Time Limit —— the Key to the Lawsuits

With the development of China’s economy, more and more foreign investment enters into the domestic market. Foreign investors may be looking forward to sharing the achievements of the development of China’s economy, or they may have already had business in China. However, things won’t remain propitious forever. Foreign investors have to deal with lawsuits in China. They are generally in a disadvantaged position for that they are not quite clear about Chinese laws.

If you are a businessman having business in China or preparing to do so, it is an honor for me to provide you with some personal ideas about matters that you had better know about the trials in Chinese courts. I have to say that it’s really a pity that I cannot show you the differences between the specific Chinese and foreign legal procedures, because I’m not quite familiar with those provisions of foreign laws. But according to my experience, I want to remind you of some points that might be helpful.

AFTER RECEIVING THE DOCUMENTS, HURRY UP!

Once you receive the notice of accepting the case and the notice for responding to the suit form the people’s court, please be serious and react immediately.
You have to spend a lot to submit the requisite materials before the deadline because it’s a hard job to complete the work within the time limit. The time limit is short and the work is time-consuming.

1. Time Limit for Producing Evidences
The time period for producing evidences may be agreed upon by the parties concerned and be affirmed by the people's court.
If the time period for producing evidences is designated by the people's court, the designated time period shall be not less 30 days, starting from the next day when the parties concerned receive the notice of accepting the case and the notice for responding to the suit.
Generally speaking, the time limit for producing evidences will be 30 days. During this period of time, you have several tasks to fulfill.

1.1 To Look for a Lawyer
You may need to look for a good Chinese lawyer to help you in the trial. It’s not an easy job for a foreigner to find an appropriate person in a short time. Several days seem to be inadequate. Afterward the lawyer will have to think how to answer the charge. It also takes time.

1.2 To Prepare the Requisite Materials
At the same time, you should prepare the requisite materials such as business licence, copies of the evidences and so on.
Here, you have 3 tasks.

1.2.1 To decide what should be submitted as evidence
You have to select the materials favorable to you form a large number of materials. It may be cumbersome and time-consuming.

1.2.2 To notarize the materials if they are formed overseas
If the evidence submitted by the parties concerned is formed beyond China’s territory, the evidence shall be subject to the certification of the notarization organ of the country concerned and shall be authenticated by China’s embassy stationed in the said country, or shall be subject to the certification formalities as provided in the relevant treaties concluded between China and the said country.
This process is complicated and may probably take 2 to 3 weeks.

1.2.3 To translate the materials into Chinese if they are in foreign languages
If a document in a foreign language is submitted as evidence, a Chinese translation shall be appended.
It is likely that one week is needed to translate the English version of the materials into Chinese.
Let’s have a simple calculation:

1. 5 days for looking for a lawyer;
2. 15 days for notarization;
3. 7 days for translation.

Then 27 days have passed in all. However, you only have 30 days for adducing evidences. If you cannot react immediately after receiving the legal documents, you may have to bear the risk that you shall be deemed as giving up the right to produce evidences.

2. Time Limit for Applying for Authentication
The parties concerned who apply for the authentication shall make the application within the time period for producing evidences.
If any party concerned who bears the burden of proof for the matters that need to be authenticated fails to file an application for authentication within the time limit prescribed by the people's court or fails pay in advance the expenses for authentication or refuses to provide relevant materials without justification so that the facts under disputes cannot be affirmed by way of a conclusion of authentication, it shall undertake the harmful consequences of inability to produce evidences.
If you cannot act according to such provisions, you may lose your right to call for authentication. Therefore, you should submit the application and provide relevant materials in time.
Therefore, you have to hurry up once you receive the legal documents. There’s inadequate time for you to finish everything within such a short time.

ONCE THE LAWSUIT BEGINS, BE PATIENT!

Please be patient once the lawsuit begins for that you cannot expect that the lawsuit will be closed within one day or two (In particular the case need Applying for Authentication). On the other hand, the time limit of the trial of a civil case involving foreign elements is different form other civil cases. The facts may be more complicated and it is more difficult for the people’s court to make a decision.

