On May 6, 2021, The Chinese Supreme People’s Court (SPC) rendered a ruling to dismiss the retrial application filed by cargo insurer China Pacific Property Insurance Co., Ltd. (“CPIC”) against soybean plant Fujian Yuan Cheng Bean Co., Ltd. (“Yuan Cheng”) which may have significant impact on soya bean claims before Chinese courts.

(The Application for Retrial to the Chinese Supreme People’s Court is similar to a petition for a writ of Certiorari to the US Supreme Court or for an Application for Permission to Appeal to the Supreme Court in the UK and other European jurisdictions, where the petitioner must first establish that the last court to deal with the matter erred in law in their assessment of the evidence.)

In the Application for Retrial, CPIC asserted that: (I) the findings on essential facts in the judgment of the court of second snstance lacked supporting evidence. To be specific, 1. the findings in the judgment of the court of second instance as to essential facts such as the existence of cargo loss and the basis for calculation of any cargo loss amount; 2. the “LAPAN Formula” used by the Inspection and Quarantine Technique Center of Xiamen Entry-Exist Inspection and Quarantine Bureau (“Xiamen IQTC”) in its Test Report and admitted into evidence by the judgment of the court of second instance was intended to simulate the loss that would have been incurred if the heat damaged soybeans concerned had been put into direct production, but cannot reflect the loss in the case that they were put into mixed production; and moreover, the “LAPAN Formula” is an imbalanced formula where the two sides are not balanced and as such should not be used as the basis for loss assessment. ; 3. the Court of Second Instance failed to analyze and make findings on critical evidence, while incorrectly accepting the formula provided by Yuan Cheng despite a lack of theoretical and evidential support, and thus should be corrected in accordance with law; (II) the judgment of the court of second instance erred in law in their identification of a precedent; the “precedent” referred to in the judgment of first instance is an isolated case in the Chinese judicial practice, that is, the Case LAPAN (2005) Xia Hai Fa Shang Chu Zi No.353 of Xiamen Maritime Court which is not a guiding case; therefore, the use of the LAPAN case by the court of second instance as a precedent was an error of law and should be corrected. (III) the judgment of the court of second instance failed to consider and make findings on the 18 pieces of evidence submitted by CPIC, and failed to consider the evidence of the expert witnesses appointed by CPIC that attended the hearing in the second instance of proceedings, such failure constitutes a serious violation of procedural law; (IV) the cargo loss in this case should be determined strictly on the basis of facts and evidence, rather than a theoretical formula. Based on the above grounds, CPIC applied for retrial of the case in accordance with Subparagraphs 2 and 6 of Article 200 of the Civil Procedure Law of the People’s Republic of China.

Yuan Cheng argued that the Application for Retrial filed by CPIC was time barred by the 6-month statute of limitation, and thus should be rejected. Further, against the grounds based on which CPIC petitioned for retrial, Yuan Cheng further argued that: (I) the cargo damage in this case was a clear fact that was beyond doubt, and the determination of the cargo loss amount by the court of second instance based on Xiamen IQTC’s Test Report complied with the insurance contract and was the correct test in law; and CPIC’s assertion that Yuan Cheng should have proven the loss in the case of mixed production violated the insurance contract and should not be supported; (II) the method to determine cargo loss and the loss amount in Xiamen IQTC’s Test Report were reasonable and feasible, and CPIC’s doubt was groundless without sufficient evidential support; and the opinions of the expert witnesses appointed by CPIC to refute Xiamen IQTC’s Test Report were not sufficient to overrule the conclusion therein. (III) when analyzing and commenting on the probative force of Xiamen IQTC’s Test Report, the court of second instance referred to the fact that the same appraisal method had been adopted in another case, which was not equal to adjudication by referring to “precedents”, not to mention an incorrect application of the law; (IV) the court of second instance had not failed to examine any evidence. Therefore, Yuan Cheng requested rejection of the Application for Retrial submitted by CPIC.

