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CISG CASE PRESENTATION

China 10 September 2002 Wuhan Maritime Court, Hubei (Nanjing Resources Group v. Tian An Insurance Co. Ltd., Nanjing Branch) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020910c1.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 20020910 (10 September 2002)

JURISDICTION: People’s Republic of China

TRIBUNAL: Wuhan Maritime Court, Hubei

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: (2000) Wu Hai Fa Shang Zi Di No. 91

CASE NAME: Nanjing Resources Group v. Tian An Insurance Co. Ltd., Nanjing Branch

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Japan or Hong Kong [unclear] (Buyer's insurer is the defendant)

BUYER'S COUNTRY: People's Republic of China (plaintiff)

GOODS INVOLVED: Logs


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 30 ; 34 ; 67

Classification of issues using UNCITRAL classification code numbers:

30A [Seller's obligation to deliver the goods];

34A [Seller's obligation to hand over documents];

67D [Risk when contract involves carriage of goods]

Descriptors: Delivery ; Conformity of documents ; Incoterms ; Passage of risk

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Click here for Chinese text of case; see also CISG-China Case [HPC/09]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=92>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Wuhan Maritime Court
Nanjing Resources Group v. Tian An Insurance Co. Ltd. Nanjing Branch

10 September 2002

Translation [*] by Zheng Xie [**]

Edited by William Zheng [***]

The Plaintiff, Nanjing Resources Group [Buyer], filed a lawsuit over disputes arising out of an ocean transportation insurance contract with the Defendant, Tian Bao Insurance Company [Insurer], before this Court on 16 October. The Court accepted this case on 17 October 2000. Thereafter, the Vice President, Rao __, Judge, Xu __, and Assistant Judge, Xie __, formed the Court, and held public court sessions on 16 and 22 November 2001, respectively. Due to a change of situation, Judge, Xu __, Assistant Judge, Xie __, and Assistant Judge, Xu __, re-formed the Court, and held public court sessions on 22 May and 9 August 2002, respectively. The [Buyer]'s agents and the [Insurer]'s agents were present at the court sessions. This case was closed.

The [Buyer] alleged that on 23 August 1999, the [Buyer] signed a contract with Japan Nissho Iwai Corporation [Seller] for import of logs for the total price of US $1,500,000 C&F Zhang Jia Gang or Shanghai. According to the contract, the [Buyer] bought insurance from the [Issuer]. The [Issuer] issued the transportation of goods insurance policy on 27 September 1999. The insurance policy stated, "Insurer: Nanjing Resources Group; Insured goods: Log; Vessel: SANAGA; Type of Risk: Free from Particular Average (F.P.A.) plus deck risk." The ship SANAGA sunk on 11 October 1999, and the goods were destroyed. Thereafter, the [Buyer] submitted the documents including the insurance policy, etc. required by the [Insurer] for settlement of the claim but the [Insurer] refused to satisfy the claim alleging that the [Buyer] violated the principle of good faith and had no insurable interest.

The [Buyer] requested the Court to rule that the [Insurer] should pay the [Buyer] the insurance indemnity of US $1,733,983 according to the insurance contract, plus interest from the day when the above amount should have paid to the day when the actual payment is made, and to rule that the [Insurer] should bear the litigation fee and compensate the [Buyer] for attorneys' fee, traveling expenses and other expenditures.

The [Insurer] alleged that:

   -    The sales contract between the [Buyer] and the [Seller] had severe deficiencies; once they signed the sales contract, it could not be performed at all; in fact, the sales contract was not performed; the parties did not take any remedial measure in accordance with the relevant law, and the sales contract was cancelled.
 
   -    The [Buyer] did not issue a L/C according to the sales contract, and breached first; thereafter, the [Seller] failed to deliver the goods and relevant documents and transfer the ownership in accordance with the sales contract. Because both the [Buyer] and the [Seller] breached the sales contract, the L/C, an important payment method in international trade, was suspended; because the sales contract was cancelled, the risk, which had already been transferred to the [Buyer], was also suspended. The risk of the goods should still be borne by the [Seller].
 
   -    When signing the insurance contract, the [Buyer] did not fulfill the duty of notice, and breached the principle of good faith in insurance, so the [Insurer] was entitled to revoke the insurance contract.
 
   -    When the loss occurred, the [Buyer] had no insurable interest; the [Insurer] had the right to reject the [Buyer]'s claim according to the relevant law.

The [Buyer] submitted the following evidence to sustain its claim:

1. The [Insurer] issued transportation of goods insurance policy No. 0032852 on 27 September 1999. This insurance policy included the following terms and conditions:

Mark: According to Contract No. IQA-0119;
Package and quantity: 7,689 m3;
Insured goods: Okoume logs (newly chopped);
Insured amount: US $1,733,983;
Vessel: SANAGA;
Sailing day: According to B/L from Gentil and Owendo to Zhang Jia Gang;
Type of risk: Free from Particular Average (F.P.A.) (Including warehouse to warehouse provision) according to ocean transportation of goods insurance provisions of China People's Insurance Company (adopted on 1 January 1981), deck risk according to provision of transportation of goods on deck.

The insurance policy proved the legal relationship in the insurance contract between the [Buyer] and the [Insurer].

The [Insurer] did not object to the authenticity of the insurance policy, but in the court session on 22 May 2002, the [Insurer] alleged that this insurance policy was signed on 18 November 1999 after the loss occurred.

This Court required the [Insurer] to submit the five insurance policies signed either before or after this insurance policy, the record of the [Buyer]'s taking this insurance policy, the registration in the computer, etc. before 11 June 2002. The [Insurer] filed a petition to submit the evidence before 21 June 2002, and the Court approved.

On 17 June 2002, the [Insurer] submitted to the Court the record of the [Buyer]'s taking this insurance policy; this record showed that insurance policy No. 0032852 (including from No. 0032851 to No. 0032900) was taken by Zhang Li on 12 October 1999. Insurance policy No. 0032851, which was taken at the same time as the insurance policy in this case, was signed on 2 October 1999, and insurance policy No. 0032856 was signed on 18 October 1999.

At the court session on 9 August 2002, Zhang Li, who signed the record and took the insurance policy, confirmed the authenticity of the signature in the record, but could not confirm the time when the insurance policy was taken and whether the above insurance policies were taken by her.

At the court session on 9 August 2002, Zheng Qian, who signed insurance policy No. 0032852 and the insurance premium receipt No. 0058016, confirmed that the time of signing was true, and also confirmed that the basis for signing the insurance policy was the loading notice provided by the [Buyer].

The [Insurer] did not raise any objection to these statements by its above two employees.

The Court held that the [Insurer]'s witnesses denied that the insurance policy was signed after the risk occurred, and confirmed that the insurance policy was truly dated; in addition, these two witnesses were the employee of the [Insurer], and the [Insurer] did not raise any objection to the witnesses' statements; therefore, the Court held that because neither party objected to this insurance policy, this insurance policy was confirmed.

2. On 8 October 1999, the [Insurer] issued insurance premium receipt No. 0058016, which recorded that the full name of the [Insurer] was Nanjing Foreign Investment Resources Supply Company, and the premium was RMB 21,532.65. This receipt was submitted to prove that the [Buyer] had performed its obligation under the insurance contract.

