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.

Translate from: 国际航空货物运输运费纠纷再审案