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In a recent case handled by the authors¡¯ team, the consignee alleged total loss of a precision plasma-enhanced chemical vapour deposition (PECVD) system following its sea transportation from Taiwan to Humen Port via the container vessel OSG BOSSTEC.

The consignee subsequently initiated proceedings before the Guangzhou Maritime Court against three defendants: (1) company E (Taiwan) as the issuer of the sea waybill; (2) company D (mainland China) as the issuer of the bill of lading; and (3) company B (Hong Kong) as the registered shipowner. The claimant sought joint and several liabilities for damages totalling RMB61.9 million (USD8.7 million) in principal and accrued interest.

The claimed compensation amount was principally derived from the FOB (free on board) value of the damaged goods under the trade contract, augmented by freight and insurance costs added to establish the CIF (cost, insurance and freight) value.

This case involved exceptionally complex factual and legal issues. The factual matters encompass voyage planning, ship navigation and management, nautical meteorology, cargo packaging, lashing and stowage, the causation of cargo damage, and the quantum of reasonable loss.

The legal complexities include the determination of applicable law, the identification of freight forwarding and maritime cargo transportation relationships, carrier identification, carriers¡¯ defences such as exemptions for nautical fault, the limitation of liability for maritime claims, insurers¡¯ liability coverage, and recourse claims between liable defendants.

The authors¡¯ team was retained by company E to represent it in these proceedings.

Strategies and settlement

Throughout the proceedings, the authors¡¯ maritime team leveraged its expertise in ship navigation and management expertise, maritime law knowledge and prior case experience to develop a comprehensive strategy addressing liability, loss quantification, risk allocation and cost exposure. This included targeted evidentiary submissions, focused cross-examinations and multifaceted legal arguments establishing company E¡¯s non-liability.

Specifically, the team advanced the following arguments in the proceedings.

1. On liability, the team advocated that company E acted as the consignee¡¯s freight forwarder rather than a carrier, thus bearing no liability. The cargo damage stemmed from exemptible causes including inadequate packaging and lashing, force majeure and faults in the navigation ¨C defences available solely to carriers. Carriers retain the right to limitation of liability for maritime claims, with the calculated liability limit set at 147,560 SDR (special drawing rights, as defined by the IMF) ¨C about USD195,000 ¨C based on the damaged container¡¯s weight.
2. Regarding the amount of losses, the team maintained that the claimant must bear the adverse consequences of evidentiary insufficiency if it is unable to substantiate the authenticity and reasonableness of the alleged losses. Should the claimant pursue expert appraisal, the anticipated appraisal costs (estimated at USD280,000) should be borne by the claimant.
3. On risks and costs, the carrier¡¯s liability limitation of about USD195,000 falls substantially below the claimant¡¯s USD8.6 million claim, requiring the claimant to bear the majority of litigation costs, including cargo damage appraisal expenses, under applicable law. Such costs already exceed the carrier¡¯s liability cap.

Even if company E were held partially liable, it retains the right to pursue recourse claims against the other two defendants, meaning any awarded damages would ultimately be borne by one or both of them. From a commercial perspective, this litigation holds no material benefit for either the claimant or the remaining defendants, suggesting that the claimant would be better served by pursuing claims through its insurers.

Notwithstanding these arguments, the authors¡¯ team, acting as company E¡¯s legal representatives, provided internal risk advisories and recommended that the client adopt a strategy of pursuing parallel litigation and settlement negotiations. Company E agreed to engage in settlement discussions with all parties concurrent with ongoing proceedings.

Following pre-trial conferences, court hearings at the Guangzhou Maritime Court, and repeated court-mediated negotiations, the parties reached a global settlement where the three defendants collectively paid the claimant an amount approximating one maritime liability limit.

Our client, company E, was allocated only 10% of the total settlement sum ¨C about USD20,000 ¨C representing less than 0.23% of the claimant¡¯s original USD8.6 million claim.

Takeaways and outlook

This case exemplifies cross-border dispute resolution, involving intricate factual and legal complexities spanning international trade, insurance and maritime cargo transportation. In such matters, all parties and their legal counsel must conduct rigorous assessments of risks and costs associated with claims, defences and recourse mechanisms to effectively protect their commercial interests.

For the parties involved, retaining specialist legal counsel remains critical to maximising outcomes. When presenting a defence strategy to company E, the authors¡¯ team underscored its expertise in ship navigation and management as a distinct competitive advantage ¨C a factor that materially informed the client¡¯s decision making.

Legal counsel should trust the experts in their area of expertise, developing tailored litigation strategies based on case-specific circumstances.

In defending company E, the team leveraged its maritime navigation and management experience to focus on voyage planning, nautical meteorology and arguments for nautical fault exemptions ¨C compelling the claimant to confront material litigation risks. This approach prompted substantial concessions from the claimant, culminating in a highly favourable settlement for company E.

In resolving complex cross-border disputes, achieving settlements on reasonable terms creates mutually beneficial outcomes that mitigate risks and reduce dispute resolution costs for all parties, a silver lining in an otherwise unfortunate incident. This constitutes a win-win scenario, not only for the litigants but also for clients and their legal representatives.

Yang Xueguang is a partner at ETR Law Firm. He can be contacted by phone at +86 135 8040 6245 and by email at yangxueguang@etrlawfirm.com
Wang Gezheng is an associate at ETR Law Firm. She can be contacted by phone at +86 130 7813 3893 and by email at wanggezheng@etrlawfirm.com