Shipping 2019 Comparisons

Last Updated March 19, 2019

Contributed By Wang Jing & Co

Law and Practice

Authors



Wang Jing & Co has earned a reputation as one of the strongest shipping law firms in China, offering broad, international-standard expertise in handling admiralty cases. Its lawyers have abundant professional and practical experience working for shipping companies and maritime courts, and in maritime administration. In addition, the firm retains several ocean captains as marine consultants. Wang Jing & Co has handled hundreds of complicated and severe casualties involving ship collisions, oil pollution, fire and explosion, and salvage and wreck removal. It has participated in legislative argumentation organised by the PRC Supreme Court and the China Maritime Safety Administration in respect of mechanisms on limitation of liability for maritime claims and on oil pollution damage compensation, as well as the establishment of the oil pollution civil liability insurance system. The shipping team consists of about 40 lawyers and marine consultants spread across offices in Guangzhou and Shanghai (dual heads), Beijing, Tianjin, Qingdao, Xiamen, Fuzhou and Shenzhen.

China has not enacted a specific maritime finance law, nor officially announced the drafting of such a law. Accordingly, maritime financial activities, such as ship finance, insurance and reinsurance, derivatives of sea freight index, issuance of shipping companies’ bonds, etc, are regulated by the respective financial laws. These include, but are not limited to, PRC (People’s Republic of China) Company Law, PRC Contract Law, PRC Insurance Law and PRC Securities Investment Fund Law.

As these are largely general finance laws, the authorities often issue specific regulations to administer further shipping-related financial activities, such as the Notice of Ministry of Transport for Regulating the Management of Domestic Ship Financial Leasing and the Regulations of State Council on Futures Trading.

Moreover, local government issues its own policies to support and regulate maritime financial activities and maritime construction. For example, as part of the development of Shanghai’s shipping and financial centre, in 2017 the local government enacted Shanghai’s action plan to act as the bridgehead in serving the Belt and Road Initiative.

Hainan Government is drafting a series of incentives this year to establish its special economic zone, while Dalian, Tianjin, Ningbo and others have their own development schemes for ship finance.

Although regulations and policies to encourage ship finance may vary between local governments, these laws, regulations and policies share a common purpose: to make up the shortfall in funding; to standardise the market access mechanism; to balance the innovation and risk of ship finance/financial derivatives; and to develop maritime financial services.

Different maritime finance projects will incorporate different entities:

  • financial leasing will involve shipping companies, shipyards, banks, financial leasing companies, etc. In practice, there are two kinds of financial leasing company – non-bank financial institutions approved by the China Banking and Insurance Regulatory Commission (CBIRC) and non-financial institution leasing companies approved by the Ministry of Commence;
  • initial public offerings (IPOs) will involve shipping companies, port enterprises, securities firms and the like;
  • financial derivatives of sea freight will involve dealers, financial consumers, etc; and
  • for marine insurance and reinsurance, insurance companies are the common entities.

The main purpose of shipping enterprises is to increase their capital and reduce costs. Since the 2008 financial crisis and 2017 global changes to ship finance, many traditional banks, such as Commerzbank and the Royal Bank of Scotland, have turned away from shipping.

This has hit shipping enterprises hard, prompting the introduction of various policies to attract financial leasing companies, explore new financing channels and encourage use of the current monetary market.

Generally speaking, a maritime finance project is a series of economic activities that take place during the operation of shipping enterprises. These include financial leasing, insurance, settlement, currency exchange, etc, but the constitution of specific maritime finance projects relies on their characteristics and financing methods.

For example, in ship financial leasing, the shipowner purchases or rents a vessel via a financial institution and over time pays off the collective funds/hires plus interest. In this process, the ship leasing contract and the ship sale and purchase contract constitute a basic maritime finance project, inclusive of guarantee, ship mortgage, loan and other financial activities.

The conditions or requirements for these incentives can vary depending on different policies issued by local government or administrative authorities.

