied with the first-instance judgment, the investment company appealed. On June 16, 2015, the Guangdong Provincial Higher People's Court rendered a civil judgment (2014) Yue Gao Fa Min Si Zhong Zi Di 117 Hao: 1. Reversal of the Guangzhou Maritime Court's (2012) Guang Hai Fa Chu Zi Di 898 Hao civil judgment; 2. The investment company shall pay the Nanhai Salvage Bureau salvage remuneration of RMB 2,561,346.93 plus interest; 3. The other litigation requests of the Nanhai Salvage Bureau are dismissed. The Nanhai Salvage Bureau, dissatisfied with the second-instance judgment, applied for retrial. On July 7, 2016, the Supreme People's Court rendered a civil judgment (2016) Zui Gao Fa Min Zai 61 Hao: 1. Reversal of the Guangdong Provincial Higher People's Court's (2014) Yue Gao Fa Min Si Zhong Zi Di 117 Hao civil judgment; 2. Upholding of the Guangzhou Maritime Court's (2012) Guang Hai Fa Chu Zi Di 898 Hao civil judgment.

Reasons for the Judgment

The Supreme People's Court held that this case is a dispute over a maritime salvage contract. The People's Republic of China has acceded to the 1989 International Convention on Salvage (hereinafter referred to as the Salvage Convention), and the purpose established by the Salvage Convention should be followed in this case. Because the investment company is a Greek company and the "Gabriel" is a Greek oil tanker, this case involves foreign-related elements. All parties in the litigation have consistently chosen to apply the laws of the People's Republic of China. According to Article 3 of the Law of the People's Republic of China on the Application of Law to Foreign-Related Civil Relations, the laws of the People's Republic of China shall be applied to adjudicate this case. China's Maritime Law, as a special law governing maritime transport relations and vessel relations, shall be given priority. In the absence of provisions in the Maritime Law, the relevant provisions of China's Contract Law and other relevant laws shall apply.

Maritime salvage is a traditional international maritime legal system, and the Salvage Convention and China's Maritime Law have made special provisions for it. Article 12 of the Salvage Convention and Article 179 of the Maritime Law stipulate the principle of "no cure, no pay" for the payment of salvage remuneration. Article 13 of the Salvage Convention and Articles 180 and 183 of the Maritime Law further stipulate the standards and specific responsibilities for the assessment of remuneration based on this principle. These provisions are specific regulations for maritime salvage contracts where the parties determine the salvage remuneration based on the principle of "no cure, no pay". At the same time, both the Salvage Convention and China's Maritime Law allow the parties to make other agreements on the determination of salvage remuneration. Therefore, in addition to the "no cure, no pay" salvage contracts stipulated in the Salvage Convention and China's Maritime Law, employment salvage contracts can also be formed according to the agreement of the parties.

Based on the facts found in this case, the investment company and the Nanhai Salvage Bureau, after full consultation, clearly agreed that the investment company should pay remuneration regardless of whether the salvage was successful, and that the Nanhai Salvage Bureau is not responsible for any accidents that may occur during the "Gabriel's" refloating operation. According to this agreement, whether the Nanhai Salvage Bureau receives salvage remuneration is not directly related to whether the salvage was actually effective, and the calculation of the salvage remuneration is based on the pre-agreed fixed rate and expenses per horsepower-hour of the salvage vessel and labor input, and is not related to the value of the salvaged property. Therefore, the salvage contract involved in this case is not a "no cure, no pay" salvage contract as stipulated in the Salvage Convention and China's Maritime Law, but an employment salvage contract.

Regarding the payment conditions and standards for remuneration under an employment salvage contract, the Salvage Convention and China's Maritime Law do not provide specific provisions. The first and second instance courts adjusted the fixed rate agreed upon by the parties in the employment salvage contract based on the relevant factors stipulated in Article 180 of the Maritime Law, which constitutes an error in the application of the law. This case should be governed by the relevant provisions of China's Contract Law to regulate and determine the rights and obligations of the parties. The Nanhai Salvage Bureau's demand that the investment company pay the agreed salvage remuneration in full based on the contract it entered into with the investment company is not inappropriate.

