01. Case Overview
On June 1, 2021, Seller NIMR INTERNATIONAL LLC ("NIMR") and Buyer ALI ALMUTAWA PETROLEUM AND PETROCHEMICAL TRADING LLC ("ALI Company") entered into a Crude Oil Sales Contract, under which the Seller agreed to sell approximately 200,000 metric tons of Oman Light Blend crude oil for delivery at a Chinese port. On June 10, 2021, SKY ZONE TRADING FZE and the shipowner's broker SOL MARINE FZE signed a voyage charterparty, under which the shipowner Winsome Shipping Inc. ("Winsome") agreed to carry approximately 200,000 metric tons of Oman crude oil from Sohar Port, Oman, to Qingdao Port, China, using the MT GALA. On July 1, 2021, loading was completed at Sohar Port, and an original bill of lading was issued.
On July 5, 2021, after MT GALA departed Sohar Port and entered international waters, it was intercepted by three Iranian naval armed helicopters. Twenty-four Iranian military police personnel rappelled onto the deck, forcibly ordered the vessel to change course toward Jask Island, Iran, shut down all onboard communications equipment, and confiscated the crew's mobile phones. The vessel remained anchored under Iranian armed guard until October 6, 2021. During this period, the judicial authorities of Hormozgan Province, Iran, ordered that all crude oil cargo be compulsorily discharged at Bandar Abbas Port, Iran. The vessel was released on November 6, 2021.
In February 2022, after MT GALA arrived at Qingdao Port, China, Shanghai Lisheng Petroleum Co., Ltd. ("Lisheng Company"), claiming to be the consignee, filed an application with the Qingdao Maritime Court for pre-litigation property preservation, resulting in the arrest of MT GALA. Lisheng Company subsequently initiated a lawsuit for carriage of goods by sea contract dispute, seeking compensation from the carrier Winsome Shipping Inc. for cargo loss. Winsome engaged attorneys Luo Wei and Shen Jianing of Jiangsu Tianni Law Firm to defend the case. On September 15, 2023, the Qingdao Maritime Court ruled that as the plaintiff had failed to pay court fees within the statutory period, the case was dismissed as withdrawn.
02. Core Legal Issues
Although this case was concluded on procedural grounds (dismissal as withdrawn due to non-payment of court fees), the substantive legal issues involved have significant theoretical value and practical guiding significance. These are analyzed below:
(I) Core Issue: Does the Compulsory Seizure of Vessel and Cargo by Foreign Military Forces Constitute a Carrier's Defense for Exemption from Liability?
This is the most fundamental substantive legal issue in this case. The analysis proceeds at three levels: international conventions, Chinese law, and legal theory.
1. International Convention Level — Exemption Clauses under the Hague Rules and Hague-Visby Rules
Article 4(2) of the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1924 (the "Hague Rules") enumerates 17 categories of carrier exemptions. Those directly relevant to this case include:
(c) "Perils, dangers and accidents of the sea or other navigable waters";
(d) "Act of God";
(e) "Act of war";
(f) "Act of public enemies";
(g) "Arrest or restraint of princes, rulers or people, or seizure under legal process";
(q) "Any other cause arising without the actual fault or privity of the carrier".
Furthermore, the 1968 Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (the "Hague-Visby Rules") retained the aforesaid exemption clauses.
In this case, the armed interception by the Iranian Navy and the compulsory discharge order issued by the Iranian court satisfy at least three exemption categories simultaneously: item (e) "Act of war", item (g) "Arrest or restraint of princes or rulers", and item (q) "any other cause arising without the actual fault of the carrier". In particular, item (g) "restraint of princes, rulers or people" is a long-established carrier defense in Anglo-American maritime law, referring precisely to the legal scenario where a national government, monarch, or ruling authority detains or exercises control over a vessel or cargo.
2. Chinese Law Level — Article 51 of the Maritime Code of the People's Republic of China
Article 51 of the Maritime Code of the People's Republic of China expressly enumerates 12 categories of carrier exemptions, among which those directly relevant to this case are:
Item (3): "Act of God, perils, dangers and accidents of the sea or other navigable waters";
Item (5): "Act of the government or competent authorities, quarantine restrictions or seizure under legal process";
Item (6): "Strikes, stoppage or restraint of labour";
Item (12): "Any other cause arising without the fault of the carrier or his servant or agent".
Except for the defense under item (2), the carrier shall bear the burden of proof when invoking the aforesaid exemptions.
