——Sompo Japan Insurance Inc and Lianyungang Sinotrans Shipping Agency Co.,Ltd.

Key Word: Right of subrogation; Ship agency; Identification of the principal; Multi‑layered charterparty

Facts:

On February 20, 2013, a Japanese steamship company (hereinafter “Steamship Company”) procured a vessel liability insurance policy from a Japanese insurance company (hereinafter “Insurance Company”), with the policy stipulated that Japanese law shall govern. After the Steamship Company time-chartered the vessel K from a shipping company (hereinafter “Shipping Company”), the vessel was sub-time-chartered to Lianmou Company (hereinafter “Charterer”). The Charterer thereafter used the vessel K to transport 56,300 metric tons of nickel ore imported from the Philippines for a port company (hereinafter “Port Company”), and appointed a ship agency company (hereinafter “Ship Agent”) as the vessel’s agent. Upon arrival of the subject nickel ore at Lianyungang Port, the Port Company presented the original B/L for taking delivery. The Charterer, however, instructed the Ship Agent that no delivery of cargo should be made without written authorisation, and the Ship Agent accordingly refused to release the cargo.

The Port Company subsequently filed a lawsuit against the Shipping Company to a Chinese court, and obtained compensation through mediation. After satisfying the compensation, the Shipping Company initiated arbitration in Japan, and the arbitral tribunal ruled that the Steamship Company should compensate for the corresponding losses. The Steamship Company, after paying such compensation, filed a claim under the insurance policy, and the Insurance Company reimbursed the full amount of the losses. Thereupon, the Insurance Company, asserting its subrogation right as insurer, brought an action against the Ship Agent, seeking compensation for the corresponding losses.

Judgment:

The Court held that Article 25, Paragraph 1 of the Japanese Insurance Act provides that, upon performance of insurance benefits, the insurer shall automatically acquire the subrogation right to the claim acquired by the insured as a result of the insured event. According to the Confirmation Letter issued by the Steamship Company, the Insurance Company paid the insurance indemnity and thereby acquired the insurance subrogation right under Japanese law. The Court further found that there existed no ship agency contractual relationship between the Steamship Company and the Ship Agent. The counterparty to the ship agency contract should be determined on the basis of objective facts, including the actual entrustment, the alignment of instructions, and the payment of fees. Accordingly, the Charterer was held to be the counterparty to the ship agency contract.

Typical Significance:

Fair and efficient adjudication of foreign-related maritime cases constitutes an important judicial manifestation of serving the maritime power strategy and promoting high-standard opening-up. This case presents a typical dispute involving subrogation claims by an overseas insurer under a multi-tiered charterparty structure and the determination of the counterparty to a ship agency contract. The court, based on mutual agreement between the parties, admitted and applied the ascertained contents of foreign law, independently reviewed the facts and legal relationships, and determined the counterparty to the ship agency contract by focusing on the actual entrustment, the alignment of instructions, and the payment of fees, thereby clarifying that internal agreements within the charterparty chain cannot directly establish the existence of an external agency contractual relationship. This case precisely applies the rules for ascertaining foreign law and the criteria for identifying the principal under a mandate contract, strictly delineates the boundary between the scope of application of foreign law and the examination of domestic substantive facts, and clarifies the rules for determining the interplay between internal and external legal relationships under multi-tiered charterparties. It provides a clear adjudicative paradigm for similar foreign-related maritime disputes, demonstrates respect for international shipping practices and its commitment to safeguarding fair trading order, and offers strong judicial assurance for regulating international shipping insurance subrogation practices and optimising the law-based and internationalised business environment.