In summary, the second-instance court, using the amount of relief compensation determined by the first-instance judgment as the base, ruled that the investment company should pay the relief compensation according to the proportion of the rescued vessel's value to the total value of the rescued property, in accordance with the provisions of the Maritime Law. The application of the law and the handling of the results were incorrect and should be corrected. The first-instance judgment misapplied the law, but considering that the adjustment of the relevant rates in the first-instance judgment was based on the contractual agreement between the parties, and the South China Sea Rescue Bureau did not exercise its relevant litigation rights to object, the result of the first-instance judgment can be upheld.

（Judges of the effective judgment: He Rong, Zhang Yongjian, Wang Shumei, Yu Xiaohan, Guo Zaiyu）

Guiding Case No. 111

China Construction Bank Corporation Guangzhou Liwan Branch v. Guangdong Lan Yue Energy Development Co., Ltd., et al. (Letter of Credit Opening Dispute Case)

(Approved by the Judicial Committee of the Supreme People's Court, released on February 25, 2019)

Keywords

Civil/Letter of Credit Opening/Bill of Lading/Genuine Intention/Rights Pledge/Priority Right of Repayment

Key Judicial Points

1. Whether the bill of lading holder obtains property rights and what type of property rights are obtained by receiving the delivery of the bill of lading depends on the agreement of the contract. When the issuing bank holds the bill of lading based on the agreement between it and the applicant, the people's court should, in combination with the characteristics of the letter of credit transaction, give a reasonable interpretation of the case contract and determine the true intention of the issuing bank holding the bill of lading.

2. If the issuing bank has a pledge right on the bill of lading and the goods under the bill of lading in the documents under the letter of credit, the way the issuing bank exercises the pledge right on the bill of lading is the same as the way it exercises the pledge right on the goods under the bill of lading, that is, it enjoys the priority right of repayment of the proceeds from the discounting, sale, or auction of the goods under the bill of lading.

Relevant Articles of Law

Article 71 of the Maritime Law of the People's Republic of China

Article 224 of the Property Law of the People's Republic of China

Article 80, Paragraph 1 of the Contract Law of the People's Republic of China

Basic Case Facts

China Construction Bank Corporation Guangzhou Liwan Branch (hereinafter referred to as CCB Guangzhou Liwan Branch) and Guangdong Lan Yue Energy Development Co., Ltd. (hereinafter referred to as Lan Yue Energy) signed a "Trade Financing Quota Contract" and related annexes, including "Special Agreement on Opening a Letter of Credit," in December 2011, agreeing that the bank would provide Lan Yue Energy with a trade financing quota of no more than 550 million yuan, including opening a forward letter of credit of equivalent value. Huilai Yuedong Power Fuel Co., Ltd. (hereinafter referred to as Yuedong Power) and other guarantors signed guarantee contracts. In November 2012, Lan Yue Energy applied to CCB Guangzhou Liwan Branch to open a forward letter of credit for 85.92 million yuan. To open the letter of credit, Lan Yue Energy issued a "Trust Receipt" to CCB Guangzhou Liwan Branch and signed a "Margin Pledge Contract." The "Trust Receipt" confirmed that from the date of issuance, CCB Guangzhou Liwan Branch acquired ownership of the documents and goods involved under the letter of credit, with CCB Guangzhou Liwan Branch as the principal and beneficiary, and Lan Yue Energy as the trustee of the trust goods. After the letter of credit was opened, Lan Yue Energy imported 164,998 tons of coal. CCB Guangzhou Liwan Branch accepted the letter of credit and lent Lan Yue Energy 84,867,952.27 yuan to repay the letter of credit advance payment to CCB Seoul Branch. After CCB Guangzhou Liwan Branch fulfilled its obligations to open the letter of credit and make payments, it obtained a full set of documents, including the bill of lading involved in this case. Due to deteriorating business conditions, Lan Yue Energy failed to pay to redeem the bill of lading, so CCB Guangzhou Liwan Branch still holds the bill of lading and related documents during the trial of this case. The coal under the bill of lading was seized by the Fangchenggang Port District People's Court of Guangxi Zhuang Autonomous Region due to other disputes. CCB Guangzhou Liwan Branch filed a lawsuit, requesting that Lan Yue Energy repay the principal and interest of the letter of credit advance payment of 84,867,952.27 yuan; confirming that CCB Guangzhou Liwan Branch has ownership of 164,998 tons of coal under the letter of credit and has priority in repaying the above-mentioned debt under the letter of credit with the proceeds from the disposal of the property; and that Yuedong Power and other guarantors bear the guarantee responsibility.