The [Insurer] did not object to the authenticity of this premium receipt and the Court held that because no party raised objection to this premium receipt, it could be admitted as evidence.

3. On 23 August 1999, the [Buyer] and the [Seller] signed sales contract No. NO.IQA-0119. This was to prove that the [Buyer] had already purchased the goods.

The [Insurer] did not object to the existence of this sales contract, but alleged that this contract had severe defects, so that could not be performed; and that the parties to this contract did not take any remedial measure:

   -    "Ma Demin", who signed the contract, had no authority;
 
   -    The address recorded in this contract was different from that described in the Complaint; according to the relevant law of the PRC, the business place should be the same as the legal person's address;
 
   -    In addition, "Ma Demin" was the general manager of Nanjing Foreign Investment Resources Supply Company, but not an employee of the [Buyer]; therefore, the [Buyer] concealed the truth when signing the insurance contract.

The [Buyer] alleged that the [Insurer]'s cross-examination of the evidence had nothing to do with this case. Regarding the [Issuer]'s allegation that the [Buyer]'s address recorded in the contract was not consistent with the [Buyer]'s business place, it was the [Buyer]'s position that no law stipulates that the registered business place should be recorded in a contract; "Ma Demin" was an employee of the [Buyer], and had the authority to sign this contract; the [Insurer] did not provide any evidence to prove this contract was forged. It was Nanjing Foreign Investment Resources Supply Company which contacted the [Insurer] to buy the insurance. Regarding this, on 22 May 2002, the [Buyer] submitted the following evidence as supplementary material:

   -    Nanjing Timber Company's annual report;
 
   -    The Change of Legal Person Registration Certificate of Nanjing Foreign Investment Resources Supply Company in 1999; and
 
   -    The Change of Legal Person Registration Certificate of Nanjing Foreign Investment Resources Supply Company in 2000.

The [Buyer] alleged that the above evidence proved that Nanjing Foreign Investment Resources Company was the [Buyer]'s wholly owned subsidiary, and also demonstrated the position of Ma Demin, who signed the contract, and the change of the company's address.

The [Insurer] stated that it only objected to one issue of the sales contract, and had no objection to the authenticity of the above supplementary evidence.

The Court held that the parties did not object to the authenticity of the sales contract and the above supplementary evidence, so the sales contract and the above supplementary evidence could be admissible in deciding this case; in addition, the Court decided that Ma Demin had authority to sign the sales contract.

4. There were two invoices of goods. Invoice No. LSR0859 was issued on 1 November 1999. It included the following items:

Buyer: Nanjing Resources Group;
Vessel: SANAGA;
Shipping time: 30 August 1999;
Voyage: From Owendo, Gabon to Zhang Jia Gang, China;
L/C: 010LC90101NWZ, issued by China Hua Xia Bank Nanjing Branch;
Insurance: Buyer is responsible;
Goods: Okoume logs (newly chopped);
Quantity: 721 logs, totaling 4093.2 m3;
Unit price: US $203.20/m3;
Total price: US $831,738.24 CFRFO Zhang Jia Gang China;
Signatory party: Japan Nissho Iwai Hong Kong Corporation Ltd.

The other invoice included the same terms as the above except for the following differences:

Voyage: Port-Gentil, Gabon, to Zhang Jia Gang, China;
Quantity: 871 logs, totaling 3596.3 m3;
Total price: US $730,768.16 CFRFO Zhang Jia Gang, China.

The above two invoices were submitted to prove that the [Seller] had already sold the goods.

The [Insurer] alleged that the invoices were issued on 1 November 1999, and the price term was CFRFO; however, the L/C expired on 15 October; according to UCP 500, documents should be issued during the validity period of the L/C, so these two invoices were invalid. In addition, the [Insurer] also had a set of invoices, which were issued on 11 October with the price term of CFR and the revised price inconsistent with the insured amount in the insurance policy.

The [Buyer] alleged that the above two invoices were delivered by the [Seller], and thereafter, the [Buyer] forwarded them to the [Insurer]. The [Buyer] had a set of documents issued on 11 October, but because of some business reason, this set of documents was substituted by the invoice issued on 1 November by Japan Nissho Iwai Hong Kong Corporation Ltd; the beneficiary of the L/C was also Japan Nissho Iwai Hong Kong Corporation Ltd. Japan Nissho Iwai Hong Kong Corporation Ltd authorized its Shanghai office to deliver theses two invoices to the [Buyer].

The [Insurer] admitted that when claiming indemnity, the [Buyer] had submitted the above two sets of invoices issued on 11 October and 1 November, respectively, and the [Insurer] did not object to the authenticity of these two sets of invoices.

The Court held that the two sets of invoices submitted by the [Buyer] were admissible as evidence in deciding this case.

5. There were two Bills of Lading: One was No. POG/DLC01 of France SETRAMAR FRANCE SA, which included the following terms:

Shipper: Japan Nissho Iwai Hong Kong Corporation Ltd;
Consignee: To order;
Notifying party: Nanjing Resources Group;
Loading port: Port-Gentil, Gabon;
Vessel: SANAGA;
Unloading port: Zhang Jia Gang;
Mark and number: JL Red;
Merchandise: Okoume logs (newly chopped);
Quantity: 871 logs;
Gross weight: 2200.90 tons;
Volume: 3596.30 m3;
Loading: Clean shipped on board on 29 August 1999, and 550 logs loaded on deck;
Place of issuance: Port-Gentil;
Time of issuance: 29 August 1999;
Issuer: Gulf Agency Company (Hong Kong) Ltd. on behalf of Carrier.

The other B/L was No. 100 of France SETRAMAR FRANCE SA, which included the following terms:

   -    Shipper: Japan Nissho Iwai Hong Kong Corporation Ltd;
   -    Consignee: To order;
   -    Notifying party: Nanjing Resources Group;
   -    Loading port: Owendo, Gabon;
   -    Vessel: SANAGA;
   -    Unloading port: Zhang Jia Gang;
   -    Mark and number: JL Yellow;
   -    Merchandise: Okoume logs (newly chopped);
   -    Quantity: 721 logs;
   -    Gross weight: 2505 tons;
   -    Volume: 4093.20 m3;
   -    Loading: Clean shipped on board on 30 August 1999, and 5 logs loaded on deck;
   -    Place of issuance: Owendo;
   -    Time of issuance: 30 August 1999;
   -    Issuer: Gulf Agency Company (Hong Kong) Ltd. on behalf of the Carrier.

Both of the above two Bills of Lading were endorsed by Japan Nissho Iwai Hong Kong Corporation Ltd. These two Bills of Lading were submitted to prove that the goods had already been loaded and the risk had been transferred to the [Buyer].

The [Insurer] alleged that Japan Nissho Iwai Hong Kong Corporation Ltd acted as an original seller, and Gulf Agency Company (Hong Kong) Ltd. was not authorized by the Carrier to sign the B/L, so the Bills of Lading were invalid.

