Supreme Court Decision 2005Da21593 Delivered on May 12, 2006 [Damages]

Supreme Court Decision 2005Da21593 Delivered on May 12, 2006 [Damages]

[Main Issue]

The case holding that a sea carrier is relieved of the liability for compensation under Article 789 (2) of the Commercial Code, since it is reasonable to deem that the color of the phenol, the goods being transported, changed because of its unique characteristics or the hidden defects such as the existence of by-products generated in the manufacturing process, and that such color change is something that can usually occur due to the unique characteristics or the hidden defects

[Summary of Decision]

[Reference Provisions]

Articles 788 (1) and 789 (2) of the Commercial Code

Article 788 of the Commercial Code (Duty of Care and Diligence to Goods) (1) If a carrier fails to prove that he or the crew or other employee of a ship exercised his duty of care in reception, loading, stowage, carriage, keeping, discharging and delivering of the goods, he shall be liable to compensate for damages caused by loss, damage or delay of the goods.

Article 789 of the Commercial Code (Causes for Exemption from Liability) (2) The carrier shall be relieved of the liability for compensation, if he has proved that any fact of the following subparagraphs existed and that any damage of the goods might usually be caused by such fact: Provided, That the same shall not apply if it was proved that he has failed to exercise due diligence notwithstanding the fact that he could have avoided such damage if he had exercised the due diligence mentioned in Articles 787 and 788 (1): <amended by Act No. 4470, Dec. 31, 1991>

1. Perils or accidents of the sea and other navigable waters;

2. Act of God;

3. War, riots, or civil commotions;

4. Piracy and other similar acts;

5. Judicial seizure, quarantine restrictions and other restrictions by public authorities;

6. Act of the shipper or the owner of the goods or his employees;

7. Strikes, restraint of labor or lockouts;

8. Saving life or property at sea or any deviation in saving life or property at sea or any reasonable deviation;

9. Insufficiency of packing of the goods or insufficiency or inadequacy of marks;

10. Particular nature or latent defects of the goods; and

11. Latent defects of the ship.

[Plaintiff-Appellant] Samsung Fire & Marine Insurance Co., Ltd. (Law Firm Jungdong International, Attorneys Suh Dong-hee et al., Counsel for plaintiff-appellant)

[Defendant-Appellee] South Coast Maritime Limited (Law Firm Saekyung, Attorneys Choi Chong-hyun et al., Counsel for defendant-appellee)

[Judgment of the court below] Seoul High Court Decision 2003Na72322 delivered on March 16, 2005

[Disposition]

The appeal is dismissed. All costs of appeal shall be borne by the plaintiff.

[Reasoning]

This is to judge the Grounds for Appeal.

1. With respect to the first ground for appeal

The sea carrier, unless he proves that he, the crew or other employee of a ship exercised his duty of care in receiving, loading, stowing, carrying, keeping, discharging, and delivering the goods, should be held liable to compensate for damages due to the loss, damage or delay of the carried goods, but is exempted from the liability to compensate for them in the event he proves that the goods had unique characteristics or hidden defects and that the damages on the goods can normally be done due to such a fact {Article 788 and Article 789 (2) Item 10 of the Commercial Code}.