1. Time Limit of the Trial of a Civil Case Involving Foreign Elements
The time limit of the trial of a civil case involving foreign elements is governed by specific provisions.
In general situation, a people’s court shall complete the adjudication of a case to which ordinary procedure is applied within six months after the case is accepted. When adjudicating an appeal from a judgment, the people’s court shall make a final judgment within three months after the appeal was accepted for an adjudication of second instance.
The people’s court will close a case of first instance or an appealed case within the time limit provided as above.
However, the time period for handling a civil case involving foreign elements by the people’s court will not limited to the two time period above.
On the other hand, it is provided that civil cases involving foreign elements shall be concluded within 3 months after the end of the court session.
This is a restriction for the people’s court to try a civil case involving foreign elements.
But what’s the deadline of the end of the court session? It’s hard to say. It depends on the facts of the case. If the case is complicated, the people’s court may need more time to make its decision.
Therefore, once the lawsuit begins, we cannot tell you the definite time period that the people’s court will close the case. We should make a concrete analysis of concrete conditions. Excessive apprehension is meaningless and useless. It’s unreasonable for you to worry about the time limit of the trial.

2. Time Limit of the Trial of an Appealed Case
In trying an appealed case against a judgment, a three-month extension may be given subject to the approval of the president of the said court, where an extension of the term is necessary for special circumstances,.
It means that we can have another 3 months if it is necessary. There’s no need for you to be anxious about the time limit of the trial of an appealed case. Through the application of the extension of the term, we can have sufficient time to deal with the trial.

Relevant laws:

Civil Procedure Law of the People’s Republic of China（2007）

Article 135 A people’s court shall complete the adjudication of a case to which ordinary procedure is applied within six months after the case is accepted. Where an extension of the term is necessary for special circumstances, a six-month extension may be given upon the approval of the president of the court. Any further extension shall be reported to the people’s court at a higher level for approval.
Section 4 Lawsuit Suspension and Conclusion

Article 159 When adjudicating an appeal from a judgment, the people’s court shall make a final judgment within three months after the appeal was accepted for an adjudication of second instance. Any extension of the term necessitated by special circumstances shall be subject to the approval of the president of the court.
When adjudicating an appeal from a ruling, the people’s court shall make a final ruling within 30 days after the case was accepted for an adjudication of second instance.

Article 248 The time period for handling a civil case involving foreign elements by the people’s court shall not be limited by the provisions of Article 135 and 159 of this Law.

In short, I think you should react as quickly as possible once you receive the legal documents. Please try your best to finish preparing for the procedures. If you fail to do so, you may lose your rights related. However, after the trial is started, you should keep patient. The time period of the trial is uncertain and I think the lawyer will help you deal with the case. After all, I think you should pay enough attention to Chinese laws prior to the happening of a lawsuit. Enough knowledge about Chinese laws may help you avoid many potential risks, and make your business in China easy.

A Contract Shall Be Null And Void

A contract shall be null and void under any of the following circumstances:

(1) A contract is concluded through the use of fraud or coercion by one party to damage the interests of the State;

(2) Malicious collusion is conducted to damage the interests of the State, a collective or a third party;

(3) An illegitimate purpose is concealed under the guise of legitimate acts;

(4) Damaging the public interests;

(5) Violating the compulsory provisions of the laws and administrative regulations.

China Product Liability

As we all know,in modern society, with the development of science and technology, more and more products of all kinds turn up and they possess more and more functions and become more and more complicated to use, which bring about the increasing risks and a lot of injuries when being used accordingly.

Therefore, recently a great deal of attention has been given to cases involving products liability. And those developed countries, areas or unions such as USA and the EU take pains to make legislation on the issue of products liability with the intention of protecting legal rights of consumers and users, in which the doctrine of strict liability is stipulated. When applied to these cases, this doctrine holds one reliable for injuries caused by a defective, unreasonably dangerous product that he has placed on the market.

In China, stipulation concerning production liability can be first traced in General principles of the Civil Law of the People’s Republic of China, in Article 122 of which stipulates “ If a substandard product causes property damage or physical injury to others, the manufacturer or seller shall bear civil liability according to law.” Later, it is stipulated in the Product Quality Law enacted in 1993 that the manufacturer of a substandard product should bear the corresponding administrative liability and criminal liability, besides civil liability. Obviously it is urgent that some improvement should be made in legislation on Product liability compared with legislation in developed countries.