The [Buyer] alleged that the Bills of Lading, which the [Buyer] held, were the original documents. The [Insurer] should submit relevant evidence to prove its allegation that the Bills of Lading were invalid. In fact, Japan Nissho Iwai Corporation Ltd. and France SOCIETEJ, LALANNE signed a sales contract, and the beneficiary was Japan Nissho Iwai Hong Kong Corporation Ltd., who re-sold the goods to the [Buyer]; the payment was made by L/C; because of some inconsistency, Japan Nissho Iwai Hong Kong Corporation Ltd. forwarded the Bills of Lading to its Shanghai office, which delivered the Bills of Lading to the [Buyer] in October 2000. Meanwhile, the [Buyer] also obtained a copy of the sales contract between Japan Nissho Iwai Corporation Ltd. and France SOCIETEJ, LALANNE, and presented this contract to the manger of the [Insurer] when claiming indemnity.

The [Insurer] submitted the following supplementary evidence in order to prove that the Bills of Lading it held was a switch B/L:

   -    Sales contract No. CHI864799GA signed by Japan Nissho Iwai Hong Kong Corporation Ltd. and France SOCIETEJ, LALANNE on 9 July 1999;
 
   -    The invoice issued by France SOCIETEJ, LALANNE on 12 July 1999;
 
   -    The original Bills of Lading No. POG/DLC01 and No. 100 issued by SETRAMAR FRANCE SA on 29 and 30 August 1999, respectively, both of which stated that the shipper was France SOCIETEJ, LALANNE, the consignee was to order, and the notifying party was Japan Nissho Iwai Corporation Ltd.
 
   -    The L/C and payment voucher No. 681/212/23471 issued by Japan Nissho Iwai Hong Kong Corporation Ltd. with France SOCIETEJ, LALANNE as the beneficiary;
 
   -    The certificate of origin, certificate of plant quarantine and List of the Log issued by the original seller, France SOCIETEJ, LALANNE, and the middleman, Japan Nissho Iwai Hong Kong Corporation Ltd., SETRAMAR FRANCE SA, respectively

The [Insurer] alleged that the Bills of Lading in this case were not the switch bills of lading as the [Buyer] alleged. A switch bill of lading is one which can be changed when the vessel provided in the B/L arrives at transfer port, and the new issuance time is that when the original is changed. However, the Bills of Lading which the [Buyer] held, were not issued at the transfer port, and the issuance time was when the original Bills of Lading were issued. The [Insurer] did not object to the authenticity of the [Buyer]'s above supplementary evidence.

The [Insurer] raised the objection to on-deck goods provided in the switch bill of lading. As to this, the [Buyer] alleged that it could not explain.

The Court decided that the [Buyer]'s above supplementary evidence is admissible as evidence in deciding this case. Meanwhile, regarding the [Buyer]'s and the [Insurer]'s opinions on the Bills of Lading, the Court held that the [Buyer] should submit the evidence of Bills of Lading issued by Gulf Agency Company (Hong Kong) Ltd. with authority.

On 29 November 2001, the [Buyer] submitted the following supplementary evidence to this Court:

   -    The facsimile sent by the carrier, SETRAMAR FRANCE SA, to Japan Nissho Iwai Corporation Ltd. in October 1999 (no specified date) stating that as per Japan Nissho Iwai Corporation Ltd.'s request, SETRAMAR FRANCE SA had already instructed its general agent in Hong Kong to re-issue B/L;
 
   -    The facsimile sent by the carrier, SETRAMAR FRANCE SA, to Japan Nissho Iwai Corporation Ltd. informing of its agent's, Gulf Agency Company (Hong Kong) Ltd., full name, address, telephone number and contacting person;
 
   -    The facsimile sent by the carrier, SETRAMAR FRANCE SA, to Japan Nissho Iwai Corporation Ltd. informing of the correct address of Gulf Agency Company (Hong Kong) Ltd.;
 
   -    The facsimile sent by Japan Nissho Iwai Hong Kong Corporation Ltd. to Gulf Agency Company (Hong Kong) Ltd. regarding the modification of the B/L.

The [Insurer] did not object to the authenticity and validity of the above supplementary evidence.

The Court held that together with the above supplementary evidence, the two Bills of Lading the [Buyer] submitted are admissible in deciding this case, and confirmed that Gulf Agency Company (Hong Kong) Ltd. obtained the authority from the carrier, SETRAMAR FRANCE SA, and that the two switch Bills of Lading issued by Gulf Agency Company (Hong Kong) Ltd. were valid.

6. There were two cargo manifests. These cargo manifests included the following terms:

Shipper: France SOCIETEJ, LALANNE;
Consignee: To the order of France SOCIETEJ, LALANNE;
Notifying party: Japan Nissho Iwai Corporation Ltd.;
Merchandise: Okoume logs (newly chopped);
Quantity: 871 logs and 721 logs, respectively.

This was submitted to prove that the goods had already been loaded and that the Bills of Lading had already been issued.

The [Insurer] did not object to the authenticity of these two cargo manifests.

The Court ruled that the above manifests are admissible in deciding the case, because the parties did not object to their authenticity.

7. The Report of Sinking of SANAGA and The Initial Investigation Report of Sinking of SANAGA issued by Mauritius. The above evidence was submitted to prove that the goods had already been loaded and that SANAGA had sunk.

The [Insurer] did not object to this.

The Court held the above evidence is admissible in deciding this case, because the [Insurer] did not raise any objection after cross-examining the evidence.

8. The document containing the [Insurer]'s rejection of the [Buyer]'s claim was issued on 24 July 2000 and included the following:

   -    When signing the insurance contract, the [Buyer] violated the principle of good faith by not informing the [Insurer] of essential facts regarding the insured subject, which the [Buyer] knew, and this caused the insurance contract to be invalid.
 
   -    When the risk occurred, the [Buyer] had no insurable interest, and this caused the insurance policy to be invalid.

The [Buyer] submitted this evidence to prove that the [Insurer] breached the insurance contract and rejected performance of its obligation to indemnify the [Buyer].

The [Insurer] acknowledged that the above document was true.

The Court held that this evidence was admissible in deciding this case, because neither party objected to it.

9. L/C No. 010LC90101NWZ was submitted to prove the existence of the sales contract.

The [Insurer] alleged this L/C included many inconsistent terms with those in the L/C the [Buyer] formerly submitted to the [Seller], and the order of some terms was changed, so the [Insurer] objected to the authenticity of this L/C.

The [Buyer] alleged that the L/C formerly provided to the [Insurer] was a draft, and this L/C submitted to the Court was the formal one issued by the bank.

Both the [Buyer] and the [Insurer] requested the Court to ask the bank to provide the original L/C. According to the [Buyer]'s and the [Insurer]'s petitions, on 22 August 2001, the judges, the [Buyer]'s and the [Insurer]'s attorneys, and other relevant persons went to Hua Xia Bank Nanjing Branch to review:

   -    Wire transfer record;
 
   -    The petition that the [Buyer] submitted to the bank requesting to change the usance L/C to sight L/C, and the document signed by Hua Xia Bank related to the modificaiton of L/C No. 010LC90101NWZ;
 
   -    The correspondence stating that the [Buyer] could not accept the documents and L/C because of the inconsistence of the [Seller]'s documents and L/C;
 
   -    The facsimile records of the bank, and the sales contract attached to the L/C, etc.

The bank's staff proved that L/C No. 010LC90101NWZ was not performed because of the inconsistency between the documents and the L/C, and that the L/C, which the [Insurer] held, was a draft.

Neither the [Buyer] nor the [Insurer] objected to the above evidence.