SPC held that as ascertained in the judgment of the court of second instance, the soybeans concerned were in good and sound condition at the time of loading, but were found discolored, caked, moulded and seriously heat damaged when discharged at the port of destination. As proven by the Inspection Report of SGS-CSTC Standards Technical Services Co., Ltd., Xiamen Branch appointed by the seller of the soybeans concerned, the Test Report of Xiamen IQTC appointed by Yuan Cheng, and the Survey Report of Fujian New-Ocean Insurance Surveyors & Loss Adjusters Co., Ltd., the soybeans were indeed heat damaged. Yuan Cheng put the heat damaged soybeans into mixed production with sound soybeans. In the judgment of the court of second instance, it was held that, at the production end, the mixed production that deviated from the regular production and processing course might require extra steps and additional costs. Further, at the sale end, according to the market rule that quality decides price, though the soybean oil and meals produced from the heat damaged soybeans by means of mixed production in a certain proportion might conform to the Chinese national standards, it is not enough to deny the actual incurrence of cargo loss. The court of second instance had regarded to the above facts and held that the sufficient evidence had been provided to establish a loss and the need for an award of damages.

As to the dispute between the Parties over how to determine the amount of cargo loss caused by the increase of acid value, in the judgment of the court of second instance, it was held that the calculation formula used by Xiamen IQTC was based on the requirement of the Chinese national standard GB 1535-2003 Soybean Oil on the indicator of acid value of crude soybean oil. Further, the calculation of the loss caused by the increase of acid value and further the quantity of the lost soybeans in the whole shipment was highly technicaland as CPIC failed to adduce sufficient effective evidence to overrule the formula, the formula used by Xiamen IQTC should be admitted. SPC held that there is no obvious improperness in the decision of the Court of Second Instance to use the Xiamen IQTC formula. With regard to the doubts raised by CPIC against the formula used by Xiamen IQTC, the court of second instance summoned the expert witnesses appointed by CPIC to respond to inquiries from both Parties and the court, convened evidence in chief and cross-examination between the Parties on the evidence submitted by CPIC in the second instance proceedings, conducted a special investigation into the specific surveyor of Xiamen IQTC involved in this case and provided the investigation results for both Parties’ examination. The assertion of CPIC that the Court of Second Instance omitted to examine and make determination as to the evidence submitted by CPIC is not true. Therefore, the determination of loss of the soybeans concerned in the judgment of second instance based on Xiamen IQTC’s Test Report does not fall within the circumstance requiring retrial under law as it has not been established that the Court’s fact finding was not supported by evidence. The judgment of the court of second instance concluded that the calculation formula was not used by Xiamen IQTC in this case for the first time, but had been used by Xiamen IQTC early in the case (2005) Xia Hai Fa Shang Chu Zi No.353 of Xiamen Maritime Court to calculate the quantity of damaged soybeans which is of reference value for this case. Therefore, the Court of Second Instance did not err in law in rendering the judgment.

Comments

1. SPC did not examine the soybean damage assessment methodology but instead simply dismissed the retrial application based on the analysis that CPIC failed to submit sufficient evidence to overturn Yuan Cheng’s assessment report.

2.  The main factors affecting the quality of soybeans in bulk during storage and carriage are moisture content (MC), temperature and duration of storage. Unless these parameters are controlled, the consequences may be excessive growth of fungi/mould and heat damage. It is advisable to obtain a letter of indemnity from the charterer or the shipper before the vessel departs if the quality certificate shows a high moisture content.

3.  Notify the P and I Club immediately if there is any suggestion by the receivers that all or a substantial part of the cargo in a hold is damaged by fungi and/or heat. The Master should request separate discharge to segregate the seriously damaged, slightly damaged and sound soybeans.

Reference:

中国太平洋财产保险股份有限公司福建分公司、福建元成豆业有限公司海上、通海水域保险合同纠纷再审审查与审判监督民事裁定书