In 2017, to encourage the development of Shanghai’s shipping centre, the Financial Support Measures for the Development of the Shipping industry in Pudong New District during China’s 13th Five-Year Plan stipulate that key shipping companies established after 1 January 2016 are entitled to a one-off reward of no more than CNY1.5 million on the basis of their contributions. Key shipping companies established before this point are entitled to certain rewards within five consecutive years.

Likewise, according to the Measures for Encouraging the Development of the Shipping Financial Industry in Tianjin Dongjiang Tariff-free Zone (Tianjin Dongjiang shipping finance measures), special-purpose vehicles and leasing enterprises are entitled to tax breaks.

In 2018, the standing committee of Hainan Provincial People’s Congress enacted the Action Plan to Attract One Million Talents (2018-2025) (one million talents plan), whereby individuals wishing to start a business can apply for a loan, with a credit limit of CNY2 million, and can apply to rent a 100 sq m office, free for three years. Moreover, said talents can obtain an allowance to rent a house for three consecutive years.

According to the Measures on Financial Support for the Development of the Shipping Industry in Pudong New District during the 13th Five-Year Plan (Pudong ship industry finance plan), the talent in key shipping companies can obtain certain rewards based on their contributions.

According to Hainan’s one million talents plan, restrictions on the international talent’s residences and exit and entry will loosen. Moreover, their spouses and children are entitled to apply directly for permanent residence.

The Scheme for the Development of Talent in Shanghai Financial Industry during the 13th Five-Fear Plan (Shanghai finance talent plan) intends to benefit international talent in terms of medical security, visa, children’s education, etc.

Eligible talent and companies must file application forms and supporting documents with the relevant administrative departments or authorities pursuant to provisions in the specific policies and regulations.

For instance, according to the Tianjin Dongjiang shipping finance measures, the local commerce department and bureau of taxation require the leasing companies to submit their business licences, financial leasing qualifications, proof of duty paid and other supporting documents for verification.

The Notice of Ministry of Commerce and State Administration of Taxation on the Issues related to Financial Leasing Business stipulates submission of the following basic documents by the company:

  • the recommendation letter issued by Provincial Commerce Department;
  • the application form and feasibility study report;
  • a copy of the business licence;
  • the articles of association, enterprise internal management regulations and risk control documents;
  • a three-year financial report issued by a qualified accounting firm;
  • proof of two years without criminal activity or irregular records; and
  • the names and qualifications of senior operating personnel.

There has never been a specific maritime finance authority in China. In practice, maritime finance projects and entities are supervised by the respective finance authorities, such as the People’s Bank of China (PBoC), the China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC), Ministry of Commerce and the finance service offices of local governments.

Listed below are the responsibilities of the various bodies.

  • Nationwide supervision:
    1. The Ministry of Commerce is responsible for:
      1. approval and supervision of financial leasing services provided by non-financial institutions; and
      2. management of tariff-free zones.
    2. The PBoC is responsible for:
      1. enacting macro-policies, laws and regulations; and
      2. enforcing micro-prudential supervision.
    3. Under the supervision of the PBoC, the CBIRC is responsible for:
      1. supervising finance;
      2. supervising the trust service;
      3. supervising the consumer finance service;
      4. supervising the insurance service;
      5. supervising the financial leasing service provided by non-bank financial institutions;
      6. supervising commercial factoring; and
      7. supervising the pawn service.
    4. The CSRC, supervised by the PBoC, is responsible for:
      1. supervising private equity;
      2. supervising public funding; and
      3. supervising collective asset management business.
  • Regional supervision:
    1. local government finance service offices are responsible for:
      1. managing and supervising gold exchange trades;
      2. supervising financing guarantee business; and
      3. supervising microcredit business.

The incentives are subject to expiry and this will vary dependent on concrete policies issued by different local governments. For companies registered in Shanghai (including Pudong), the Shanghai finance talents plan and Pudong ship industry finance plan will expire by the end of 2020. For companies registered in Hainan, the one million talents plan is phased and valid from 2018 to 2025. As a rule, renewed policies come into force before expiry.