Trial Outcome

On April 21, 2014, the Guangzhou Intermediate People's Court of Guangdong Province made a civil judgment ((2013) Sui Zhong Fa Jin Min Chu Zi No. 158), supporting CCB Guangzhou Liwan Branch's claim for Lan Yue Energy to repay the principal and interest and the guarantors to bear the corresponding guarantee responsibilities, but rejecting CCB Guangzhou Liwan Branch's claim to confirm ownership of the coal and priority right of repayment on the grounds that the trust receipt and the delivery of the bill of lading could not be asserted against third parties. CCB Guangzhou Liwan Branch appealed against the first-instance judgment. On September 19, 2014, the Guangdong Higher People's Court made a civil judgment ((2014) Yue Gao Fa Min Er Zhong Zi No. 45), rejecting the appeal and upholding the original judgment. CCB Guangzhou Liwan Branch appealed against the second-instance judgment and applied for retrial to the Supreme People's Court. On October 19, 2015, the Supreme People's Court made a civil judgment ((2015) Min Ti Zi No. 126), supporting CCB Guangzhou Liwan Branch's priority right of repayment for the proceeds from the disposal of the goods corresponding to the bill of lading under the letter of credit involved, and rejecting its claim for ownership of the goods under the bill of lading involved.

Reasons for the Judgment

The Supreme People's Court held that the bill of lading has the dual attributes of a debt certificate and a title certificate, but this does not mean that whoever holds the bill of lading automatically has ownership of the goods under the bill of lading. For the bill of lading holder, whether they can obtain property rights and what type of property rights they obtain depends on the contractual agreement between the parties. CCB Guangzhou Liwan Branch fulfilled its obligations to open the letter of credit and make payments and obtained the bill of lading under the letter of credit, but because there was no expression of intention to transfer ownership of the goods between the parties, it cannot be considered that CCB Guangzhou Liwan Branch obtained ownership of the goods under the bill of lading upon obtaining the bill of lading. Although the "Trust Receipt" stipulates that CCB Guangzhou Liwan Branch obtains ownership of the goods and entrusts Lan Yue Energy to dispose of the goods under the bill of lading, according to the statutory principles of property law, this agreement, constituting an assignment for security, cannot have property right effect. However, although the agreement for assignment for security cannot have property right effect, it still has contractual effect, and the "Special Agreement on Opening the Letter of Credit" stipulates that when Lan Yue Energy breaches the contract, CCB Guangzhou Liwan Branch has the right to dispose of the documents and goods under the letter of credit. Therefore, based on the overall interpretation of the contract and the characteristics of letter of credit transactions, it shows that the true intention of the parties is to establish a pledge of the bill of lading through the transfer of the bill of lading. This case meets the two requirements for the establishment of a rights pledge: a written pledge contract and public notice of property rights. As the holder of the bill of lading, CCB Guangzhou Liwan Branch enjoys the pledge right of the bill of lading. If the pledge right of the bill of lading of CCB Guangzhou Liwan Branch conflicts with other creditors' possible rights to the goods under the bill of lading, such as liens and chattel mortgages, it can be resolved legally in the enforcement distribution procedure.