Dispute Over Stock Rights On Chinese-Foreign Joint Ventures

Authored by: Zhong Yi, Attorney at Law - Shanghai Runhe Law Firm
Editor by:Corinna Qian

Case Background

First-instance court: the Higher People’s Court of Shanghai Municipality
Appeal court: the PRC Supreme People’s Court
Appellant (Defendant in the first instance): Company A
Appellee (Plaintiff in the first instance): Company B

On March 3 1992, Joint Venture Company D was established in Shanghai. Its shareholders and equity percentages are as follows: the Chinese party Company C contributed 2 million USD, the foreign party Company E contributed 2.5 million USD and the foreign party Company B contributes 5.5 million USD. Among them, Company B was registered by the Head Office of Hong Kong Company Registry and was so established on July 18, 1991, and each of its shareholders (Persons A, B, C, D and E) hold 20%.

On September 16, 1995, upon the application by Company A (registered and established in Canada on June 1st 1994 whose directors are Person D and Person E) and Person D, People’s Government of Changning District, Shanghai Municipality (hereinafter referred as Changning Government) confirmed that Company B, the former investor, has moved its address to Canada and its name has changed into Company A; Changning Government so approved that after the adjustment, the investors of Company D were Company A, Company C and Company E and the equity percentages and profits distribution of each party remained same.

On May 25, 1998, Shanghai Municipal People’s Government issued the WJMHHZ No. xxxx (1997) “PRC Certificate of Approval of the Foreign-funded Enterprise” to Company D, which stated that the three investors of the joint venture Company D should be Company A, Company C and Company E. Relevant procedures for company modification registration with Administration of Industry and Commerce (AIC) have been settled.

The result of the first instance

In May 1998, Company B brought a lawsuit again Company A, Company C, Company E and Person D to Shanghai Higher Court alleging that Company B had never moved its address to Canada and had never changed its name，thus, Company A encroached upon Company B’s 55% of equity rights in Company D; that Company A shall immediately amend its registration in AIC and return its 55% equities in Company D（5.5 million USD） to Company B.

Shanghai Higher Court held that: before September 16, 1995, Company D had three investors, namely, Companies B, C and E. As for the fact whether Company B was renamed as Company A and moved to Canada after September 16, the existing evidence could sufficiently prove that Company B was never renamed as Company A, nor was it moved to Canada, or legally speaking, there never existed the renaming fact between companies of different nationalities or the move. Even if there existed disputes over rights between Company B’s shareholders, there was no factual basis for Company A to obtain the status as a shareholder of Company B by the abovementioned means. Meanwhile, it violated the legal provisions, and its act infringed Company B’s rights and interests.

The first-instance court decreed that: (1) Company B shall be confirmed to be one of the shareholders of Company D, and to have totally invested USD 5.5 million; (2) Company A shall stop its tort, and shall, within 10 days as of effectiveness of the judgment, go through the corresponding procedures for modification of industrial and commercial registration, and Company B shall be deemed as an investor and to have contributed the capital; and (3) Company B’s other litigation claims shall not be supported. The RMB 237,701.75 Yuan of case acceptance fee shall be born by Company A.

The result of the second instance

Company A was dissatisfied with the first-instance judgment, and appealed to the Supreme Court of PRC by alleging that: on December 8, 1992, Company B borrowed 5.5 million USD from Company A due to lack of funds. The principal shall become due two years later and shall be repaid once for all and if Company B fails to repay, it shall assign all its shares in the project to Company A. The shares in the mainland project referred in this agreement are the 55% shares of Company D in this dispute. After paying the fund pursuant to the agreement, Company A demanded repayment for many times, but Company B was unable to repay them. Upon the expiration of the loan term, Company A received the shares in question pursuant to the agreement with the assistance of Company B, Company D and other shareholders. The modification of shares was approved by Changning Government, and the industrial and commercial registration of modification was also completed. Therefore, Company A’s receiving Company B’s 55% of shares in Company D was not a tort, but the result of the assignment of shares between both parties pursuant to the agreement.

The Supreme People’s Court holds that: this case is affirmative petitory action. Normally speaking, affirmative dispute can be solved by civil litigation. However, this case is a special one in which an share modification of joint venture has been involved. According to PRC Law on Sino-foreign Equity Joint Venture，with respect to the modification of shares of a Chinese-foreign joint venture, the approval of relevant administrative departments constitutes an essential element, instead of a procedural or formal requirement, and unapproved modification shall of course be ineffective. In the present case, Company B’s 55% of stock rights in Company D were approved by relevant competent departments, and Company D has completed the corresponding registration procedures, hence it fulfilled the elements of effectiveness prescribed in law. Although Company B brought the civil lawsuit with the people’s court regarding the dispute over stock rights, in essence, it aimed to deny the reply of Changning Government, the registration of Shanghai Municipal AIC, and the certificate of approval on foreign-funded enterprise as issued by Shanghai Municipal Government, that is, to deny the relevant specific administrative acts made by the administrative departments. Generally, a people’s court may modify relevant administrative acts directly or indirectly through the adjudication results from the civil litigation, but these administrative acts shall be understood as procedural or formal acts, such as archival filing, registration, etc. While substantive administrative acts, such as the approval involved in the present case, are special powers authorized by the laws of China to relevant administrative departments, and may not be modified through civil litigation procedures or civil judgments. Even if an approval is not appropriate, it may only be corrected through administrative reconsideration procedures or administrative litigation procedures.