In China, limitation of liability for maritime claims is mainly regulated by Chapter XI of the PRC Maritime Code.

As China is not a party to LLMC 76, it is not a party to the 1996 protocol.

As mentioned, Chapter XI of the PRC Maritime Code mainly regulates the limitation of liability for maritime claims in China. When drafting Chapter XI, legislators made reference to LLMC 76. Accordingly, some provisions of LLMC 76 have been adopted or modified with certain expansion for being adopted into Chapter XI of the PRC Maritime Code.

For the party entitled to limitation of liability, Article No 204 of the PRC Maritime Code corresponds to Article No 1 of LLMC 76 and provides that: “Shipowners and salvors may limit their liability in accordance with the provisions of this Chapter for claims set out in Article No 207 of this Law. The Shipowners referred to… shall include the charterer and the operator of a ship.”

Notably, compared with LLMC 76, the PRC Maritime Code does not include the ship manager as the party entitled to limit liability.

Secondly, with regard to limitable claims, Article No 207 of the PRC Maritime Code generally corresponds to Article No 2 of LLMC 76, but the PRC Maritime Code does not include the content of Article No 2 (d) (e) of LLMC 76, which relates to claims in respect of raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, as well as the cargo of the ship.

Thirdly, in respect of claims not subject to limitation, Article No 208 of the PRC Maritime Code has generally adopted Article No 3 of LLMC 76. The relevant provisions will be set out under question 2.6 Claims not Subject to Limitation of Liability, below.

Finally, regarding the limitation amount, Article No 210 of the PRC Maritime Code partially adopted relevant regulations of LLMC 76. For a ship engaged in international sea carriage with a gross tonnage from 300 tons to 500 tons, as well as those in excess of 500 tons, their limitations of liability for all kinds of maritime claims regulated in the PRC Maritime Code are the same as LLMC 76.

However, liability limitation for maritime claims of ships with a gross tonnage ranging from 20 tons to 300 tons and those exceeding 300 tons but engaged in transport services between ports of China, as well as those engaged in other coastal works, shall be regulated by the PRC Provisions Concerning the Limitation of Liability for Maritime Claims for Ships with a Gross Tonnage Not Exceeding 300 Tons and Those Engaging in Coastal Transport Services as well as Those for Other Coastal Operations.The relevant provisions are as follows:

  • Article No 2 – In respect of claims for loss of life or physical injury:
    1. 54,000 Special Drawing Rights (SDR) for a ship with a gross tonnage in excess of 20 tons and less than 21 tons; and
    2. For a ship with a gross tonnage in excess of 21 tons, SDR1,000 shall be added for each full ton over 20 tons.
  • Article No 3 – In respect of claims other than those for loss of life or physical injury:
    1. SDR27,500 for a ship with a gross tonnage in excess of 20 tons and less than 21 tons; and
    2. For a ship with a gross tonnage in excess of 21 tons, SDR500 shall be added for each full ton over 20 tons.
  • Article No 4 – The limitation of liability for maritime claims for ships with a gross tonnage not exceeding 300 tons engaging in carriage of goods between the ports of the People's Republic of China as well as those for other coastal operations shall be calculated on the basis of 50% of the limitation of liability provided for in Article No 3 of these Provisions. For ships with a gross tonnage exceeding 300 tons the figure shall be calculated on the basis of 50% of the limitation of liability provided for in sub-paragraph (1) of Article No 210 of the PRC Maritime Code.

In brief, the PRC Maritime Code corresponds to the main regime of LLMC 76 with minor adjustments.

Given that the PRC Maritime Code does not set specific provisions on a time bar for filing a limitation of liability action, the courts tend to apply general rules of the PRC Civil Law.

According to General Rules of the PRC Civil Law, the limitation of action for applying to the people’s courts for protection of civil rights is three years from the date on which the right-holder knows or ought to be aware of the infringement to the rights.

