The appellant was the owner of the cargo loaded on board the respondent’s vessel, the MOL Comfort. ​The vessel sank in the Indian Ocean due to a fracture in the ship. The appellant filed a claim against the respondent for cargo loss. The respondent denied liability on two grounds. First, according to the choice of law clause on the reverse side of the bill of lading, the applicable law was Japanese law, which adopted the Hague-Visby Rules. Secondly, the sinking of the vessel was caused by a latent defect in the design of the ship. According to art 4.2.p of the Hague-Visby Rules, the respondent could exempt its liabilities if it could prove that the losses arising from the latent defect were not discoverable by due diligence.

The first instance court held that the choice of law clause on the back of the bill of lading directly restrained the appellant’s right to choose the applicable law. Therefore, for a choice of law clause like this to be valid, the respondent must adopt a special format in order to draw the appellant’s attention. Since the respondent failed to fulfill such duty, the said clause was null and void. Therefore, Japanese law, which adopts the Hague-Visby Rules, could not be applied here. The correct applicable law in this case was Chinese law.

By applying art 51(1)(k) of the Maritime Code of the PRC (based on art 4.2.p of the Hague-Visby Rules), the first instance court held that the respondent had fulfilled its duty to maintain the vessel with due diligence and therefore should not be liable for the cargo losses which were caused by the latent defect.

The appellant appealed on the second issue.

Held: Appeal dismissed.

The first instance court correctly held that the choice of law clause was invalid and Japanese law should not be applied. Instead, the case was governed by art 51(1)(k) of the Maritime Code of the PRC (based on art 4.2.p of the Hague-Visby Rules).

The respondent had fulfilled its obligation under art 51(1)(k) to prove that the sinking of the vessel was because of a latent defect. In addition, the respondent had exercised its due diligence to maintain the ship even with the latent defect.

Therefore, the appellate court upheld the first instance court’s decision on the second issue and dismissed the appellant’s appeal.