Introduction to the possible rules for limitation of carriers’ liability under Taiwan Law while cargo underwriters file Subrogation claims against carriers Lin & Associates, Maritime Law Office Gilbert Lee (Senior Associate)

1.The condition that one cargo claim may be applied to Taiwan Law (1) Both claim parties are expressly and mutually agreed to have the subject claim case applied to Taiwan Law. (The said mutual agreement may be reached before litigation procedures start or after the defendant attends hearing in Taiwan; it is “expressly agreed” that counts.) Paragraph 1, Article 20 of “Law Governing the Application of Laws to Civil Matters Involving Foreign Elements” regulates that “If a contract is completed by a judicial act, its completion and validity shall be referred to the laws agreed by both parties.”

(2) If there is a valid article of “Applicable Law” under the reverse side of B/L, and it regulates Taiwan Law shall be applied to all disputes arising from the B/L. Paragraph 1, Article 43 of “Law Governing the Application of Laws to Civil Matters Involving Foreign Elements” regulates that ”The applicable law of the contract arising from Bill of Lading shall be referred to the law inserted in the Bill of Lading.” (3) Theory of “The most significant contacts/relationship” is mainly adopted and applied to “Law Governing the Application of Laws to Civil Matters Involving Foreign Elements”. (Such as “The cargo receiver is in Taiwan”, or “the location of performance for contract”). (4) If the cargo claim is on base of “Torts”, and either “the place of torts” or “the place that the damage/loss is found” is located in Taiwan, the said claim would be applied to Taiwan Law.

2.The definition of “Subrogation” under Taiwan Insurance Law (1) The contents and conditions of “Subrogation” regulated in Taiwan Insurance Law: A.The loss/damage occurred within the duration of policy and covered by the policy. B.The designed insurance amount is paid to the insured (or to order of the insured). C.The insured is entitled to claim against the third party for indemnity of the loss/damage. D.The claim amount of “Subrogation” shall not exceed the amount that the insurance amount paid to the insured.

(2) The insured’s rights would be automatically and immediately transferred to the insurer once the designed insurance amount is paid to the insured. Neither the insured nor the insurer shall be obliged to send notice to the liable party about the said transfer of rights; and the liable party would be bound by the said transfer.(supported by the Majority of the Supreme Court Judgments) (3) Comparing with the above mentioned Subrogation claims, the notice to the debtor/the liable party is a “necessity” for the transferee to claim against the debtor/the liable party under Taiwan Civil Law. “The transfer of a claim will NOT be effective as against the debtor UNTIL the debtor has been notified of it by the transferor or by the transferee.”(Paragraph 1, Article 297 of Taiwan Civil Law)

3. Several important issues/disputes of Subrogation claims in Taiwan Courts. (1) Applicable Law: In general, the standard form of marine cargo insurance policy in Taiwan is regulated to be applied to English Law and practice (such as Institute Cargo Clause). It allows the liable party to raise a procedural defense of “Title to Sue”, because of the difference between MIA (1906) and the interpretation by Taiwan Supreme Court of Article 56 of Taiwan Insurance Law (Please refer to the above point 2-(2)).

(2) “Title to Sue”: Under Article 79 of MIA (1906) and English law practices, the title to sue remains on the insured; but among all cargo claims cases in Taiwan, the party who files claim against the liable party is cargo underwriter. However, as we mentioned above, the standard form of insurance policy adopts English law and practice. Hence, more and more defendants start to raise a procedural defense of “Title to Sue”; trying to prevent the cargo claims from unfavorable substantial judgment. Regarding to the “Title to Sue” issue, so far no majority judgment has been made or announced by Supreme Court.

(3) According to recent judgments made by the Supreme Court, “title to sue” shall be regarded as a “procedural issue/dispute” and shall be referred to the law of the court; i.e. Taiwan Civil Procedure Law. Since Article 79 of MIA (1906) and English law practices are not adopted into the Taiwan Civil Procedure Law, as long as the claimant (cargo underwriter) alleged he is entitled to file the Subrogation claim, there is no reason to overrule this Subrogation claim procedurally. Of course, “Whether the Subrogation is sustainable/ would be supported by final judgment?” will be another question.