The Court held that the L/C submitted by the [Buyer] and the above evidence obtained by the Court is admissible in deciding this case.

In support of its objection to the [Buyer]'s claims, except the sales contract, insurance policy, insurance premium receipt, Bills of Lading, cargo manifests, invoices, material provided by Mauritius' government, the [Buyer]'s claim for indemnity submitted by the [Buyer], and the L/C and other evidence obtained by the Court, the [Insurer] submitted the following evidence:

      (1) The photocopies of inquiry statements of the market entity registration of Nanjing Foreign Investment Supply Company, and Nanjing Foreign Investment Supply Company New Century Sports Branch. These documents showed that the [Buyer]'s legal representative was Liu Qing, and the other two companies' legal representative was Liu Xiaosuo, and also demonstrated other information on the companies. This evidence was submitted to prove that the position of Ma Demin, who signed the sales contract, was unclear.

The [Buyer] alleged that the printed parts of the above documents were true, but it did not admit the handwritten parts.

The [Insurer] explained that the handwritten parts were written by its employees.

The Court held that compared with the evidence submitted by the [Buyer] on 22 May 2002, the above inquiry statements of the market entity registrations issued by the Industry and Commercial Bureau were consistent, so these statements are admissible in deciding this case.

      (2) The import and export goods transportation insurance policy filed by the [Buyer]'s employee on 10 September 1999. This policy included the following terms:

Insured: Nanjing Foreign Investment Resources Supply Company;
Insured amount: US $1576347.50 x 1.1;
Loading port: Port-Gentil and Owendo;
Destination port: Zhang Jia Gang;
Shipping time: 10 September 1999;
Vessel: SANAGA;
Insurance term and type of risk: F.P.A.; special term: deck risk;
Place of indemnity: Nanjing.

The above evidence was submitted to prove that the [Buyer] did not perform the sales contract, but intended to obtain an insurance policy.

The [Buyer] did not object to the authenticity of the insurance policy, but alleged that it should not be admitted as evidence, because the Insurance Law provides that the [Insurer] need only provide the insurance contract.

The Court held that neither party objected to the authenticity of the insurance policy, so it was admissible as evidence in deciding this case.

      (3) The inspection report issued by C.E.S.A.M (COMITE D'ETUDES ET DE SERVICES DES ASSUREURS MARITIMES ET TRANSPORTS DE FRANCE) entrusted by the [Insurer], and the loss report of SAGANA. This evidence was submitted to prove that SAGANA had sunk, and the [Insurer] did not deny this fact.

The [Buyer] did not object to the above evidence.

The Court held that as neither party objected to the above evidence, it was admissible in deciding this case.

After the parties submitted, cross-examined and identified the evidence, and presented their statements, the Court confirmed the following facts:

On 23 August 1999, the Resources Company and Japan Nissho Iwai Corporation signed Sales Contract No. IQA-0119 for Okoume logs (newly chopped). The contract stipulates:

Quantity and specification: 7,000 m3 measured by ATIB; more than 6 m long, and more than 60 cm in direction;
Unit price: US $205/ton C&F (F.O) Zhang Jia Gang or Shanghai, China;
Total price: US $1,435,000;
Destination port: Zhang Jia Gang or Shanghai, China;
Payment: Irrevocable L/C with Japan Nissho Iwai Hong Kong Corporation Ltd. as the beneficiary issued within 88 days after the B/L is issued. The details shall be referred to the Attachment A. The L/C shall be issued in July 1999; the issuing bank shall be determined with the [Seller]'s approval;
Insurance: The [Buyer] is responsible;
Shipping time: From the end of July to the beginning of August 1999;
Notes: Quantity and quality shall be final at shipment at Gabon port; the supplier is the Gabon shipper; fluctuation at about 10% in quantity and amount is acceptable ...

Attachment A of the contract stipulates:

Beneficiary: Japan Nissho Iwai (Hong Kong) Corporation;
Amount: US $1,435,000;
Merchandise: 7,000 m3 of Okoume logs;
Price term: C&F (F.O.) Zhang Jia Gang or Shanghai (within 88 days after the B/L is issued);
Notifying bank: Sanwa Bank Hong Kong Branch;
Shipping time: 15 September 1999;
Expiration day: 15 October 1999;
Documents presented: (a) a full set of three clean shipment Bills of Lading marked with "Freight paid." The Bills of Lading should be endorsed to order. Notifying party is Nanjing Foreign Investment Resources Supply Company; (b) three signed invoices; (c) the certificate of original; (d) the certificate of sanitary; (e) list of log;
Special instructions: (a) lease bill of lading as the third party document except invoice and bill of exchange is acceptable; (b) a bill of lading marked with goods on deck is acceptable; (c) the typo except for merchandise, quantity and amount in the shipping documents is acceptable; (d) presenting time is 21 days after loading and within the validity period of the L/C; (e) fluctuation at about 10% in quantity and amount is acceptable.

On 29 August 1999, SETRAMAR FRANCE SA issued Bill of Lading No. POG/DLC01 in Port-Gentile of Gabon. This B/L includes the following terms

Shipper: France SOCIETEJ, LALANNE;
Consignee: To the order of France SOCIETEJ, LALANNE;
Notifying bank: Japan Nissho Iwai Corporation;
Vessel: SAGANA;
Loading port: Port-Gentile, Gabon;
Destination port: Zhang Jia Gang;
Mark and number: JL Red;
Merchandise: Okoume logs (newly chopped);
Quantity: 871 logs;
Gross weight: 2,200.90 tons;
Volume: 3,596.30 m3;
Loading time: Clean shipped on board on 29 August 1999;
Place and time of issuing the B/L: Port-Gentil on 29 August 1999;
Issuing party: SETRAMAR FRANCE SA

On 30 August 1999, SETRAMAR FRANCE SA issued Bill of Lading No. 100 in Gabon. This B/L including the following terms:

   -    Shipper: France SOCIETEJ, LALANNE;
   -    Consignee: To the order of France SOCIETEJ, LALANNE;
   -    Notifying bank: Japan Nissho Iwai Corporation;
   -    Vessel: SAGANA;
   -    Loading port: Owendo, Gabon;
   -    Destination port: Zhang Jia Gang;
   -    Mark and number: JL Yellow;
   -    Merchandise: Okoume logs (newly chopped);
   -    Quantity: 721 logs;
   -    Gross weight: 2,505 tons;
   -    Volume: 4093.20 m3;
   -    Loading time: Clean shipped on board on 30 August 1999;
   -    Place and time of issuing the B/L: Owendo on 30 August 1999;
   -    Issuing party: SETRAMAR FRANCE SA

On 10 September 1999, Nanjing Foreign Resources Supply Company, which was the Resources Group's wholly owned subsidiary, contacted the [Insurer] to buy insurance for the transportation of the logs in this case, but the parties did not reach an agreement.

On 21 September 1999, Hua Xia Bank Nanjing Branch issued irrevocable L/C No. 010LC90101NWZ according to Sales Contract No. IQA-0119 and its Attachment A. The applicant for the L/C was Resources Group; the beneficiary was Japan Nissho Iwai Corporation; the expiration date and place was 15 October 1999 and Hong Kong, respectively; three signed invoices with the L/C Number and the sales contract number were required; other documents presented for payment and description of the goods should be consistent with Sales Contract No. IQA-0119; other documents with supplementary requirements should be presented within 21 days after the goods were loaded … This L/C stipulated that UCP 500 (1993) should apply.

