Supreme Court Decision 2014Da41469 Decided March 29, 2018【Indemnification】

【Main Issues and Holdings】

[1] In cases where, albeit a governing law clause is already incorporated into a bill of lading (B/L), a provision on compliance with the law of a specific country that enacted an international convention on the limitation of a carrier’s liability is stipulated thereunder and that provision satisfies the application requirements of said country’s statute, whether the law of that country ought to take precedence in governing a carrier’s liability limitation (affirmative in principle)

[2] In the case where: (a) Company A, a stock company, and Company B, a foreign entity, entered into a sales agreement; (b) an accident occurred involving cargo becoming loose or unfastened during inbound shipments and subsequently caused defects in the quality of products; (c) Company C, an insurance company, provided coverage for damages to Company A based on a maritime cargo insurance policy that it concluded with Company A; and (d) thereafter, Company C sought compensation for tort-related damages against Company D, a foreign entity, which transported the cargo upon having received the Bill of Lading (B/L) from Company A, the case holding that the applicable law regarding the claim for damages arising from tort shall be the relevant law governing bills of lading pursuant to Article 32(1) and (3) of the Act on Private International Law

【Summary of Decision】

[1] The principle of party autonomy serves as the basis for permitting the designation of laws governing international contracts. Whether a “paramount clause” ― a clause preferentially incorporating the law of a specific country that legislated an international convention on a carrier’s liability limitation despite the stipulation of a general governing law clause under a bill of lading ― constitutes partial designation of a governing law or inclusion under relevant international conventions and/or foreign statutes is a matter that pertains to the interpretation of a party’s expression of intent. Albeit a governing law clause is already incorporated into a bill of lading (B/L), a provision on complying with the law of a specific country that enacted an international convention on the limitation of a carrier’s liability is stipulated thereunder and that provision satisfies the application requirements of said country’s statute, preferentially applying the law of that country in governing a carrier’s liability limitation accords with the party’s intent, barring special circumstances.

[2] In the case where: (a) a stock company (“Party A”) and a foreign entity (“Party B”) entered into a sales agreement; (b) an accident occurred involving cargo becoming loose or unfastened during inbound shipments and subsequently caused defects in the quality of products; (c) Company C, an insurance company, provided coverage for damages to Company A based on a maritime cargo insurance policy that it concluded with Company A; and (d) thereafter, Company C sought compensation for tort-related damages against Company D, a foreign entity, which transported the cargo upon having received the Bill of Lading (B/L) from Company A, the Court held as follows: (a) as a matter of principle, the laws related to governing bills of lading ought to apply to the legal relationship between Company C (holder of the B/L) and Company D (cargo transporter); and (b) this legal doctrine is likewise applicable, pursuant to Article 32(1) and (3) of the Act on Private International Law, in the event that such legal relationship is infringed due to Company D’s tort.

【Reference Provisions】[1] Article 25 of the Act on Private International Law / [2] Article 32(1) and (3) of the Act on Private International Law

Article 25 of the Act on Private International Law (Party’s Autonomy)

(1) A contract shall be governed by the law which the parties choose explicitly or implicitly: Provided, That the implicit choice shall be limited to the case which the implicit choice can be reasonably recognized by the content of the contract and all other circumstances.

(2) The parties may choose the applicable law regarding a part of the contract.

(3) The parties may change, by agreement, the applicable law under the provision of this Article or Article 26: Provided, That the change of the applicable law made after the conclusion of the contract shall not affect the validity of the contract method and the right of a third party.

(4) In case, notwithstanding that all the elements are solely related to one country, the parties choose the law of any other country than that of the country, the application of the mandatory provisions of the relevant country shall not be excluded.

(5) The provision of Article 29 shall be applied mutatis mutandis with respect to the formation and validity of the agreement between the parties with respect to the choice of the applicable law.

Article 32 of the Act on Private International Law (Torts)

(1) A tort shall be governed by the law of the place where it occurred.

(3) In case the legal relations existing between the tortfeasor and the injured party are violated by the tort, the applicable law of such legal relations shall govern irrespective of the provisions of paragraphs (1) and (2).

【Plaintiff-Appellant-Appellee】DB Insurance Co., Ltd. (formerly Dongbu Insurance Co., Ltd.) and six others (Pusan Pacific Law Office, Attorneys Seo Young-hwa et al., Counsel for the plaintiff-appellant-appellee)

【Intervenor joining the Defendant】Kolmar Group AG (Attorneys Jeong Byung-seok et al., Counsel for the defendant’s intervenor)

【Defendant-Appellee-Appellant】Eitzen Chemical Singapore Pte. (Choi & Kim, Attorneys Choi Jong-hyeon et al., Counsel for the defendant-appellee-appellant)

【Judgment of the court below】Busan High Court Decision 2012Na10751 decided May 22, 2014

【Disposition】All appeals are dismissed. The costs of appeal regarding intervention is borne by the Defendant’s Intervenor and the remaining costs of appeal are assessed against each Appellant.

【Reasoning】The grounds of final appeal are examined.

1. Regarding the Plaintiffs’ grounds of appeal

A. Ground of appeal Nos. 1 and 4

1) The principle of party autonomy serves as the basis for permitting the designation of laws governing international contracts. Whether a “paramount clause” ― a clause preferentially incorporating the law of a specific country that legislated an international convention on a carrier’s liability limitation despite the stipulation of a general governing law clause under a bill of lading ― constitutes partial designation of a governing law or inclusion under relevant international conventions or foreign statutes is a matter that pertains to the interpretation of a party’s expression of intent. Albeit a governing law clause is already incorporated into a bill of lading (B/L), a provision on complying with the law of a specific country that enacted an international convention on the limitation of a carrier’s liability is stipulated thereunder and that provision satisfies the application requirements of said country’s statute, preferentially applying the law of that country in governing a carrier’s liability limitation accords with the party’s intent, barring special circumstances.