（Judges of the effective judgment: Liu Guixiang, Liu Min, Gao Xiaoli）

Guiding Case No. 112

Asterisk Co., Ltd.'s Application for Establishment of a Maritime Limitation of Liability Fund

(Approved by the Judicial Committee of the Supreme People's Court, released on February 25, 2019)

Keywords

Civil/Maritime Limitation of Liability Fund/Accident Principle/Single Accident/Multiple Accidents

Key Judicial Points

Article 212 of the Maritime Law establishes the principle of "one accident, one limit; multiple accidents, multiple limits" for the limitation of maritime liability. The key to determining whether it is one accident or multiple accidents is to analyze whether the accidents are caused by the same reason. If multiple accidents occur due to the same reason, and the causal chain is not interrupted, they should be considered as one accident. If the causal chain is interrupted and an accident occurs again, it should be considered as a new independent accident.

Relevant Articles of Law

Article 212 of the Maritime Law of the People's Republic of China

Basic Case Facts

Asterisk Co., Ltd. applied to the Tianjin Maritime Court, claiming that its vessel, the "Ainn" received a claim for aquaculture damage. For the non-personal injury losses caused by this accident, Asterisk Co., Ltd., as the owner of the vessel, applied to establish a maritime liability limitation fund, with a liability limit of 422,510 Special Drawing Rights and interest on this amount from June 5, 2014 to the date of establishment of the fund.

Many aquaculture farmers, as interested parties, raised objections, believing that Asterisk Co., Ltd. should establish separate limitation funds instead of establishing one limitation fund for the entire voyage.

The court found that: The owner of the South Korean vessel "Ainn" involved in the case is Asterisk Co., Ltd., and the vessel's gross tonnage is 2,030 tons. On June 5, 2014, the "Ainn" was sailing from Qinhuangdao to Tianjin Port for loading when it entered the aquaculture area in the waters of Changli County and Leting County, Hebei Province, causing losses to the relevant aquaculture farmers.

It was also found that the "Ainn" was using British Edition No. 1249 nautical chart at the time of the damage accident, which clearly indicated the aquaculture area in the area where the damage accident occurred and defined the scope of the aquaculture area. The vessel involved in the case crossed the aquaculture area according to the pre-set route for the voyage.

It was further found that the aquaculture areas of Guo Jinwu and Liu Haizhong are about 500 meters apart, and the vessel sailed for about 2 minutes; the aquaculture areas of Liu Haizhong and Li Weiguo et al. are about 9,000 meters apart, and the vessel sailed for about 30 minutes.

Trial Outcome

On November 10, 2014, the Tianjin Maritime Court made a civil ruling (2014) Tianjin Maritime Court Limit No. 1: 1. Approve Asterisk Co., Ltd.'s application for the establishment of a maritime liability limitation fund. 2. The amount of the maritime liability limitation fund is 422,510 Special Drawing Rights plus interest (interest from June 5, 2014 to the date of establishment of the fund, calculated at the benchmark interest rate for one-year loans of financial institutions during the same period determined by the People's Bank of China). 3. Asterisk Co., Ltd. shall establish a maritime liability limitation fund in RMB or other guarantees acceptable to the court within three days from the effective date of the ruling (the RMB amount of the fund shall be calculated according to the conversion method of Special Drawing Rights to RMB on the effective date of this ruling). Failure to establish the fund within the time limit shall be deemed as an automatic withdrawal of the application. Guo Jinwu and Liu Haizhong appealed against the first-instance ruling to the Tianjin Higher People's Court. On January 19, 2015, the Tianjin Higher People's Court made a civil ruling (2015) Tianjin High Court Civil Four Final No. 10: Rejecting the appeal and upholding the original ruling. Guo Jinwu, Liu Haizhong, Li Weiguo, Zhao Laijun, Qi Yongping, Li Jianyong, and Qi Xiukui applied for retrial after disagreeing with the second-instance ruling. On August 10, 2015, the Supreme People's Court made a civil ruling (2015) Civil Application No. 853, reviewing the case, and on September 29, 2015, made a civil ruling (2015) Civil Review No. 151: 1. Revoke the civil ruling (2015) Tianjin High Court Civil Four Final No. 10 of the Tianjin Higher People's Court. 2. Revoke the civil ruling (2014) Tianjin Maritime Court Limit No. 1 of the Tianjin Maritime Court. 3. Reject Asterisk Co., Ltd.'s application for the establishment of a maritime liability limitation fund.