3. “Reinsurance” dispute: A. Question: While the cargo underwriter files Subrogation claims against the liable party, is it necessary to deduct the amount paid from the Re-insurer to the cargo underwriter? Since the cargo underwriter has received the re-insurance amount payment from the Re-insurer, whether the “title to sue” remains on the cargo underwriter? or transferred to the Re-insurer? B. No majority judgment is made or announced by Supreme Court. C. But recently several judgments made by Supreme Court tend to stand on a negative position to the above mentioned re-insurance issue. In other words, from recent Supreme Court judgments we may note that the Supreme Court Judges accept the following specifics in re-insurance contract:

(a) In the re-insurance market, it is general accepted and regulated that the re-insurer would not be automatically subrogated from the cargo underwriter even though the re-insurance amount is paid according to the re-insurance contract/policy. (b)The Re-insurer would agree the cargo underwriter to file Subrogation claims in the cargo underwriter’s own name; the condition is once there is any claim amount (no matter partial/or fully payment) paid by the liable party to cargo underwriter, the cargo underwriter agrees to return to the Re- insurer proportionally. (c) It is rare and unseasonable for world-wide re-insurers to take charge of the Subrogation claims from each cargo underwriter in its own country. (d)The Re-insurance contract and payment is for the cargo underwriter’s interests and safety; it shall not be referred to an excuse for the liable party to reduce or escape from liability.

(4)In order to prevent cargo claims with merits from being overruled by the above mentioned procedural defense, the claimant (cargo interests) would file claims on base of Subrogation (Insurance Law) and Transfer of Rights (Civil Law). Even if the Subrogation claim may be regarded as invalid, the cargo interest may still proceed the claim against the liable party on base of Civil Law.

4. Carriers’ limitation rules in OCEAN CARRIAGE (1) Package limitation: Unless the nature and value of the cargo have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the shipowner shall be liable for any damage to or loss of the cargo in an amount exceeding Special Drawing Rights per package or 2 Special Drawing Rights per kilogram, whichever is the higher. The “package” referred to in the preceding paragraph means a unit of the packing of cargo for shipment. Where a container, pallet or similar article of transport is used to consolidate cargo, the number of packages enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages. Whereas the said number of packages did not enumerate in the bill of lading, the number of the consolidated article is deemed to be the number of packages. If the container is provided by the shipper, the container is deemed to be a package.

(2) Independent Contractor who locates within “commercial harbor area” may refer the protection of package limitation. It is regulated under Paragraph 2, Article 76 of “Maritime Law”: “The provisions of the preceding paragraph shall be applicable to any parties who are performing their duties within the commercial harbor area for the loading, unloading, handling, carriage, custody, keep, care, stowage, tally, lashing and dunnage.” Paragraph 4, Article 3 of the “Commercial Port Law”: “Commercial Port Area” refers to waterways within the Commercial Port borders, and the land areas where the need of port construction, development and operation is called for.”

5. Carriers’ limitation rules in AIR CARRIAGE : is based on “Rules of Compensation for Damage Caused to Air Passengers & Freight” issued and approved by MOTC. (1) Paragraph 1, Article 4 of “Rules of Compensation for Damage Caused to Air Passengers & Freight” regulates that “The compensation liability of the user of aircraft or air carrier for carried cargo is based on the actual loss / damage but not exceed NTD 1,000 per kilogram.” (2) Exception: If the loss/damage is cause by the gross negligence or willful conduct / act of the user of aircraft or air carrier, the compensation is not limited by the above quoted regulation. (Paragraph 1, Article 6)

(3) The above limitation for compensation shall be inserted or remarked into the written air-carriage contract or any other document similar to shipping order. (Article 8) (4) The above limitation for compensation shall be applied to the person who works onboard for air carrier. (Article 9)

6. Carriers’ limitation rules in INLAND ／ TRUCK CARRIAGE (1) Based on Article 64 of “Highway Act”: “Unless the nature and value of the cargo have been declared by the shipper before shipment and inserted in the written carriage contract, the carrier by means of cars/trucks/vehicles shall not be liable for any damage to or loss of each cargo in an amount exceeding NTD3,000; when the loss/damage is resulted by an “traffic accident”. (2) This claim is different from “tort” claim. The claimant under “Highway Act” should not bear any burden of proof to prove the negligence or willful conduct of the driver or the carrier. However, it the claimant wishes to claim for the actual loss/damage amount more than NTD3,000, the claimant shall prove the negligence or willful conduct of the driver or the carrier. (supported by the Supreme Court judgments)