Company A v. Company B – Ha Noi Court, Appellate Judgment No. 06/2021/KDTM-PT dated 26 March 2021
INTRODUCTION
This article is the second in a series examining the legal issues arising from Appellate Judgment No. 06/2021/KDTM-PT dated 26 March 2021 of the Hai Phong City People’s Court (“Appellate Judgment“), in which the court set aside the first-instance judgment of the Hai An District Court and remanded the case for re-trial. The underlying dispute arose from a maritime collision on 8 August 2016 between vessel Thanh Dat 01-BLC and vessel Guo Shun 21 in the waters off Binh Thuan province, which caused the total loss of 131 coils / 2,708.96 tons of cold-rolled steel coils (“the Cargo“). The first article in this series examined the Appellate Court’s finding that the Hai An District Court had violated the principles of res judicata and ne bis in idem by re-adjudicating a dispute already conclusively resolved by the Ngo Quyen District Court under a judgment that had taken legal effect.
Beyond the procedural violations addressed in the first article, the Appellate Court identified a second, independent ground for setting aside the first-instance judgment: Company A (“A”) lacked standing to bring proceedings before the Hai An District Court in its own name, seeking indemnification in favor of Joint Stock Corporation M (“M”) – the insurer that had already paid the cargo owner and acquired subrogation rights over the relevant claims. This article examines the two closely related legal issues that arise from this finding: the conditions for establishing title to sue in maritime cargo damage claims, and the role of the insurance subrogation mechanism in determining who holds the right of recourse against the carrier responsible for the loss.
SUMMARY BACKGROUND
As set out in the first article in this series, we briefly summarise the material facts below for ease of reference.
The Cargo, the Chain of Carriage Contracts and the Collision
Company D (“D“), the cargo owner, entered into a contract of carriage with Company C (“C“). As C did not own any vessels, it arranged for the carriage of the Cargo through a series of freight agency contracts, engaging Company A (“A“), which in turn contracted with Company B (“B“) – the party directly operating vessel Thanh Dat 01-BLC – under Contract No. 02/08/2016/HĐVC/HL-HA and Freight Voucher No. 01/PVC dated 7 August 2016 (“Freight Voucher“). The Cargo was insured by Joint Stock Corporation M (“M“) under a Cargo Insurance Certificate, with D named as the insured.
On 8 August 2016, vessel Thanh Dat 01-BLC collided with vessel Guo Shun 21 in the waters off Binh Thuan province, causing the Cargo to sink. A subsequent survey concluded that the accident resulted from human error on the part of both vessels.
Insurance Indemnity, Subrogation and Apportionment of Fault
At 7:00 a.m. on 8 August 2016, vessel Thanh Dat 01-BLC departed the port. At approximately midnight of the same day, the vessel collided with vessel Guo Shun 21 in the waters off Binh Thuan province. The entire cargo sank with vessel Thanh Dat 01-BLC.
A survey report dated 21 November 2016 issued by Phuong Bac Surveying Joint Stock Company concluded that the primary cause of the accident was human error, in particular the negligence and inexperience of the Second Officer of vessel Guo Shun 21 and the Master of vessel Thanh Dat 01-BLC.
Insurance Indemnity, Subrogation and Apportionment of Fault
Following the collision, D deducted salvage proceeds of VND 3,500,000,000 (equivalent to USD 133,997.70), and subsequently submitted a claim to M for compensation of VND 30,193,028,303 (equivalent to USD 1,155,935.23). M paid the full indemnity amount on 12 December 2016, on which date D subrogated to M all rights and interests relating to the Cargo. A Fault Apportionment Agreement executed on 16 November 2017 allocated 42% fault to vessel Thanh Dat 01-BLC and 58% to vessel Guo Shun 21. M settled with the owner of vessel Guo Shun 21 in respect of the 58% portion. In respect of the remaining 42%, M brought proceedings as subrogee of D against C before the Ngo Quyen District Court, Hai Phong City.
The Ngo Quyen District Court Judgment
Under Judgment No. 01/2020/KDTM-ST dated 10 January 2020 (“Ngo Quyen First-Instance Judgment”), the court granted M’s claims in full, ordering C to pay M VND 14,300,774,822 (equivalent to USD 547,502.10) corresponding to the 42% fault attributed to vessel Thanh Dat 01-BLC. The judgment joined all relevant companies as parties and took legal effect upon expiry of the appeal period without challenge.