Therefore, in the present case, Company B’s pleading of confirmation on its stock rights in the Chinese-foreign joint venture may only be resolved through administrative reconsideration or administrative litigation avenue, instead of civil litigation. It is not appropriate for the first-instance court to judge directly through civil litigation that the specific administrative acts shall be modified and so this judgment shall be corrected. Company B’s civil lawsuit in the present case is inappropriate, and shall be rejected. Finally, the second-instance court ruled that the first judgment should be overruled and Company B’s lawsuit should be rejected.

Case analysis

The essence of the dispute in this present case is a dispute between Company B and Company A regarding the ownership of the 55% of stock rights in Company D. In the first instance, Company B claimed that since it has never changed its name to Company A，Company A infringed Company B’s right on stock ownership due to its action of obtaining Company B’s shares in Company D by stating that Company B’s name has changed; and so that Company B brought this civil lawsuit with the first-instance court. We think that obviously, Company B was not aware that although the basis for Company A to obtain such shares is not real, this stock modification has gained the approval of administrative departments and this approval has come into force; for this reason, there existed relative big risks for Company B to get back its shares by bringing a civil lawsuit in order to modify the effective administrative act. Because Company A and the first-trial court also failed to recognize that this case has a concurrence of civil and administrative legal relationships which leads the cancellation of the judgment of the first trial. In the second instance, this legal point did not attract both parties’ attention. The second-instance court found this key point and made a correct judgment.

Analysis from the angle of Company B:
China laws state that the modification of joint ventures’ shares shall become effective upon the approval of competent administrative departments, so when one shareholder believes its stock right is infringed, it shall first carry out legal check on the administrative approval for such shareholder modification. In this case, Company B shall first go to relevant administrative bureaus to check documents and information provided by Company D when it applied for the shareholder modification. If the documents do not comply with form conditions, Company B can bring an administrative litigation or reconsideration and request rescission of such approval administrative act. Otherwise, it shall check the effectiveness of relevant documents, for example if the shareholder meeting or BOD resolution of Company B are not fully valid, it shall bring an affirmative litigation to confirm the invalidity of such documents. Then, request the administrative bureau to rescind the approval of this shareholder modification.

Analysis from the angle of Company A:
The amount of the shares in dispute is huge, however Company A did not carry out legal risk evaluation when it carried out the shareholder modification and its plan for such modification had obvious defects. This caused that both parties born big litigation costs for no reason. If Company A hoped to obtain Company B’s shares in Company D based on the Agreement on Mortgage of Stock Rights, it shall first reach Stock Transfer Agreement based on mortgage of stock rights with Company B then settle relevant administrative procedures for modification of stock rights, strictly following PRC laws, with the reason of change of shareholder but not change of shareholder’s name. If both parties cannot reach an agreement, Company A can still request the court to confirm the validity of the Agreement on Mortgage of Stock Rights and apply for enforcing implementation if the affirmative litigation successes.

As is mentioned above, we suggest all shareholders that regarding the modifications or litigations concerning stock rights in foreign-Sino joint ventures, lawyers with significant experience in company and administration laws shall be invited. Only through this way, the legal interests of shareholders can be protected in the best way.