In this case, the act of the Iranian military intercepting the vessel and compulsorily discharging the cargo constitutes a typical "Act of the government or competent authorities" (Item (5)). Although the literal wording of Article 51(5) of the Chinese Maritime Code — "Act of the government or competent authorities, quarantine restrictions or seizure under legal process" — may appear to focus on acts of one's own government, according to the legislative background and scholarly interpretation of the Maritime Code, this provision originates from Article 4(2)(g) of the Hague Rules ("Arrest or restraint of princes, rulers or people, or seizure under legal process"), and its legislative intent is not limited to acts of one's own government. Acts of foreign sovereign authorities equally fall within the scope of this exemption. Additionally, even if Item (5) were subject to interpretive dispute, Item (12) — the residual exemption of "any other cause arising without the fault of the carrier" — provides comprehensive legal protection for the carrier.
3. Theoretical Level — Imputability and Risk Allocation
From a theoretical perspective, a carrier's liability for compensation is premised on "imputability". The carrier is liable only for losses caused by the fault of the carrier itself or its servants or agents; the carrier bears no liability for losses caused by external events entirely independent of the carrier's will and control. The interception of a merchant vessel in international waters by Iranian military forces using armed force constitutes a sovereign military act that lies beyond the reasonable foresight, prevention, or control of any commercial entity. Holding a carrier liable for such an extreme event would not only contravene the principle of fairness but also undermine the risk allocation framework established over centuries of maritime law.
From the perspective of risk allocation, under CIF trade terms, the risk of loss of or damage to the goods passes from the seller to the buyer (consignee) once the goods pass the ship's rail at the port of loading (or when placed on board the vessel). The consignee should cover the risk of in-transit loss through cargo insurance, rather than seeking recovery from a faultless carrier after cargo loss occurs.
(II) Where the Shipper Knowingly Loads and Ships Cargo with a Known Title Dispute — Can the Carrier Seek Indemnity from the Shipper?
In this case, NIMR, as the shipper, loaded and shipped the cargo with full knowledge of an existing title dispute (the original owner, Mazid Al Nazi, had initiated criminal proceedings against NIMR in Iran), without disclosing this risk to the carrier. Documents from the Iranian prosecuting authority (dated November 7, 2021) indicate that NIMR was suspected of criminal offenses involving "illegal transfer and acquisition of property". What is more egregious is that after the cargo was seized by the Iranian military, NIMR, in order to evade its own liability, "maliciously" endorsed and transferred the original bill of lading to Lisheng Company.
Pursuant to Article 70 of the Maritime Code of the People's Republic of China, "The shipper shall not be liable for the loss sustained by the carrier or the actual carrier, or for the damage sustained by the ship, unless such loss or damage was attributable to the fault of the shipper, its servant or agent." If the carrier sustains losses (including demurrage during vessel detention, attorneys' fees, port charges, etc.) as a result of the shipper's fault (such as failing to disclose the cargo title dispute and knowingly loading and shipping cargo exposed to a risk of seizure), the carrier is entitled to seek indemnity from the shipper. In this case, Winsome expressly reserved the right to pursue indemnity against NIMR.
(III) Validity of an Arbitration Clause Incorporated from a Charterparty into a Bill of Lading — The Carrier's Jurisdictional Defense
The face of the bill of lading in this case stated "To be used with charterparties", and the reverse-side terms provided: "All terms, conditions, rights and exceptions of the Charterparty dated as overleaf, including the Law and Arbitration Clause, are incorporated into this Bill of Lading."
Regarding the validity of an arbitration clause incorporated from a charterparty into a bill of lading, the Supreme People's Court of China established strict scrutiny standards in its Reply in the case of "Fuzhou Tewei Chemical Co., Ltd. v. EIKO Shipping Co., Ltd." ([2015] Min Si Ta Zi No. 4). The Supreme People's Court held that where only the reverse side of the bill of lading contains an incorporation clause, such clause "does not have the effect of binding the bill of lading holder to the arbitration clause." The incorporation of an arbitration clause from a charterparty into a bill of lading must satisfy two conditions simultaneously:
(1) The face of the bill of lading must contain a complete and explicit reference to the voyage charterparty concluded on a specific date, thereby particularizing the charterparty;
(2) There must be an express reference incorporating the arbitration clause and the governing law clause into the bill of lading, rather than a general reference to "all terms of the charterparty".
In this case, the incorporation clause on the reverse side of the bill of lading was specific in wording, expressly stating "including the Law and Arbitration Clause", thereby satisfying the specificity requirement under the Supreme People's Court's Reply. However, since the case was concluded by the plaintiff's withdrawal, the jurisdictional challenge was not adjudicated by the court through an effective ruling, and the ultimate resolution of this issue was not reached in this case. This also means that if the plaintiff were to re-file a claim based on the same facts before a Chinese court in the future, the carrier could still raise a jurisdictional objection based on the arbitration clause incorporated into the bill of lading.