On 27 September 1999, Japan Nissho Iwai Corporation Shanghai office sent to the Resources Group a loading notice regarding Sales Contract No. IQA-0119, which included the following terms:

   -    Merchandise: Okoume logs (newly chopped);
   -    Vessel: SAGANA;
   -    Loading port: Port-Gentil and Owendo;
   -    Unloading port: Zhang Jia Gang;
   -    Quantity: 7,689.5 m3;
   -    Invoice amount: US $1,576,347.50;
   -    Estimated arrival time: 20 October 1999.

This notice also included insurance information.

On the same day, Nanjing Foreign Investment Resources Supply Company on behalf of the Resources Group contacted the [Insurer] to buy insurance for the transportation of logs in this case; the [Insurer] agreed and signed transportation insurance policy No. 0032852, which included the following terms:

Mark: According to sales contract No. IQA-0119;
Quantity: 7,689 m3;
Insured subject: Okoume logs (newly chopped);
Insured amount: US $1,733,983;
Vessel: SAGANA;
Sailing time: According to the Bills of Lading from Port-Gentil and Owendo to Zhang Jia Gang;
Type of insurance: F.P.A (Warehouse-to-warehouse) according to China People's Insurance Corporation's maritime transportation of goods insurance terms an conditions (drafted on 1 January 1981), and deck insurance according to the terms and conditions related to deck goods;
Place of indemnity: Nanjing.

After the 19,500 tons of logs were loaded, SAGANA sailed from Port-Gentil and Owendo, arrived at Durban, South Africa, on 5 October 1999 and, on 6 October left Durban with 35,900 tons of oil and 75 tons of maritime oil. On 9 October, 16:00 (adjusting of world time +2), the vice master noted some abnormal situation, reported to the master, conducted investigation, and found that water entered as high as one meter. The pump was used. On the morning of 10 October, water rose as high as nine meters, and on 11 October morning, water rose as high as 10.3 meters. On 11 October, 11:00 a.m. (adjusting world time +2), the master decided that it was out of control, and sent out an SOS. Four vessels received the signals and went to salvage. At about 16:20, the vessel SAGITTARIUS CHALLENGER arrived; at about 20:50, all of the crew of SAGANA were rescued. SAGANA sunk at about South 27.51'4 and East 43.34'2.

On 10 October 1999, Resources Group submitted to Hua Xia Bank Nan Jing Branch a petition to change the usance L/C to a sight L/C alleging that after L/C No. 010LC90101NWZ was issued, Japan Nissho Iwai Corporation informed Resources Group that it was in financial difficulty and hoped that considering the parties long term friendship, the [Buyer] could change the 88 days usance L/C to a sight L/C, and stated that the [Seller] would like to reduce the price by US $1.8/m3 as compensation. On 12 October 1999, Resources Group proposed the specific modification of the L/C, including the following changes:

   (1)   Changing the original beneficiary to NISSHO IWAI HONG KONG CORPORATION;
   (2)   Changing the amount of US $1,435,000 to US $1,422,400;
   (3)   Changing the payment 88 days after the L/C is issued to sight full payment made when invoices are presented;
   (4)   Changing the installments prohibited to shipping by installments;
   (5)   Changing the main port in Gabon to Port-Gentil and Owendo;
   (6)   Deleting the length, direction and quality of the goods;
   (7)   Changing the unit price from US $205/m3 CFR Zhang Jia Gang to US $203.20/m3 CFRPO Zhang Jia Gang;
   (8)   Deleting the requirement that the L/C number should be printed in all documents;
   (9)   Adding that the expired B/L is acceptable;
   (10)   Changing the time of presenting the B/L from within 21 days after the goods are loaded to within the valid period of the L/C.

On 14 October 1999, Hua Xia Bank Nanjing Branch modified L/C No. 010LC90101NWZ according to Resources Group's petition.

On 15 October 1999, Japan Nissho Iwai Hong Kong Corporation Ltd. sent a fax to Gulf Agency Company (Hong Kong) Ltd. requesting to modify Bills of Lading No. 100 and No. POG/DLC01 according to its requirements and to issue a new set of Bills of Lading. The specific modifications were as follows:

   (1)   Changing Shipper from France SOCIETEJ, LALANNE to NISSHO IWAI HONG KONG CORPORATION;
   (2)   Changing Consignee from to the order of from France SOCIETEJ, LALANNE to "to order";
   (3)   Changing notifying party from JAPAN NISSHO IWAI CORPORATION to Nanjing Resources Group;
   (4)   Changing the name of merchandise from Okoume logs to Okoume logs (newly chopped).

NISSHO IWAI HONG KONG CORPORATION promised that Gulf Agency Company (Hong Kong) Ltd. would be exempted of any liability due to the above modifications, and would compensate Gulf Agency Company (Hong Kong) Ltd. for any damages caused by the above modifications.

On 22 October 1999, France SETRAMAR FRANCE SA sent a fax to JAPAN NISSHO IWAI CORPORATION stating that Ms. Elbaz of France SOCIETEJ, LALANNE had already contacted SETRAMAR FRANCE SA, and SETRAMAR FRANCE SA had instructed its general agent in Hong Kong to re-issue bills of lading according to JAPAN NISSHO IWAI CORPORATION's request, but only instructed the agent to modify Shipper, Consignee and Notifying party, and requested JAPAN NISSHO IWAI CORPORATION (or its Hong Kong office) to sign a letter of indemnity.

On 25 October 1999, the master of France SETRAMAR FRANCE SA faxed to JAPAN NISSHO IWAI CORPORATION stating that it had already received JAPAN NISSHO IWAI CORPORATION's fax and letter of indemnity, and would instruct the Gulf Agency Company (Hong Kong) Ltd (i.e., its agent in Hong Kong) not to request the letter of indemnity when JAPAN NISSHO IWAI CORPORATION obtained the Bills of Lading, and also confirmed its Hong Kong agent's full name, address, telephone, contacting person, etc. On the same day, France SETRAMAR FRANCE SA faxed to JAPAN NISSHO IWAI CORPORATION again stating that the former fax sent to JAPAN NISSHO IWAI CORPORATION contained some small mistake, correcting the full name of its Hong Kong agent, and requesting JAPAN NISSHO IWAI CORPORATION to mail the letter of indemnity by air to France SETRAMAR FRANCE SA as soon as possible. Thereafter, France SETRAMAR FRANCE SA's agent signed Bills of Lading No. POG/DLC01 and No. 100 on behalf of France SETRAMAR FRANCE SA.

B/L No. POG/DLC01 included the following terms:

Shipper: Japan Nissho Iwai Hong Kong Corporation Ltd;
Consignee: To order;
Notifying party: Nanjing Resources Group;
Loading port: Port-Gentil, Gabon;
Vessel: SANAGA;
Unloading port: Zhang Jia Gang;
Mark and number: JL Red;
Merchandise: Okoume logs (newly chopped);
Quantity: 871 logs;
Gross weight: 2200.90 tons;
Volume: 3596.30 m3;
Loading: Clean shipped on board on 29 August 1999, and 550 logs loaded on deck;
Place of issuance: Port-Gentil;
Time of issuance: 29 August 1999;
Issuer: Gulf Agency Company (Hong Kong) Ltd. on behalf of Carrier.