2) The lower court determined as follows based on its stated reasoning.

A) The provision stipulating the law of the United Kingdom as the governing law under the maritime transport agreement in question was incorporated into the instant bill of lading (B/L) according to the preamble of said B/L. As such, U.K. law is deemed the general and overall law governing the instant B/L.

B) The latter part of the instant B/L expressly provides that the scope of liability of the Defendant (carrier in the instant case) shall be governed by the U.S. Carriage of Goods by Sea Act (hereinafter “U.S. Statute”). In such a case where the law of a specific country is applied to the limitation on a carrier’s liability despite there being a general governing law clause, applying the U.S. Statute as the law that governs the same should be deemed as a party’s intent.

C) Inasmuch as the Port of Freeport (U.S.) is the port for loading the instant cargo when construing the latter part of the instant B/L, and the U.S. Statute provides that “any port of loading or port of discharge located in the U.S. shall be named on contracts for international carriage of goods by sea,” the U.S. Statute is the law governing the limitation of the Defendant’s liability based on the instant B/L. In such a case, other than the application requirement as seen earlier, no other requirements are called for, such as applying the law of a forum State where a port of loading is located, or broadening the scope of limitation liability under the U.S. Statute.

D) In applying the legal doctrine of the U.K. Carriage of Goods by Sea Act (hereinafter “U.K. Statute”) to a carrier’s contractual liability based on the instant B/L, given that the cargo in question was delivered without defect from the shipper to the carrier, but was damaged due to having become either loose or unfastened while shipments were on the way, the Defendant is liable to compensate the Plaintiffs, the B/L holders, barring any extenuating circumstances.

E) The Defendant’s liability is limited to USD 500 per ton according to the U.S. Statute, which is the applicable law on the limitation of liability (of the Defendant).

3) In light of the legal principle as seen supra and the record, the lower court, as otherwise alleged in the grounds of appeal, did not err by misapprehending the legal doctrines related to governing laws, interpretation of B/L contract terms and conditions, literal interpretation of dispositive documents, etc., or by misconceiving facts regarding a party’s intent.

B. Ground of appeal No. 5

Even if the parties did not either expressly or implicitly agree to apply the limitation liability clause prescribed under the instant B/L to tort liability, the lower court, as a matter of course, deemed said clause to be effective in tort liability.

In view of the relevant legal principle and the record, the lower court, contrary to what is alleged in the grounds of appeal, did not err by misapprehending the legal doctrine on tort liability of a B/L issuer.

2. Regarding the Defendant’s grounds of appeal

A. Ground of appeal No. 1

1) The allegation in this part of the grounds of appeal (i.e., the rules of evidence was violated as to the establishment of a carrier’s contractual liability) is nothing more than finding fault with the admission and exclusion of evidence, which are the prerogative of the lower court as a fact-finder, and the finding of facts based thereon, and therefore cannot be deemed as lawful grounds of appeal.

2) As to the delay damages in this part of the grounds of appeal, the lower court, based on its discretion, (i) set the delay interest rate up to the date of judgment by applying U.K. law, which is the law governing a carrier’s contractual liability based on the instant B/L, and (ii) set the rate even after the date of judgment on the grounds that a court may exercise such discretion when ordering the performance of payment obligation based on currencies other than the British Pound. In so doing, the lower court did not err by misapprehending the legal doctrine on delay damages under U.K. law, as otherwise alleged in the grounds of appeal.

B. Ground of appeal No. 2

1) Paragraph (1) of Article 32 of the Act on International Private Law stipulates that “[a] tort shall be governed by the law of the place where it occurred” and Paragraph (3) provides that “[i]n case the legal relations existing between the tortfeasor and the injured party are violated by the tort, the applicable law of such legal relations shall govern.” As a matter of principle, the legal relationship between the Plaintiffs (B/L holders) and the Defendant (carrier) ought to be governed by the law that applies to the instant B/L; furthermore, in the event that such legal relationship is infringed due to the Defendant’s tort, then the applicable law should also be the law governing the instant B/L. As seen above, U.K. law is the law that generally and comprehensively applies to the instant B/L, and the U.S. Statute is the law governing the limitation of the instant carrier’s liability. Thus, the same legal doctrine holds true in a claim for damages arising from a tort.

Therefore, the Defendant’s liability to pay the court-affirmed amount of damages caused by one’s tort is the same as that of a contractual obligation.

2) The lower court deemed that the claim for damages arising from the Defendant’s tortious act shall be governed by the law of the place where said tort occurred, namely, the Republic of Korea law. Yet, the lower court did not separately determine as to the establishment of tort liability on the grounds that: (a) the limitation of liability clause under the U.S. Statute is likewise applicable toward tort liability claims; and (b) albeit applying the Republic of Korea law toward delay damages, it is the same as damages due to delay in the performance of a contractual obligation. While there were some degree of inadequacies in the reasoning of the lower judgment related to governing law, the lower court was justifiable to have determined as above. In so doing, it did not adversely affect the conclusion of the judgment.

3. Conclusion

Therefore, all final appeals are dismissed, and the cost of appeal regarding intervention is borne by the Defendant’s intervenor, and the remaining costs of appeal are assessed against each appellant. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices         Lee Ki-taik (Presiding Justice)

                        Kim Shin (Justice in charge)

                        Park Sang-ok

                        Park Jung-hwa