The Disputes over Breach of Contract on Maritime International Freight Forwarding Businesses

Case Background:

Civil verdict of Shanghai Maritime Court of the PRC
Plaintiff: ### Export Co.(“Party A” hereinafter, the holder of bills of lading and the shipper)
Defendant: ### Storage and Sea-freight Co. Ltd. (“Party B” hereinafter, the freight forwarder of the plaintiff and the freight agent of the second defendant “Party C”)
Defendant: ### Shipping Company (“Party C” hereinafter, the contractual carrier in the bills of lading)
Defendant: ### Marine Corp. Ltd. (“Party D” hereinafter, the actual carrier)

The plaintiff claimed that in September, 1995, it consigned a batch of garments to "Party B" from Shanghai to Germany, and "Party B" issued a set of bills of lading and "Party D" did the actual carriage. After having shipped out the goods for a long time, the plaintiff failed to receive the payment and it learned through inquiry that the goods had been released at the port of destination. Thus the plaintiff resorted to the court and pleaded it to order the three defendants to jointly compensate for the losses, totaling RMB 3542437.23 yuan. In addition, the plaintiff claimed in the court, defendant "Party B" has an identification of double agency. Violating the will of the plaintiff, it modified the records on the maritime bills of lading by itself. Its act directly caused the release of goods at the destination port to any other party that had nothing to do with the plaintiff. The consignee was the agent specified by defendant "Party C" and defendant "Party D" hadn’t released cargo upon instructions. Thus the three defendants shall be liable for the economic losses that the plaintiff suffered from releasing cargo without bills of lading.

Defendant "Party B" argued that as the freight agent of the plaintiff, it was at fault in this matter, but its fault would not result in the release of goods without bills of lading. It pleaded the court to make a fair judgment on the basis of facts and the consequence of its fault.

Defendant "Party C" argued that, during the whole course of this matter, it only charged fees of agency for lending a bills of lading, it wasn’t the actual carrier. It had never entrusted "Party B" to antedate the bills of lading. Thus "Party B" alone shall be liable for the legal consequences resulting from its act .

Defendant "Party D" argued that: The bills of lading, which was being held by the plaintiff, was not the one issued by "Party D" and on the back of which, there wasn’t a bank’s endorsement to the plaintiff, so the plaintiff wasn’t the legal holder of the bills of lading, it had no right to file a lawsuit against this Corp. In the whole course of the shipping, only defendant "Party B" had business with this "Party D" Defendant "Party C" had no business with it, thus it wasn’t the real carrier as provided in the Maritime Law. In addition, the whole set of bills of lading had been handed back by defendant "Party B" at the port of departure, thus it wasn’t wrong for it to deliver the goods according to the consignee’s name on the bills of the lading. For these reasons, it pleaded the court to dismiss the action against it lodged by the plaintiff in accordance with the law.

Upon hearing the case, the court found that:

The plaintiff and defendant “Party B” had ever signed an agreement on power of attorneyof export, for which the plaintiff entrusted “Party B” to ship out several batches of garments and required “that the goods is to be shipped by “Party D” only”. Because the shipping date was beyond the date as required by the L / C, the plaintiff requested that the bills of lading be antedated, and for which it issued a guarantee. According to the plaintiff’s instructions on the shipping order, it was shown in the bill of lading that the shipper should be the plaintiff, the consignee should be “upon instructions of Shanghai Branch of the People’s Bank of China”, the notifying party should be Aldgate Warehouse (Wholesale) Ltd. According to the said instructions, “Party B” booked space and handled other shipping procedures at “Party D”, but the latter refused to antedate the bill of lading, and it issued four bills of lading according to the actual on-board dates (hereinafter referred to as “Party D”’ bill of lading), and the dates thereon are: December 16, 1995, September 29, 1995, September 30, 1995 and December 9, 1995. Because of the written instructions and guarantee of “Party B”, there were inconsistencies between the above-mentioned bills of lading and the content instructed by the plaintiff, among which the shipper showed on the two bills was modified to “Party B”, all the notifying parties and consignees shown on the “Party D” bills of lading were modified to Jordan & Berger Nachf. In the court hearing, “Party B” claimed that Jordan Co. was the agent of “Party C” in Europe. After the “Party D” bills of lading had been issued out, they were taken away by “Party B”, but “Party B” claiming that these bills were given to “Party C”. The “Party D” affirmed that it had taken back the said bills of lading from “Party B” and they had been destroyed because of expiration of document preservation. The total freight under the “Party D” bills of lading were 13700 US$, which had been paid by “Party B” to the “Party D”. “Party C” charged “Party B” 320 US$ fees of agency by 80 US$ per container of 40 feet.

As to the above-mentioned facts, "Party B" presented a faxed power of attorney on sea-freight, the agreement (with the plaintiff), the guarantee issued by the plaintiff, and the bill of "Party C" to prove that the shipment of the goods was upon the instructions of the plaintiff, and "Party C" collected some charges. The plaintiff and "Party D" raised no objection to these proofs. "Party D" presented "Party B"’s shipment order, copies of the "Party D" bills of lading, note of modification and guarantee (issued by "Party B"), "Party B"’s note of acceptance of bills of lading, receipt document to proved that it made out the bills of lading according to "Party B" instructions, handed them to this company and charged sea-freight. The plaintiff and "Party B" raised no objection to the above-mentioned proofs.