B/L No.100 included the following terms:

Shipper: Japan Nissho Iwai Hong Kong Corporation Ltd;
Consignee: To order;
Notifying party: Nanjing Resources Group;
Loading port: Owendo, Gabon;
Vessel: SANAGA;
Unloading port: Zhang Jia Gang;
Mark and number: JL Yellow;
Merchandise: Okoume logs (newly chopped);
Quantity: 721 logs;
Gross weight: 2505 tons;
Volume: 4093.20 m3;
Loading: Clean shipped on board on 30 August 1999, and 5 logs loaded on deck;
Place of issuance: Owendo;
Time of issuance: 30 August 1999;
Issuer: Gulf Agency Company (Hong Kong) Ltd. on behalf of Carrier.

On 11 November 1999, the International Department of Hua Xia Bank Nanjing Branch informed Resourced Group that regarding L/C No. 010LC90101NWZ, the negotiating bank abroad had notified of the following discrepancies between the L/C and the documents via telegraph: (1) the L/C had expired; (2) the issuer of the B/L did not identify its position and the carrier; (3) the merchandise described in the B/L was FRESH CUT GABONESS OKOUME ROUND LOG (GABONESS should be deleted); (4) the documents and L/C were presented by NISSHO IWAI HONG KONG CORPORATION LTD instead of NISSHO IWAI HONG KONG CORPORATION, and requested Resources Group to advise whether it would accept these discrepancies.

On 11 November 1999, Resources Group informed the international department of Hua Xia Bank Nanjing Branch that Recourses Group entrusted the bank to issue L/C No. 010LC90101NWZ for the amount of US $1,435,000, but because of the discrepancies between the L/C and documents, Resources Group did not accept.

On 25 November 1999, Hua Xia Bank Nanjing Branch notified Sanwa Bank Hong Kong Branch by telephone that Hua Xia Bank Nanjing Branch had already informed the applicant of the L/C of Sanwa Bank Hong Kong Branch's message, and the applicant replied in writing that they did not accept the discrepancies, and would not accept other discrepancies.

On 29 November 1999, the [Buyer] submitted to the [Insurer] an indemnity claim report regarding the loss of the logs under the insurance policy No. 0032852, and claimed indemnity of US $1,733,983.

On 24 July 2000, the [Insurer] replied to the [Buyer] in writing that with respect to the claim regarding the 7,689 m3 logs carried by SAGANA, the [Buyer] had violated the principle of good faith, and did not notify the [Insurer] of essential facts of the subject matter, which caused the insurance to be invalid; when the risk occurred, the [Buyer] had no insurable interest, which caused the insurance policy to be invalid.

Meanwhile, the [Buyer] had neither informed the [Insurer] of the modification of the L/C, nor informed the [Insurer] of the fact that after the [Buyer] rejected to make the payment under the L/C, Japan Nissho Iwai Corporation Ltd through its guarantor asked the carrier's agent to re-issue the B/L, and through its Shanghai office sent the B/L to the [Buyer].

In addition, the [Buyer] and the [Seller] did not reach any agreement on how to make the payment, and the [Buyer] did not make any payment to the [Seller].

The issues of this case are:

   (1)   Whether the [Buyer] failed to perform the notifying duty when buying the insurance, which caused the insurance contract to be invalid; and
 
   (2)   Whether the [Buyer] had an insurable interest when the loss occurred.

As to the first issue, the [Buyer] alleged that the cargo transportation insurance policy No. 0032852 was signed by the [Insurer] on 27 September 1999, which proved the contractual relationship between the parties. This insurance policy was legally valid. The [Buyer] did not violate the principle of good faith, and fully performed its notifying duty according to the insurance contract. Regarding the loading notice, the [Seller] is a large group corporation, and the contract was signed by its Tokyo headquarters, and its Shanghai office performed the task under the contact. The loading time was determined according to the B/L, and it was not required to be specified in the loading notice. After the risk occurred, the [Buyer] notified the [Insurer] at the earliest time, and tried its best to provide all kinds of documents to the [Insurer]. In fact, the material submitted by the [Insurer] to the Court could prove that the [Buyer] had fully performed its notifying duty, because most of the [Insurer]'s evidence was provided by the [Buyer]. The investigators, who were appointed by the [Insurer], proved that the loss occurred in their investigation report.

The [Insurer] alleged that, according to Article 222 of the Maritime Code of the PRC, the [Buyer] should have performed a notifying duty. The insurance application specified the sailing time was 10 September 1999, but did not specify the insured subject and amount, and lacked a loading notice. Under such circumstances, the [Buyer] neither performed the sales contract, nor issued the L/C, so it bought insurance when the conditions were not satisfied. After the first insurance application failed, on 27 September 1999, the [Buyer] applied for the second time, and presented the loading notice sent by the [Seller]'s Shanghai Office, but this notice did not specify the faxing date or sailing time, so it was not a sailing notice; in addition, this notice stated that it would be sent to the [Seller], which showed that Shanghai office did not have authority to issue the loading notice. The [Buyer] applied for insurance on 27 September 1999, seven days after the expiration of the L/C, which proved that the [Buyer] did not want to make the payment, and only intended to obtain the insurance policy; therefore, the insurance policy was invalid.

The Court held that the disputes in this case arose under the international transportation insurance contract; although the insured goods were shipped from Port-Gentil and Owendo in Gabon to Zhang Jia Gang in China, and the risk occurred abroad, the insurance contract was signed by the [Buyer] and the [Insurer], both of which are Chinese legal persons, the place of execution and the place of indemnity stipulated in the insurance policy was in Nanjing, China, and the terms and conditions in the insurance policy are those of China People's Insurance Corporation's Insurance of Maritime Transportation of Goods (amended in 1 January 1981).

Article 2(1) of the Contract Law of the PRC stipulates:

"A contract in this Law refers to an agreement establishing, modifying and terminating the civil rights and obligations between subjects of equal footing, that is, between natural persons, legal persons or other organizations."

Article 3 of the Insurance Law of the People's Republic of China stipulates:

"Those who engage in insurance activities within the People's Republic of China shall abide by this Law."

Article 147 of the Insurance Law stipulates:

"The relevant regulations in Maritime Law apply Maritime insurance, and the relevant regulations of this law apply if the Maritime Law does not stipulate."

Accordingly, the Contract Law of the PRC, the Insurance Law of the PRC and the Maritime Code of the PRC apply to this case. According to 222(1) of the Maritime Code, the notifying duty is the insured's legal obligation before the insurance contract is concluded, and is a main part of the good faith requirement, which is that the insured shall truthfully inform the insurer of the material circumstances which the insured has knowledge of or ought to have knowledge of in his ordinary business practice and which may have a bearing on the insurer in deciding the premium or whether be agrees to insure or not.