(IV) Reasonableness and Abuse of Pre-Litigation Property Preservation (Vessel Arrest)
In this case, the plaintiff Lisheng Company applied for the arrest of MT GALA with full knowledge of the following facts:
(1) The cargo had already been discharged at Bandar Abbas Port pursuant to the Iranian court's order;
(2) The carrier was merely the transporter of the cargo and had no connection with the cargo title dispute;
(3) The judicial authorities of Hormozgan Province, Iran, had specifically sent a letter to the Qingdao Maritime Court explaining that the carrier was "not a party" to the matter;
(4) The sale contract between the plaintiff and NIMR was governed by CIF terms, under which the risk of loss before discharge rested with the seller;
(5) The plaintiff had not actually paid the purchase price to NIMR (according to the evidence submitted by the plaintiff itself).
Article 12 of the Special Maritime Procedure Law of the People's Republic of China provides that maritime claim preservation refers to compulsory measures taken by a maritime court, upon the application of a maritime claimant, against the property of a respondent to secure the realization of the claimant's maritime claim. The legality of maritime claim preservation is premised on the applicant having a "maritime claim" that is supported by prima facie evidence and a legal basis. Where an applicant, with full knowledge that its claim lacks legal foundation, nevertheless applies for vessel arrest as a means of exerting commercial pressure on the shipowner, such conduct may constitute an abuse of the pre-litigation property preservation procedure. The respondent is entitled to claim compensation for any losses suffered as a result of the wrongful arrest of the vessel under the Special Maritime Procedure Law.
03. Legal Insights from This Case
First, regarding the boundaries of the carrier's exemption regime. This case provides vivid practical material for the issue of carrier exemption in the rare scenario of "a foreign military force seizing a merchant vessel in a non-war context." While the literal interpretation of Article 51(5) of the Maritime Code ("Act of the government or competent authorities") may be subject to debate, the residual exemption under Item (12) provides comprehensive legal protection for the carrier — a carrier who can prove the absence of fault on the part of itself and its servants or agents in relation to the loss is entitled to exoneration. In this case, the carrier could neither have foreseen the Iranian military's interception, nor could it have resisted or reversed the military seizure while under the control of armed military and police forces. The loss was caused entirely by events beyond the carrier's control, and the carrier was entirely faultless.
Second, regarding the shipper's duty of disclosure. This case reveals an important legal risk in international trade: the shipper (seller) bears a duty to truthfully disclose the title status of the cargo to the carrier. If the shipper, with knowledge that the cargo is exposed to a risk of seizure by the judicial or military forces of a third country, fails to disclose such risk to the carrier, resulting in the carrier suffering losses from vessel detention, schedule delays, and additional expenses, the carrier is entitled to seek indemnity from the shipper under Article 70 of the Maritime Code. For Chinese enterprises engaged in international trade, this case serves as a reminder that when acting as shipper, they must truthfully inform the carrier of the title status of the cargo and any circumstances that could affect the safe transportation of the cargo.
Third, regarding the prudent exercise of pre-litigation vessel arrest. Pre-litigation property preservation is an important procedural tool in maritime litigation, but it is not a "negotiating chip" that can be used at will. Before applying for vessel arrest, an applicant should carefully assess whether its maritime claim has a legal basis and factual support. If an applicant, knowing that the carrier is faultless and that its own loss was not caused by the carrier, nevertheless applies for vessel arrest, it may not only face liability for wrongful arrest but may also damage the international reputation of Chinese maritime justice. The Qingdao Maritime Court dealt with the plaintiff's withdrawal in accordance with the law in this case, upholding the impartiality and credibility of maritime justice.
04. Conclusion
This case is a rare "non-war military seizure" maritime case involving multiple layers of international legal factors. From a legal perspective, the armed interception by the Iranian Navy and the compulsory discharge order of the Iranian court constitute carrier defenses for exemption under the Hague Rules, the Hague-Visby Rules, and Article 51 of the Maritime Code of the People's Republic of China. The carrier (Winsome) bore no fault whatsoever for the cargo loss and should not be held liable for compensation. The plaintiff's (Lisheng Company's) loss should be borne by the true responsible party — the shipper, NIMR — or be recovered through cargo insurance purchased by the plaintiff itself.
This case was concluded on procedural grounds (dismissal as withdrawn due to non-payment of court fees). While this avoided the court having to directly adjudicate the difficult question of "whether a carrier is exempt from liability where cargo is seized by foreign military forces" at the substantive level, the trajectory of the case — the plaintiff choosing to abandon the litigation upon receipt of the court's notice for payment of court fees — itself demonstrates that the plaintiff and its lawyers, after fully evaluating the strength of the evidence supporting the carrier's no-fault defense, formed a pessimistic assessment of the prospects of success. This outcome substantively confirms the carrier's faultless position in this case.