Disputes on damages of goods and clean bill of lading

Arbitral tribunal's point of view and conclusion

The manufacturer’s export packaging requirements had been met as per the insurance policy. During loading, transportation and unloading, the Carrier, Respondent had no opinion on the status of the packaging. The bill of lading clearly stated “Clean Shipped on Board”, which meant that it was clean, the goods had been loaded onto the Vessel.

According to the Insurance Policy and Contract, compensation was excluded only if the goods were naturally rusted. The Arbitral Tribunal found that in Survey 02, nowhere was it concluded that this shipment was naturally rusted. On the contrary, this survey report concluded: “During the transportation from China to Vietnam, the environment changed from cold air to hot air, causing sweating of goods, creating an electrolyte solution that corroded metal, making rust from the outer fastening iron belts/ the edges of the coils (these edges were the places that were directly contacted by cargo sweat and also where the zinc coating was weakest). These rusts then grew and spread to the inside surface of the coils causing yellowing/blackening on the roll surface”. Accordingly, the Arbitral Tribunal held that the phenomenon of rust leading to blackening/ yellowing occurred during transportation and before unloading, but not before loading the goods on board. The Cargo Outturn Report dated 08/03/2014 made by Lotus Port clearly indicated that the steel coils of this shipment were sweaty, dented, surface defected before unloading. Therefore, the Arbitral Tribunal considered tha during loading, stowing and unloading, some steel
coils were dented, missing at the edges, at the ends of the coils in the outer rings due to impact, that was, these defects had been damaged and occurred prior to discharge from the Vessel.

According to Clause 1, Article 48 of the 2000 Law on Insurance Business, the survey report should clearly state the cause and extent of the loss, but the Survey 02 only mentioned the cause. On 19/09/2014, this Survey 02 was just delivered to the Claimant and as soon as it was received the Claimant “suggested another independent inspection company to re- examine the above damaged shipment” but the Respondent did not reply. On 03/11/2014, Claimant informed that it would appoint an independent inspection unit to determine the extent of damage, and on 06/11/2014, Respondent replied that he did not accept this inspection result. Considering the above fact, the Arbitral Tribunal found that the inspection company appointed by the Respondent did not determine the extent of the loss of the shipment, so, that the Claimant had to hire another inspection company to determine the extent of the loss of the shipment was reasonable according to Clause 2, Article 262 of the 2005 Commercial Law.

On 18/11/2014 Claimant signed a contract with the VN inspection Company (“VN Company”) with the request: “To check the quantity/status of damage/ determine the recovery price of the damaged goods at the time of inspection”. The VN Company had issued a Survey Report on 12/12/2014 (“Survey 03”) which read: “Based on the outer condition of the goods ... 02 units were capable of purchasing the above damaged goods as follows: The company [...]’s purchasing unit price ... VND 6,750 / kg (A). The company [...]’s purchasing unit price ... VND 6,680/kg (B). The average unit price (A) + (B)/2 = VND 6,715/kg. ... The recovery price of above 130 aluminum-zinc coated coils were as follows: VND 535,185 net tones x VND 6,715 = VND 3,593,767,275”.

Considering the above fact, based on Survey 03, the Arbitral Tribunal considered that there were grounds to accept the average unit price determined by the VN Company. Pursuant to Survey 02, Survey 03, Respondent’s letter and the “Level of Loss” section in the Statement of Defense dated 30/06/2015, the Arbitral Tribunal accepted the loss value of the shipment in this Statement of Defense being 10,268,582,000 – (3,593,767,275 + 1,114,500,570) = VND 5,560,314,155. Because at the Hearing, Claimant only requested VND 5,560,000,000, so the Arbitral Tribunal accepted VND 5,560,000,000. According to Article 27.3 of the General Rules, the insurer should bear the cost of determining the market price and the extent of the loss; Pursuant to the inspection contract, Survey 03, the Arbitral Tribunal agreed to the Claimant’s reimbursement of VND 66,000,000.

Regarding interest, based on Article 29 of the 2000 Law on Insurance Business, Article 305 of the 2005 Civil Code and the fact: On 06/03/2014, when detecting the loss, Claimant informed Respondent according to Article 7.1 of the Contract and the damage assessment ended on 01/04/2014. On 08/04/2014 and many times thereafter, Claimant filed claim letters and on 18/12/2014, Claimantsent Respondent a compensation request letter attached to the dossier and Respondent received this dossier. Thus, Respondent’s indemnification obligation arose under Article 7.2 of the Contract: 

15 days after receiving the valid dossier, i.e. 03/01/2015, the compensation should have been paid but the Respondent gave many reasons without legal basis to refuse compensation. That was, Respondent who delayed payment should bear interest on it. However, Arbitral Tribunal did not accept the Claimant’s request for the interest calculation period from 25/6/2014 to 25/6/2015 but only from the date of arising payment obligation (03/01/2015 to 06/07/2015 (date of the Hearing), the round-up was 6 months, specifically VND 5,560,000,000 (Claimant’s rounding) x 8%/year x 6 months = VND 222,400,000. The total amount was VND 5,560,000,000 + VND 66,000,000 + VND 222.400.000 = VND 5,848,400,000.

About Respondent’s arguments and evidence, according to Survey 02, the Respondent argued that the loss of goods occurred due to the bad quality since production and inherent defects before loading; the carrier issued a clean bill of lading which might be due to a letter of indemnity from the shipper even though the goods had defects as shown on the Shipping Order. The Arbitral Tribunal held that Survey 02 did not state the goods were blackened or yellowed before loading, (ii) cargo sweat created ... causing blackening and yellowing. Change in temperature was not a force majeure event, and not a basis for excluding liability.

Basing on Survey 02, the Arbitral Tribunal concluded: According to Article 262 of the 2005 Commercial Law, this survey report was binding on the Respondent and the loss of black and yellow stains caused by rust arising from cargo sweat during transportation was not natural rust, so the liability for compensation could not be excluded. At the Hearing on 06/07/2015, the Respondent argued that the Claimant had to auction at the highest bid price, not the average price, and the Respondent showed a bid for VND 9,450/Kg. Considering this, the Arbitral Tribunal recommended Respondent to cooperate with Claimant in selling this damagedshipment to that buyer and Claimant agreed.

However, the Respondent did not respond to the Arbitral Tribunal’s recommendation. Considering the average price recommendation in Survey 03, Respondent’s opinion and that Respondent did not sell this shipment together with Claimant at the price set by the Respondent himself, the Arbitral Tribunal held that: (i) Claimant had not auctioned the goods because, according to Claimant, the shipment was still in warehouse; (ii) the two prices in Survey 03 were not the auction prices offered by Claimant, so it was not possible to require Claimant to sell at a higher price; (iii) the average price in Survey 03 which was the average market price of this damaged shipment at the time of the survey offered by a neutral inspection organization to apply for determining the extent of damage was reasonable.

Conclusion: The Arbitral Tribunal decided to force the Respondent to pay the Claimant an amount of VND 5,848,400,000 including: Insurance compensation of VND 5,560,000,000; cost of determining market price and damages of goods of VND 66,000,000; and interest due to late payment of compensation of VND 22,400,000.

(*) VIAC Arbitrator