At the time when the Party D’s bills of lading were issued, "Party B" obtained some blank bills of lading from "Party C". It made out the bills of lading according to the above-mentioned instructions of the plaintiff, affixed a seal “ ON BOARD” in the name of itself on these bills of lading, and then antedated them respectively to September 29, 1995, September15, 1995, September20, 1995 and September 29, 1995 in the name of "Party C" (hereinafter referred to as "Party C" bills of lading). The numbers on the "Party C" bills of lading were the same as those on the "Party D" bills of lading, in addition, it was marked a shipment number of "Party B" and on its back, there’s an instruction endorsed by the People’s Bank of China, Shanghai Branch: “Honor upon instructions of the Bank of Leumi.” It was shown on the commercial invoice and commercial draft presented by the plaintiff that the Bank of Leumi is the issuing bank of Aldgate (the notifying party on the Lianyun bills of lading). After the "Party C" Bills of lading had been made out, they were given to the plaintiff for settlement of exchange at the bank. When the plaintiff lodged this action, it held the whole set of "Party C" bills of lading. These facts were supported by the original "Party C" bills of lading, which were presented by the plaintiff for the purpose of proving that it was the owner and shipper of the goods involved in this case. In the court hearing, the three defendants raised no objection to this point.

On December 9, 1995 and December 11, 1995, "Party B" and "Party C" signed a power of attorney and a sea-freight agreement respectively, thus both parties became an agent of each other, and "Party B" had the right to issue the whole set of "Party C" bills of lading. "Party B" presented the entrustment, the sea-freight agreement and letter issued by Shanghai International Freight Forwarders Association to prove that it’s act of issuing the bills of lading didn’t violate the law. In the court hearing, the plaintiff raised no objection to this point, but it argued that "Party B" thus became a carrier without ship. "Party C" and "Party D" raised no objection to Party B’s argument.

to be continued

The Retrial for the International Air Freight Dispute

Authored by: Zhong Yi, Attorney at Law - Shanghai Runhe Law Firm
Editor by:Corinna Qian, Liu Fei

Case Background:

The courts:
The first instance court: The Intermediate People's Court of Huzhou City.
The second instance court: The High People's Court of Zhejiang Province.
The retrial court: The Supreme People’s Court.

Participants in proceedings:
One Garment Co. Ltd. of Huzhou City; it is the defendant in the first instance, the appellant in the second instance, the applicant for the retrial (hereinafter referred to as “Company A”).
One International Airfreight Co. Ltd.; it is the plaintiff in the first instance, the appellee in the second instance, the person against whom the application is made in the retrial, (hereinafter referred to as “ Company B”).

In early 1993, A company entered into a contract with an agency of an Italian company (hereinafter referred to as “Mr. Chen”) for the export of silk garments, the term of trade under the contract being FOB Shanghai.

On April 23 of the same year, Mr. CHEN concluded a transportation contract with one Italy International Freight Consultants Co., Ltd. (hereinafter referred to “ Company C”), consigning Company C as its sole consignee to transport the imported garments from China to Italy. The contact provided, dafter the arrival of the garments in Milan, Mr. CHEN should make immediate payment to Company C for the freight before pick them up; otherwise, he would have to pay for the storage costs.

On April 29, 1993, Mr. CHEN sent a fax to Company A, informing that Company C would be responsible for the transportation of the garments and the freight would be paid by him before picking up the garments in Milan.

From May to September 1993, for the convenience of booking space and departure operation and at the request of Company C, Company A completed he International Consignment Order of the China East Airline Co. (hereinafter referred to as EAST AIRLINE) and faxed to Company C. Company C gave this Order to Company B, which is a sales agency of EAST AIRLINE. Company A, upon Company C’s instruction, delivered garments seven times to the warehouse of Company B at the Shanghai Hongqiao Airport.
After receiving the garments, Company B filled in, signed and issued seven principal freight bills and sub carriage bills of EAST AIRLINE. It was recorded in the seven freight bills of EAST AIRLINE that the consignor was Company B and it was recorded in the seven sub-carriage bills that the consignor was Company A. Later, Company B paid in advance the freight respectively to EAST AIRLINE. After delivering the garments for transportation, Company B did not give Company A the original sheet of the sub carriage bills, nor did it request the payment of freight from Company A. The garments arrived in Milan in seven batches from May to September 1993. Mr. CHEN paid to Company C the total freight, the customs clearance expenses and other miscellaneous charges before picking up the garments. Company C issued to Mr. CHEN invoices and receipts, proclaiming the completion of the cargo freight contract.

