Entitlement to Insurable Interest in Stoppage of Transit Under English and Chinese Law: A Comparative Study

Abstract: As the global economy expands, international carriage of goods is playing a more and more important role all over the world. Interdependence of shipping with other commercial activities including insurance is one of the features of international carriage of goods. In the present international business climate, insurance contract is an effective method through which one recovers losses from underwriters in case damage to goods occurs during carriage at sea. Insurable interest in particular is an essential element which is indispensable to render insurance contract a practical, reliable basis of indemnity. While insurable interest is an important term, in some cases it is problematic to define. One of the problems is to establish who has insurable interest when different contract terms are applied to different sale contracts. Another recurring problem arises when determining when the insurable interest should be attached (during the different stages of the transport of the goods). The issue becomes even more complicated in a situation where the seller orders the right of stoppage in transit. ‘Stoppage in transit’ can be enforced in English law to secure the payment and protect the interests of the unpaid seller, who is entitled to the right to stop the carrier from delivering the goods to the buyer, even after he or she has ceded possession (as long as the goods are in transit). Even though it is legally unclear as to whether the seller could regain insurable interest after exercising the right of stoppage in transit since it is neither regulated nor established through other legal means, the seller has to bear the risk in the transaction due to the insolvency of the buyer. Chinese law does not include regulations equivalent to the maritime regime term ‘stoppage in transit’. Instead, retention is regulated in civil law as a right for an unpaid seller. Consequently, the seller can rely only on an injunction granted by the court to prevent the carrier from delivering the goods to the buyer. Therefore, the definition of insurable interest in Chinese law becomes vague and complicated as well when the unpaid seller executes the right of ‘stoppage in transit’. In English law, the definition of insurable interest has developed from a legalistic approach to pecuniary approach gradually. The former is considered a narrower and stricter definition compared with the latter. The current trend shows that the strict approach towards insurable interest is being replaced by the more liberal one. In some sense, this helps with the clarification of ownership of insurable interest, but it does not necessarily solve all of the problems, especially when coming to the definition of insurable interest under FOB contract. Compared to its counterpart in English law, the definition of insurable interest under Chinese legal framework is not interpreted clearly in the maritime law regime. Complicated by the lack of provisions on stoppage in transit, this directly leads to the fact that although the legalistic approach is adopted, the non-owners of goods, who actually also have interest in the goods in question, cannot get compensation for losses.