Reasons for the Judgment

The Supreme People's Court held that Article 212 of the Maritime Law establishes the accident principle for the limitation of maritime liability, namely, "one accident, one limit; multiple accidents, multiple limits." The key to determining whether it is one accident or multiple accidents is to analyze whether the two accidents are caused by the same reason. If multiple accidents occur due to the same reason, but the causal chain is not interrupted, they should be considered as one accident. If the causal chain is interrupted and a new cause intervenes, the new cause and the new accident constitute a new causal relationship, forming a new independent accident. In this case, the nautical chart used by the "Ainn" clearly marked the aquaculture area, but the crew set the route to the aquaculture area, which itself constitutes a serious fault. Under the circumstances where the vessel was aware that there might be a large aquaculture area in the waters it was passing through, it should have strengthened its lookout duty, ensured safe navigation, and avoided colliding with the aquaculture area to cause losses. According to the vessel's navigation trajectory, the vessel actually entered the aquaculture area operated by Guo Jinwu. Given that the damage accident occurred at noon and there were no visual obstacles at night, if the crew had carefully performed their lookout and navigation duties, they should have noticed the existence of aquaculture buoys on the sea surface. In the circumstances where the Changli County Marine Bureau provided evidence proving that Guo Jinwu suffered actual damage, it can be presumed that the crew failed to perform their careful lookout duty, leading to the first infringement. According to the navigation trajectory, the vessel subsequently entered Liu Haizhong's aquaculture area. Because Guo Jinwu and Liu Haizhong's aquaculture areas are adjacent and about 500 meters apart, based on the inertia of the vessel's movement and the laws of vessel navigation, under the circumstances, the vessel could not take reasonable measures to avoid Liu Haizhong's aquaculture area, resulting in the second infringement. From the perspective of the cause, both damage acts were caused by the crew's negligence in lookout before the vessel entered Guo Jinwu's aquaculture area, which belongs to the same cause, and the causal chain was not interrupted, so the two infringement acts should be considered as one accident. After the vessel left Liu Haizhong's aquaculture area and entered the open sea, it sailed about 9,000 meters for about half an hour before entering Li Weiguo et al.'s aquaculture area and causing another damage accident. Before entering Li Weiguo et al.'s aquaculture area, the crew should have had sufficient time to adjust their negligent driving mentality, and knowing that there was still an aquaculture area ahead, they should have strengthened their lookout duty to avoid causing damage again. The vessel clearly failed to fulfill its duty of careful navigation, resulting in the occurrence of the second damage accident. There is no connection between the two accidents in terms of time relationship or subjective state. The occurrence of the second accident was not a natural continuation of the first accident, and there is no causal relationship between the two accidents. The argument of Asterisk Co., Ltd. that the crew's erroneous entry mentality did not change throughout the accident and the causal chain was not interrupted is untenable. Although the occurrence of the two accidents was due to the "same nature of cause," namely, the crew's negligent driving, it was not based on the "same cause" that caused the two accidents. According to the principle of "one accident, one limit," the vessel should establish different liability limitation funds for the two accidents respectively. The first and second instance courts failed to fully examine the location of the aquaculture area, the causal relationship between the two accidents, and the subjective state of the parties, and made a wrong determination that the vessel involved only caused one accident and allowed the vessel to establish one fund, which should be corrected according to law.

(Judges of the effective judgment: Wang Shumei, Fu Xiaoqiang, Huang Xiwu)

Source: Supreme People's Court WeChat Official Account