According to the reasoning of the judgment of the court below, on the bill of lading issued after the loading of the phenol, the carried goods in this case, was "Shipped in apparent good order and condition" recorded and the color index of the three samples extracted from the tank inside the vessel right after the loading on February 9, 2001 by Inspectorate, the inspector hired by the consignor, using the ASTM D 1686 method (the color index of samples hereinafter has been measured by the same method) was all 5, which is normal (under the transportation contract in this case, the maximum index considered normal is 20) but the sample color index extracted from the tank inside the vessel right before the discharging on April 2, 2001 was 26, which was beyond the maximum degree permitted under the contract, and the usage and the price of phenol differ according to the color index, and Samsung Corporation, the consignee, sold the phenol, the carried goods in this case, at a low price, because it could not be used for the purpose of the original importation, and the plaintiff, the insurer who signed a carried goods insurance contract with Samsung Corporation about the phenol, the carried goods in this case, paid the difference in amount Samsung Corporation suffered due to the sale of the phenol at a low price as insurance payment, but the phenol, the carried goods in this case, was loaded from the ground tank through a pipeline to the 14-C tank inside the vessel, and before the loading, the above tank inside the vessel was cleaned for four hours with cold sea water, rinsed for fifteen minutes with distilled water, ventilated, wiped with cloth, and then dried, and the above Inspectorate checked the state of the cleaning and issued the cleanliness certificate of ships tanks before the carried goods in this case was loaded, the 14-C tank of the vessel in this case has a completely separate pipeline from the other tanks, and because of the pipeline structure, the contents after discharging or cleaning flow either to the tank or to the point where the pipes cross, so it is difficult for other substances to remain in the pipeline, and the storage condition during the transportation of the carried goods in this case was that the temperature of the carried goods should be maintained between 55˚Celsius and 60˚Celsius and should not be heated more than 3˚Celsius in a day, and the carried goods in this case were kept lower than 55˚Celsius for the eight days of the transportation (from March 1, 2001 to March 6, 2001, and March 24 and March 25), but the temperature never fell by more than 5˚Celsius, and was never heated more than 3˚Celsius in a day, and the temperature of the carried goods in this case right before the loading was 63.3˚Celsius and the temperature of the ground tank that stored it was 65.7˚Celsius, and the carried goods in this case departed the Port of Mobile in Houston, located in the southeastern part of Texas of the United States and arrived at the Port of Busan of the Republic of Korea via the Panama Canal, which is a tropical area, after approximately two months, meanwhile, aside from the above samples in this case extracted by Inspectorate at the time of the loading, the defendant also extracted one from the tank inside the vessel, and another one from the manifold of the ground pipeline that is connected to the tank inside the vessel, and the color index for those samples measured at the time of discharging on April 2, 2001 was 22 for the sample extracted from the tank and 25 for the sample extracted from the manifold, both of which are beyond the permitted level, and the color index of the three samples that had been stored by the above Inspectorate measured a few days later on April 9, 2001 was still 5, but changed to 10, 20 and 30 when they were measured again on August 21, 2001, and the above Inspectorate samples were stored at a temperature lower than the freezing point (40.8˚Celsius) from the extraction to April 9, 2001, and the phenol in this case was manufactured by the so-called cumene peroxidation method and the phenol manufactured in that method might contain an extremely small amount of very unstable matter such as radical, in which case, unpredictable impurities could additionally be generated without an increase in the temperature, which could change the color of the phenol, whose pace accelerates as time goes by and the above supplemental reactions tend to be promoted by temperature increases, and to prevent the change of color due to the extremely small amount of peroxide that might remain in the phenol manufactured by the cumene method, high-purity phenol of over 99.99% purity that is sold for tests is sometimes added with a stabilizer (phosphoric acid), and the carried goods carried in the above 14-C tank right before loading the carried goods in this case was sulfuric acid, and if sulfuric acid is added to phenol by the ratio of 1:1, only an extremely small amount, about 100 ppm, of sulfuric acid remains after the reaction and the rest of the sulfuric acid all becomes phenol-4-sulfonic acid and if phenol and sulfuric acid are mixed 100:1 or 10:1, all the sulfuric acid reacts with phenol and becomes phenol-4-sulfonic acid with no sulfuric acid remaining, and phenol of over 99% purity never changes its color even though it is added with sulfuric acid and if the purity is 98.5%, although the color changes, such color change occurs at the moment of the addition and does not progress as time goes by, and the phenol, the carried goods in this case, has the purity of 99.99%, and the color of phenol does not change even though the temperature changes by plus or minus 5˚Celsius from 55˚Celsius, and although sulfuric acid is poisonous and has strong and intense smell, it does not erode the stainless steel, which is the material of the lining of the above 14-C tank, and the color of phenol does not change by adding stainless steel, iron or sulphur to it. Reviewing the above facts in light of the above legal principles, we find that the phenol, the carried goods in this case, is a substance which can possibly change its color because of the by-products generated in its manufacturing process, that it does not seem possible that a foreign substance can be added in the process of the phenol, the carried goods in this case, being loaded from the ground tank, through the pipeline, directly to the tank inside the vessel, that the phenol, the carried goods in this case, does not seem to have changed its color because of the residue of the sulphur, which was the carried goods right before it, or the material of the 14-C tank, that the sample which was extracted from the manifold of the ground pipeline at the time of loading and separately carried showed the same degree of color change with the phenol that was carried inside the tank, that the samples extracted by Inspectorate did not change their colors until discharging but did afterwards, which means that the reason why their color had not changed beforehand seems to be that it was stored at a temperature lower than the freezing point, and that the decrease in the temperature within the scope of 5˚Celsius which occurred temporarily during the carriage does not seem to be related to the change of the color of the phenol, the carried goods in this case. Therefore, it is reasonable to deem that the color of the phenol, the carried goods in this case, changed because of its unique characteristics or the hidden defects such as the existence of by-products generated in the manufacturing process, and that such color change is something that can usually occur due to the unique characteristics or the hidden defects.

For the same purport, it is reasonable that the court below accepted the defendant′s plea for the exemption from responsibility and dismissed the plaintiff′s claim, and since the original decision seems to contain the purport of recognizing the fact that the change of the color of the phenol, the carried goods in this case, is something that can usually occur due to the unique characteristics or the hidden defects, there is no violation of law of misunderstanding the legal reasoning concerning the reasons for exemption from responsibility of the carrier stipulated in Article 789 (2) of the Commercial Code or misunderstanding the facts through insufficient deliberation.

2. With respect to the second ground for appeal

According to the reasoning of the judgment of the court below, for the plaintiff′s alternative claims of compensation for damages due to the liability for a tort and the liability for non-performance of an obligation, the court below held that the defendant is presumed to have committed faults just by looking at some of the facts without identifying which claim the judgment concerns, denied the plaintiff′s argument about the causes of the change of the color of the phenol, the carried goods in this case, and stated that the reasons for the exemption from responsibility argued by the defendant should be recognized because the plaintiff's argument over the causes of the color change is not recognized and because of the rest of the facts. The method of making a statement is not appropriate, but since the court below recognizes the reasons for the exemption from responsibility argued by the defendant not only because the causes of the color change of the carried goods argued by the plaintiff as the ground of the liability for a tort are not recognized but also by looking at the totality of circumstances of all the facts, it should be said that there is no violation of law of misunderstanding the legal reasoning concerning the responsibility to prove the reasons for the exemption from responsibility of a sea carrier under the Commercial Code.

3. Conclusion

Therefore, the appeal is dismissed, and all costs of the appeal shall be borne by the losing party, and this decision is delivered with the assent of all participating Justices.

Justices Lee Kyu-hong (Presiding Justice), Kim Young-ran

Kim Hwang-sik (Justice in charge)