According to trade and maritime customs, in the shipping notice the seller should inform the buyer of the contract number, name of merchandise, quantity, weight, invoice amount, name of vessel, etc. within the stipulated period, so that the buyer could buy insurance, prepare for unloading of the goods, and go through the customs procedure. In this case, the [Buyer] applied for insurance according to the shipping notice issued by the [Seller]'s Shanghai office, and the sales contract, etc. After receiving the shipping notice, the [Insurer] accepted the application and issued the insurance policy on 27 September 1999. The condition of the goods was consistent with the shipping notice, and did not affect the [Insurer]'s decision of premium rate or whether to accept the application before the maritime insurance was concluded. The shipping notice issued on 27 September 1999 did not include the specific faxing date, which only proved that this notice was not sent via facsimile. Although this shipping notice did not specify the sailing date, the sailing date was not a necessary content in the shipping notice. After receiving the shipping notice, the [Insurer]'s staff knew the necessary factors and signed the insurance policy. This proved that the shipping notice did not affect the [Insurer]'s decision on the premium rate or whether to accept the application before the insurance contract was concluded. With respect to the [Insurer]'s allegation that the insurance contract was invalid, it should be determined according to Article 52 of the Contract Law of the PRC and Article 11(2) of the Insurance Law of the PRC. The [Buyer] applied for insurance on 27 September 1999, seven days after the expiration of the L/C, which did not constitute a reason to make the insurance contract invalid. Therefore, the Court should not sustain the [Insurer]'s defense that the [Buyer] failed to perform its notifying duty, which caused the insurance contact to be invalid.

As to the second issue, the [Buyer] alleged that Article 11(3) of the Insurance Law of the PRC stipulates:

"Insurable interest shall mean the legally acknowledged interest that the Applicant has toward the subject matter insured."

Legally acknowledged interest means the economic interest of the applicant or the insured due to the insured subject. The applicant would suffer loss of this economic interest when the accident covered by the insurance occurred to the insured subject, and would still have this economic interest if the covered accident did not occur. Insurance is based on risk, so the party who faces risk has an insurable interest. As to the insurable interest in the goods, it should be determined according to the transfer of ownership and/or risk. If the ownership and risk of the goods is not separated, the owner of the goods generally only has the insurable interest; or before the ownership of the goods is transferred to the buyer, the buyer does not have an insurable interest in the goods. This often causes difficulty in insurance arrangements, so in most of current international trade contracts, CIF, CFR or FOB, etc. is adopted. According to ICC INCOTERMS and the United Nations Convention on Contracts for International Sales of Goods, the principle of separation of ownership and risk is adopted; the risk is transferred to the buyer, when the goods pass the rail at the loading port; thereafter, even if the buyer does not obtain the ownership of the goods, it has an insurable interest. Regarding this, some scholars' take the position that that the following party has an insurable interest: although this party does not obtain the goods, it has reasonable anticipated interest of some property according to contractual relations. If the buyer in an international sales contract does not obtain the ownership of the goods, it nevertheless can purchase insurance on the goods which the buyer will receive, before the goods are delivered. In sum, it is the [Buyer]'s position that according to the relevant laws and the principle of jurisprudence, the [Buyer] can have an insurable interest; and there were some similar cases in legal practice in China; there is no doubt that the [Buyer] had an insurable interest; the [Insurer]'s defense that the [Buyer] had not insurable interest is not justified.

The [Insurer], however, alleged that when SAGANA sunk and the loss occurred, the [Buyer] had no insurable interest, so the [Insurer] was entitled to reject the claim. Article 11 of the Insurance Law of the PRC stipulates:

"The Applicant shall have an insurable interest in the subject matter insured. The insurance contract shall be null and void if the Applicant has no insurable interest in the subject matter insured …"

The Court holds:

A. It is commonly known that whether the insured under an insurance policy has an insurable interest should be determined by whether the insured has ownership of the goods when the loss occurs, whether or not the insured legally holds the certificate of ownership -- bill of lading. A bill of lading represents the goods; sale of the bill of lading equals sale of the goods, which is a normal business transaction. From the legal perspective, the transfer of a bill of lading is the transfer of ownership. A bill of lading is consistent with the goods under the bill of lading. The party who is the owner of the goods should hold the bill of lading; the party who wants to obtain the bill of lading should pay consideration (pay the contract price) to obtain the bill of lading. The [Seller] in this case neither delivered the goods according to the documents, nor received the payment according to the documents. The [Buyer] did not make the payment according to the documents. The sales contract was not performed, and the transaction did not occur. When the loss occurred, the [Buyer] did not legally hold the bills of lading, so it had no insurable interest.

B. Under a C&F contract, the buyer should be responsible for insurance, i.e., the buyer was the insurance applicant and insured. When the goods passed the rail, the risk was transferred from the [Seller] to the [Buyer], but the ownership of the goods was not transferred to the [Buyer]. According to the principle of insurable interest, if the [Buyer] only had the legally acknowledged interest, it could absolutely buy the insurance; under such circumstances, obtaining the insurance is no problem. The issue was the indivisible relation among the insurance, transportation, and transfer of certificate of ownership. In international trade, sales contract, payment contract, transportation contract and insurance contract are closely related, and any problem may cause severe legal consequences. Therefore, any intent to separate the above contracts should be dismissed. Thus, when the [Seller] or both parties breached the sales contract, whether the [Buyer] had an insurable interest was the issue in this case. When the payment is made by L/C, if the seller submits the complying documents, the issuing bank shall make the payment. This is the issuing bank's obligation under an irrevocable L/C, and the beneficiary's right to receive the payment. If the seller (beneficiary) presents documents that are inconsistent with the L/C, the issuing bank is entitled to reject making payment. In this case, because the [Seller] did not present documents consistent with the L/C within the stipulated L/C validity period, and the issuing bank rejected making the payment due to inconsistency of the documents and the L/C, and it was the [Buyer]'s right to reject the documents. Because the [Seller] did not deliver the complying documents according to the L/C, it breached the sales contract; therefore, the [Buyer] rejected the documents, and refused to make the payment, and the performance of the sales contract was suspended. In other words, when the [Seller] breached the sales contract, the performance was suspended, and the risk of the goods, which had already been transferred to the [Buyer], was also suspended, and the risk was still borne by the [Seller]. As to the insurance contract, the [Buyer] had the insurable risk, when it bore the risk of goods. However, because the sales contract was cancelled, the [Buyer] did not bear the risk of the goods any more; therefore, the [Buyer] did not have an insurable interest anymore, and the obligations under the insurance contract were cancelled; and the insurer did not bear any liability for any loss of the goods at that time or thereafter. The [Buyer] rejected the documents because of the [Seller]'s breach, and did not make the payment against the documents; the [Buyer] did not pay the consideration for the bills of lading when applying for, buying and after buying the insurance, so the [Buyer] did not suffer any loss at all. If the [Insurer] indemnified the [Buyer], it would be an unjustified enrichment. In sum, because the [Buyer] did not have an insurable interest in the insured subject, the insurance policy was void. Therefore, according to the relevant law, the [Buyer]'s claims should be dismissed.

Article 11(3) of the Insurance Law of the People's Republic of China stipulates that:

"Insurable interest shall mean the legally acknowledged interest that the Applicant has toward the subject matter insured."

In determining whether having an insurable interest in essential to conclude and perform an insurable contract, the international maritime transportation insurance contract is related to the international contract for the sale of goods, so the relevant law or convention governing international sales of goods, i.e., CISG and INCOTERMS 1990 shall apply to this case. Meanwhile, the L/C under the sales contract in this case should be governed by UCP 500 (1993 amendment).

