Facts:
A Danish importer purchased an LCL shipment of toy bears from a Chinese exporter for USD 51,702.18 on FOB Shanghai terms. The importer booked the transportation of the shipment from Shanghai to Aarhus with a contracting carrier based on NSAB 2000.
The contracting carrier subcontracted the transportation to a sub-carrier, which undertook to perform the transport from Shanghai to Herning, where the container was to be delivered to a third party carrier for unloading and delivery to the importer in Herning.
On September 27, 2021, the container was loaded onto a ship in Shanghai, and bills of lading were issued for the sea transport to Aarhus without reservation. On November 24, 2021, the container was unloaded in Aarhus, after which the shipment was transported to the importer and delivered on November 26, 2021.
Upon delivery, it was found that water damage had occurred to the toy bears.
On December 15, 2021, a survey- inspection of the bears was conducted. Prior to the inspection, there had been no attempt to dry the moisture in the bears. The appointed surveyor stated in the inspection report that there might be a possibility of ozonating the products to remove odor from the bears, but there was no certainty that any mold formation inside the bears could be removed. Based on this, the importer decided not to market the bears, citing "risk of fungal spores." The surveyor concluded that "due to a) the risk of mold attack (considering that the bears are used by very young children who may suck on the bears) and b) the foul odor, it is assessed that there is no possibility of limiting the damage to the shipment."
The importer's cargo insurers filed a lawsuit before the Maritime and Commercial Court in Copenhagen against the contracting carrier claiming unlimited compensation of USD 51,702.18.
It was argued in support of this:
- That the bears should be considered totally damaged due to the risk of mold in the bears, and that the costs of necessary examination and treatment of the bears would exceed the invoice value, and
- That the damages should be considered to have occurred in connection with sea transport to Denmark, to the effect that it should be considered to follow from the “network liability rule” in NSAB 2000, § 23, that liability for the damage should be assessed according to the Hague-Visby rules to the effect that liability could not be limited.
The contracting carrier disputed that there was a basis for the claimed amount and argued, among other things,
That no measures to limit losses such as unpacking, ventilation, and cleaning of the goods had been implemented from receipt of the goods until the inspection,
- That it was not proven that the bears could not have been treated and sold and the loss thus mitigated, and
- That liability in any case was limited to SDR 11,565 according to NSAB 2000, as it had not been proven that water damage occurred during sea transport, as the damages could have occurred during road transport from Aarhus to Herning so that the Hague-Visby Rules were not applicable..
The contracting carrier, in turn, made a claim for exoneration against the sub-carrier.
Maritime and Commercial Court's Judgment:
The court concluded that the shipment should be considered totally damaged, and that liability for the damages could not be limited. The court stated, among other things:
"The court [assumes] that the entire batch of toy bears was damaged by water or moisture, resulting in mold formation, fungal growth, and odor nuisance when the goods arrived [at the importer] on November 26, 2021. [A witness] has explained that samples were taken from the entire batch, including from crates that were very damaged, and from crates that were less damaged, and that the contents of all examined crates had been affected by moisture. The not insignificant extent of the damages is also documented by photos in the inspection report, and the conclusion in the inspection report is that it is a total loss. The court further assumes that, due to the nature of the damages, it was not possible to limit the damages by either unpacking, cleaning, or selling for coverage. The court has attached particular importance to [surveyor's] explanation that there would be a risk of mold formation inside the toy bears, which could only be removed if each individual bear was cut open and the filling removed. It appears from the inspection report that such treatment would have caused damage to the products that could not be restored to the same quality. In addition, the bears could not be put on the market if they posed a risk to the users' safety or health, cf. the Toy Regulation § 26, and that some of the bears in this case were to be sold for use by very young children. The court assumes that the expenses for measures to bring the bears into a condition where it would be safe to hand them over to children would not correspond to the earnings from selling the products."
"[...]
Based on the evidence, the court assumes that the agreement between [the importer] and [the contracting carrier] concerned a multimodal (door-to-door) transport from Shanghai to Herning, including sea transport from Shanghai to Aarhus and road transport from Aarhus to Herning. The sea transport lasted for two months. According to [a witness's] explanation, the consigment was heavily affected by water damage with visible signs of mold formation and fungal growth upon delivery on November 26, 2021. This is supported by the photo documentation taken upon receipt of the batch, which is included in the inspection report. It is presumable that the observed damages in the form of mold formation and fungal growth in the form of black spots take longer than a few days to develop. In addition, the information about the weather conditions in Aarhus and Horsens from November 20 to 24, 2021, does not indicate that the water damage occurred on land. After an overall assessment, it is thus proven that the water damage occurred during sea transport from Shanghai to Aarhus."
On this basis, the court concluded that liability for the damages, based on the "network liability rule" in NSAB, should be assessed according to Hague-Visby Rules, with the effect that liability could not be limited, and that the sub-carrier should indemnify the contracting carrier for the claim.
Comments on the Judgment:
In many cases, questions arise as to whether a possible risk that a shipment has been damaged during transport should be considered to imply that the entire shipment must be deemed totally damaged, or whether the goods, regardless of such damage, have a residual value and can be marketed. The Maritime and Commercial Court has in some decisions established that a risk that the entire consignment of goods may be affected can be sufficient to consider it a total loss, even though there has been no expert assessment on the matter. In these cases, transport has involved pharmaceutical products, foodstuffs, and electronics, and the cases have, among other things, focused on the regulatory requirements applicable to the sale of the products concerned regarding hygiene, safety, etc., but also on the degree of (risk of) physical damage and the costs of conducting investigations and remediation of potential damages. The Maritime and Commercial Court's judgment in this case must be considered consistent with the existing case law.
When NSAB is adopted, questions often arise about whether it is proven that damage occurred while the goods were transported by a specific means, such that the application of the network liability rule in NSAB may lead to the liability rules applicable to that particular mode of transportation being applied (instead of the liability rules in NSAB). The Maritime and Commercial Court has rarely found it proven that damage occurred during transport with a specific mode. It is interesting to note that the fact that a multimodal transport agreement has been entered into does not imply that the network liability rule cannot lead to damage being assessed according to rules applicable to a specific mean of transport.
Judgment rendered: February 19, 2024, in the cases of the Maritime and Commercial Court BS-30248/2022-SHR and BS-43778/2022-SHR.