However, on February 10, 1995, Company B wrote a letter to Company A, claiming that Company C, as the consignee of Company A, Company C has agency agreement with Company B. Company C delegated Company B to request from Company A the payment of the freight for seven-batch goods from Shanghai to Milan as per sub carriage air bills. After the refusal of Company A, Company B start litigation in the middle-level court of Huzhou, Zhejiang.

The first instance of this case:

Company B filed a lawsuit against Company A to the Intermediate People's Court of Huzhou City, requesting Company A to pay the cargo freight together with liquidated damage due to late payments.

Company A replied that it had no obligation to pay the freight, as the foreign buyer of the garments was responsible for the payment.

The Intermediate People's Court of Huzhou City, after hearing the case, believed that, although there was no written transport contract between Company A and Company B, Company A delivered them to the warehouse of Company B, and signed the freight bills. Then Company B delivered the garments to the final destination. As a result, Company B is entitled to claim the payment of freight from Company A. The Court held that Company A’s defence that the freight should be paid by the foreign consignee was groundless and henceforth ruled that Company A should pay the freight and corresponding liquidated damage for delay to Company B.

The second instance of this case:

Company A filed an appeal to the Higher People's Court of the Zhejiang Province.

The Higher People's Court of Zhejiang Province also believed that though no written contract of transportation was entered between the parties concerned, Company A exported goods in its own name and delivered the goods to the warehouse of Company B and affixed the signature to the freight bill as a confirmation, and Company B also sent goods to air carrier to the destination designated by Company A. Therefore, a contractual relationship should be deemed as being in existence between the two parties. Since Company B had performed its obligations of transporting the goods, Company A should accordingly pay the freight. The contract of transportation between Company C and its Italian client, Mr. CHEN was in no way connected with this case. Therefore, the Higher Court confirmed the ruling of the court of first instance.

The retrial instance of this case:

A company applied for a retrial to the Supreme Court.

The Supreme Court believed: although in this case, Company A delivered the garments to the warehouse of B company at Shanghai Hongqiao Airport, and the name of Company A appeared on the sub-carriage bills, it couldn't have meant that a consignment relationship existed between the two parties.

1. According to the terms of trade in the sales contract between Mr. CHEN and Company A, it was the obligation of the buyer to conclude a transportation contract for the delivery of garments and pay for the freight. Mr. CHEN signed the transportation contract with Company C which provided that Company C was the consignee for the seven batches of goods and Mr. CHEN was the consignor.

According to the stipulation of the Transportation Contract, Company A shall deliver goods to Company C. As Company C was not a qualified agent handling international freight transportation business in China, Company C had to sub- consign a Chinese agent in Shanghai to assist it to compete the local transportation. The delivery of goods to the warehouse of Company B was an act done at the request of Company C, not a consignment made by Company A. Company B was not the consignee of Company A, but the agent of Company C for the consignment of goods.

2. Article 11(1) of the Convention for the Unification of Certain Rules Relating to International Carriage by Air (the Warsaw Convention), to which China is a contracting party, stipulates:" unless there is evidence to prove the contrary, the airfreight bill is the proof of the contract, receipt of goods and terms of carriage". Though in the present case, Company B issued the airfreight bills, the fact that Mr. CHEN and Company C paid freight according to the contract proved that the freight bills were not valid testimony of the existence of a contract between the parties. Company B never gave to Company A, between May and September of 1993 when B company delivered the consignments, the original sheet of the freight bill for the consignor which was evidence of the existence of a transportation contract, only until 15 to 21 months later that it claimed the payment of freight. It was a violation of the Warsaw Convention and the relevant international practices relating to the agency of carriage by air. This also showed that Company B had not deemed that there was transportation consignment relationship between Company B and Company A.

3. The claim of Company B is also untenable. Its claim is that since Company C had transferred the right of payment claim to Company A, Company B can claim the payment of freight from Company A. As evidences which showed that Company C had received the total freight paid by Mr. CHEN, the Italian agent and the transportation contract had been fully performed, therefore the right to request payment did not exist anymore. What is more, such change of party who shall bear the payment obligation by forwarding agencies based on their agency relationship is in violation of the terms of trade agreed by parties of the sale contract.