In international trade, the insurable interest should be determined by the transfer of the risk and ownership of the goods; however, the risk and ownership could be separated. CISG stipulates the transfer of risk, but does not stipulate the transfer of ownership. According to the CISG, the transfer of risk shall be determined according to the stipulation in the sales contract; in practice, the transfer of ownership is determined according to the transfer of the bill of lading. According to INCOTERMS 1990, under the term CFR, the delivery of goods is a symbolic delivery, which means that delivery of bill of lading, letter of credit, certificate of origin, etc. equals delivery of goods, but not a physical delivery when the goods passed the rail at the loading or unloading port. However, the transfer of risk of goods is determined by whether the goods pass the rail or not.

Under the term CFR, the payment term and delivery term are essential to a sales contract. If the seller fails to fully perform these terms, which causes that the contract cannot be performed, this does not necessarily mean the contract is automatically cancelled. In order to continue performing the contract, the parties can reach a new agreement on payment and delivery terms. Therefore, when the negotiation bank rejected making the payment, the [Buyer]'s risk of loss of goods was suspended; whether the [Buyer] bore the risk was determined by the specific situation.

Under the term CFR, the ownership and risk is separated when the goods pass the rail. If the payment is successfully made against documents, the ownership and risk are combined again. If the payments are not successfully made against documents, and before the goods are damaged and the parties fail to reach an agreement on the delivery and payment terms, the risk should be borne by the seller; if an agreement is reached, the risk is borne by the buyer.

In any event, before or when the sales contract is modified, if the parties to the sales contract know the loss of goods has occurred, and the subject matter of the sales contract does not exist due to the loss, the goods cannot be actually delivered. Accordingly, the bill of lading as the certificate of ownership loses its function as the certificate of ownership requesting the carrier to deliver the goods; the sales contract is automatically cancelled, the buyer does not bear the risk of loss of goods.

In this case, on 23 August 1999 the [Buyer] signed Sales Contract No. IQA-0119 with the [Seller], and the delivery term was C&F (F.O.) Zhang Jia Gang or Shanghai, China. C&F is CFR. The payment term stipulated in this sales contract was by L/C issued in July 1999; because the time could not be retroactive, the parties could not issue the L/C in July 1999, which showed that the payment term stipulated in the sales contract had defects. The L/C under the sales contract stipulated that the L/C should expire in Hong Kong on 15 October 1999, and the documents should be delivered within 21 days after the B/L was issued and within the valid period of the L/C … On 21 September 1999, the [Buyer] issued the L/C. As to the above facts, neither party raised any objection. According to Article 43 of UCP 500:

"A. In addition to stipulating an expiry date for presentation of documents, every Credit which calls for a transport document(s) should also stipulate a specified period of time after the date of shipment during which presentation must be made in compliance with the terms and conditions of the Credit. If no such period of time is stipulated, banks will not accept documents presented to them later than 21 days after the date of shipment. In any event, documents must be presented not later than the expiry date of the Credit …"

The bank should not receive the documents presented more than 21 days after the bills of lading were issued.

Sales Contract No. IQA-0119 stipulates that the documents under the L/C should be presented within 21 days of the loading time. This stipulation in the sales contract proved that the parties did not reach any agreement on the payment term. In fact, the documents could not satisfy the payment terms stipulated in the sales contract. The sales contract stipulates that the notifying party of the bill of lading was Nanjing Foreign Investment Resources Supply Company; but the carrier SETRAMAR FRANCE SA issued the Bills of Lading on 29 and 30 August 1999, respectively, stating that the notifying party was the [Seller]. The [Seller] did not provide the complying invoices and other documents according to the sales contract; the invoices were issued on 11 October and 1 November, respectively, both of which exceeded 21 days of the loading time.

The faxes regarding modification of the bills of lading between the [Seller] and the carrier from 15 October 1999 to 25 October 1999 showed that the switch bill of lading, which the [Buyer] alleged, was issued after 25 October 1999, and the invoice was issued on 1 November, both of which were issued out of the expiration date, 15 October 1999, of the L/C. These facts proved that the [Seller] did not perform the obligation to timely deliver the relevant documents according to the sales contract and relevant laws, which caused that the bill of lading and other documents could not be delivered timely to exchange payment. C&F is CFR. According to INCOTERMS 1990, under the term of CFR, the [Buyer] should have borne the risk after the goods pass the rail at the loading port, but because of the [Seller]'s breach, the transfer of risk was suspended, the [Seller] still bore the risk. Thereafter, the [Buyer] applied to the issuing bank to revise the L/C on 12 October 1999, and on 14 October 1999, the issuing bank revised the L/C; on 11 November 1999, because of the inconsistency of the documents and the L/C, and the expiration of the L/C, the issuing bank rejected the documents and refused to make the payment. The parties did not reach any agreement on the payment terms, so the [Seller] still bore the risk and held the ownership. Thereafter, although the [Seller] directly delivered the bills of lading to the [Buyer], because the loss of the goods occurred on 12 October 1999, the [Buyer] could not perform the sales contract, and the [Seller]'s delivery of the bills of lading had no legal effect.

In addition, the parties modified the L/C and exchanged the bills of lading after the loss of goods occurred; because of the loss of goods, the carrier was not entitled to issue the switch bill of lading; the modification of the payment term did not affect the risk bearing. The [Seller] should bear the risk of the goods.

In conclusion, in this case, after the [Buyer] and the [Insurer] signed the maritime transportation insurance contract, because the payment term in the sales contract had defects, and the loss of goods occurred before the modification of contract, the [Buyer] neither bore risk of loss of the goods nor obtained the ownership when the loss occurred; the [Buyer] did not have an insurable interest. According to Article 11(2) of the Insurance Law of the PRC -- "Insurable interest shall mean the legally acknowledged interest that the Applicant has toward the subject matter insured" -- the marine cargo transportation insurance contract was void. The Court does not sustain the [Buyer]'s claim for indemnity and other damages. The [Insurer] should refund the premium under the insurance contact. According to Article 11 of the Insurance Law of the PRC, Article 216 of the Maritime Code of the PRC, Article 58 of the Contract Law of the PRC, Article 30 and Article 34 of CISG, and Article 128 of the Law of Civil Procedure of the PRC, the Court handed down the following judgment:

   (1)   The [Buyer]'s litigation claims are dismissed;
   (2)   The [Insurer] should refund the [Buyer] the insurance premium, RMB 21,532.65, within 10 days after this judgment takes effect.

The litigation fee is RMB 81,970, which the [Buyer] should bear. The implementation fee to obtain evidence was RMB 2,587, of which the [Buyer] and the [Insurer] should bear RMB 1,293.50, respectively.

If this judgment is objected to, the party can appeal through this Court to Hubei Province Higher People's Court, and provide copies according to the number of the counter parties.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of the People's Republic of China is referred to as [Buyer]; Defendant is referred to as [Insurer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

*** William Zheng is a graduate of the Pace University School of Law. He is Special Counsel with the Shanghai office of Sheppard Mullin Richter & Hampton, LLP.

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Pace Law School Institute of International Commercial Law - Last updated May 11, 2010
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