The Proceedings Before the Hai An District Court and the Appellate Judgment
Following the Ngo Quyen First-Instance Judgment, the representatives of C, A and D agreed that B – as the party directly operating vessel Thanh Dat 01-BLC – bore direct liability for the damage. On that basis, A commenced proceedings against B before the Hai An District Court, claiming indemnification in favor of M in the total sum of VND 15,123,133,648 (equivalent to USD 579,753.97). The Hai An District Court granted A’s claims in full and additionally declared that C was relieved of its payment obligations under the Ngo Quyen First-Instance Judgment.
M appealed, maintaining that its rights had already been fully resolved by the Ngo Quyen First-Instance Judgment and that the contractual dispute between A and B did not concern it. Under Appellate Judgment No. 06/2021/KDTM-PT dated 26 March 2021, the Hai Phong City People’s Court set aside the Hai An First-Instance Judgment in its entirety and remanded the case for re-trial, on two independent grounds: violation of the principle against re-litigation of a concluded dispute, and A’s lack of standing to sue – the latter being the subject of the present article.
OUR COMMENT
In maritime cargo disputes, two interrelated questions frequently arise at the threshold of any legal proceedings: who has the right to bring a claim against the carrier in respect of the cargo loss, and on what legal basis does that right rest? These questions usually concern title to sue and the mechanics of insurance subrogation, and their misapplication can undermine the integrity of the proceedings.
Title to Sue
A significant legal issue in cargo damage claims under contracts of carriage by sea is the determination of who has the right to sue the carrier. In practice, the economic interest in the Cargo and the contractual right of action under the contract of carriage do not always vest in the same party.
A widely recognised principle in maritime law is the distinction between the interest in the Cargo and the right of action under the contract of carriage. In many cases, the party entitled to sue the carrier is not the actual owner of the goods but the lawful holder of the relevant transport document, such as a bill of lading, or the named consignee under other carriage documents such as a delivery order, a sea waybill, or a mate’s receipt. This serves to ensure the negotiability of transport documents and provides a clear legal basis for the exercise of claims.
In maritime practice, the law recognises that a party with proper legal standing may bring a claim on behalf of a third party that has suffered the actual loss. However, the precondition is that the claimant must either have valid legal standing in its own right under the applicable rules or have been duly authorised by the party holding the relevant interest. In the absence of this requirement, the claim may be held to be procedurally defective.
In this case, the parties had issued a transport document in the form of a Freight Voucher under the contract of carriage between B and A. A was merely an agent in the chain of carriage contracts and was neither the lawful holder of the Freight Voucher nor the named consignee thereunder. In substance, A was also not the party that had suffered loss from the maritime incident causing the loss of the Cargo: the actual loss had been indemnified by M to the Cargo owner D under the Insurance Policy, and A was not the party to whom the right of subrogation had been transferred by M or by D. It was therefore not appropriate for A to commence proceedings in its own name seeking compensation from B in favor of M.
The Insurance Subrogation Mechanism in Maritime Claims
In disputes involving cargo loss, the insurance subrogation mechanism plays a particularly important role. Under this principle, once an insurer has indemnified the insured for a covered loss, the insurer acquires the right to bring a claim against the third party responsible for the damage, to the extent of the indemnity paid.
This mechanism serves to ensure fairness between the parties: the insured receives timely compensation for its loss, while the insurer has recourse against the party responsible for causing the damage. The subrogation mechanism also helps prevent a single loss from being claimed multiple times by different parties.
In this case, after indemnifying D as cargo owner, M acquired subrogation rights in respect of all claims arising from the loss of the steel cargo. On the basis of those rights, M brought proceedings and obtained a judgment in its favor under the Ngo Quyen First-Instance Judgment.
The subsequent proceedings brought by A against B, seeking compensation for the same cargo loss while the right of recourse had already been transferred to M and had been resolved by a binding judgment, raised questions as to consistency with the principle of subrogation in marine insurance.
CONCLUSION
The Appellate Court’s decision to set aside the first-instance judgment in this case reflects an approach consistent with the foundational principles of maritime law and modern civil procedure. Correctly identifying the contractual carrier, the party with standing to sue, and giving due effect to judgments that have taken legal effect are all decisive factors in ensuring the stability and enforceability of judicial decisions.
In this particular case, A lacked both the substantive basis – given that the loss had already been compensated under the Insurance Policy – and the procedural standing – given that it was neither a party with the right to sue nor the holder of a valid authorisation from the party so entitled. These deficiencies meant that A’s claim did not satisfy the necessary conditions for the court to accept and adjudicate it, ultimately resulting in the first-instance judgment being set aside on appeal.
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