In the present case, Company C, after finding a customer, i.e. Mr. CHEN, in Italy, sub-consigned Company B, another international cargo freight agent in China to settle the export. The final receivers of the goods in the case are the clients of Company A in Italy, instead of Company C. This relationship between Company C and Company B has nothing to do with the owner of the goods. Mr. CHEN paid the freight of the goods to Company C and the latter should in turn pay Company B for their payment in advance based on the agency relationship. The freight paid by Company B to airplane company was for Company C, so the freight shall be returned by Company C. Should Company C failed to pay back, it is a commercial risk. Company B can not claim right using the reason of interests transfer, so that damage the interests of the third party.

The Supreme Court renders the following ruling:
Revoke the rulings of the courts of the first and the second instances and reject the requests of Company B.

The analysis and opinions of lawyer:

Before discussing this case, we shall clarify the following definitions:
“The Regulation of International Transport of Civil Aviation of the People's Republic of China” provides:
“The consignee”: It means the consignees who issues the air fright bill and delivers the garments, agrees to deliver the garments or provides other services related to the air transport.
“Agent”: It means any person who handles international freights on behalf of consignee and with his authorization.
“Consignor”: It means the person who enters into the freight contract with the consignee and whose name appears as consignor in the freight bill.
“Fright Bill”: It is the primary proof of the air freight contract, terms of carriage and receipt of goods by the consignee.

According the definitions above, Company B is the “agent” and East Air is the “consignor”. Company B deems Company A as the consignor who have entered into the International Air Transportation Contract with East Air, the consignee, thus it files a lawsuit against Company A for the freight. So the essential focus in this case is which company is the real consignor concluding an international air freight contract with East Air, the consignee in this case.

The analysis on the fact of this case: it is a wrong understanding in legal aspect that Company A, acting as the seller in FOB international trading contract, delivered the garments to the appointed place and signed the International Consignment Order at the request of the buyer.. Under the trade contract above, it shall be the obligation of the buyer(Mr. Chen in Italy) to deliver the garments; then Mr. Chen consigned Company C to deliver the garments, then Company C sub-consigned Company B, i.e. the agent of the East Air, so Company C is the real consignor in this case. Only basing on Company A’s consignment bill and the consigner on sub-consignment bill, Company B deems Company A as consignor who entered into the air freight contract with consignee and deems Company A as one party in the international air freight contract. This led it to a mistake direction in the lawsuit, which led the loss of the suit.

The analysis on legal aspect of this case: The chapter of “making of the contract” in 《The Contract Law of People’s Republic of China》promulgated: “A contract is executed at the time when the acceptance becomes effective.” The “offeror” and the “offeree” in this effective contract are the parties of this contract. Thus, although the freight bill is the primary proof of the air freight contract, receipt of goods and terms of carriage and the consignment order is also one kind of the transport certificate which proves the establishment of garment transportation, however, since there exists “shipping orders” or letters between Company B and Company C, in which Company B and Company C have concluded the freight contract for the garments involved in the lawsuit above. A company delivered the garments only at the request of the Company B, without any meaning expression to conclude the contract. Thus, the consignee in this case is Company C, instead of Company A. Because of this reason, Article 11(1) of the Convention for the Unification of Certain Rules Relating to International Carriage by Air (the Warsaw Convention), to which China is a contracting party, stipulates:" unless there is evidence to prove the contrary, the airfreight bill is the proof of the contract, receipt of goods and terms of carriage". I.e., if there is any other form contract contrary to the freight bill, we can’t confirm the party of contract only according to the freight bill. So we consider that Company A’ emphasis in lawsuit shall bethe investigation and collection of every kinds of offers and acceptances between Company Cand Company B, through which, to exclude the possibility that Company A is the party of the freight contract.

Although Company A recovered in the retrial, the long term of the lawsuit incurred heavy loss to it. Because the “freight bill” and “consignment order” are important evidences based on which consignee confirms the consignor, the party involved shall fill it carefully. In the international trade contract under FOB terms, buyer is responsible for the transport, so bargainer deliver the garments to appointed place only at request of the buyer. The procedure now is delivery not garment consignment. To avoid the dispute and loss, the bargainer shall not fill its own name in the freight bill or consignment order when it delivers the garment as consignor.

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