Although not authoritative, it is a general view in China that the time bar for filing limitation of liability claims shall be counted from the date the applicant decided to be liable for the relevant maritime claims, as judged by the court in accordance with the law (including arbitration awards).

In addition, according to Article No 101 (3) of PRC Special Maritime Procedure Law, an application to establish a liability limitation fund can be submitted before or during the litigation proceedings, but in any event before the judgment of the first instance trial is given.

As mentioned, Article No 207 of the PRC Maritime Code generally corresponds to Article No 2 of LLMC 76 in specifying limitable claims.

It provides that: “Except as provided otherwise in Article No 208 and 209 of this Law, with respect to the following maritime claims, the person liable may limit his liability in accordance with the provisions of this Chapter, whatever the basis of liability may be:

(1) Claims in respect of loss of life or personal injury or loss of or damage to property including damage to harbour works, basins and waterways and aids to navigation occurring on board or in direct connection with the operation of the ship or with salvage operations, as well as consequential damages resulting therefrom;

(2) Claims in respect of loss resulting from delay in delivery in the carriage of goods by sea or from delay in the arrival of passengers or their luggage;

(3) Claims in respect of other loss resulting from infringement of rights other than contractual rights occurring in direct connection with the operation of the ship or salvage operations; and

(4) Claims of a person other than the person liable in respect of measures taken to avert or minimise loss, for which the person liable may limit his liability in accordance with the provisions of this Chapter, and further loss caused by such measures.

All the claims set out in the preceding paragraph, whatever the way they are lodged, may be entitled to limitation of liability. However, with respect to the remuneration set out in sub-paragraph (4) for which the person liable pays as agreed upon in the contract, in relation to the obligation for payment, the person liable may not invoke the provisions on limitation of liability of this Article.”

According to Article No 208 of the PRC Maritime Code, claims not subject to liability limitation include: 

“The provisions of this Chapter shall not be applicable to the following claims:

(1) Claims for salvage payment or contribution in general average;

(2) Claims for oil pollution damage under the International Convention on Civil Liability for Oil Pollution Damage, to which the People's Republic of China is a party;

(3) Claims for nuclear damage under the International Convention on Limitation of Liability for Nuclear Damage, to which the People's Republic of China is a party;

(4) Claims against the Shipowners of a nuclear ship for nuclear damage;

(5) Claims by the servants of the Shipowners or salvor, if under the law governing the contract of employment, the Shipowners or salvor is not entitled to limit his liability or if he is by such law only permitted to limit his liability to an amount greater than that provided for in this Chapter.”

Article No 208 of the PRC Maritime Code generally mirrors Article No 3 of LLMC 76.

According to Article No 209 of the PRC Maritime Code, a liable party shall not be entitled to limitation of liability if it is proven that the loss resulted from their act or omission done with the intent to cause loss, or recklessly and with knowledge that the loss would probably result.

In practice, Chinese courts adopt strict standards and prudently examine forfeiture of the right to limit liability from an international perspective. Therefore, there are few precedents of breaking the liability limitation. In Mao Xuebo v Chen Wei and Shengsi County Jiangshan Shipping Ltd (2014) HuHaiFaHaiChuzi No 85, the Shanghai Maritime Court held that the following circumstances/conducts may impede the right to limit liability, namely:

  • the vessel sailed beyond the approved navigation zone for a substantial period;
  • the vessel failed to apply for a visa before sailing;
  • crew members did not hold valid certificates; and
  • the vessel fled after the collision.

The decision was endorsed by the Shanghai Higher People’s Court and the PRC Supreme Court in the subsequent appeal and retrial proceedings.

In terms of burden of proof, it should be noted that the PRC Maritime Code does not have specific provisions and in China it is debatable who shall undertake the burden of proof in limitation of liability claims. However, the prevailing view is that the person who claimed should bear the burden of proof over whether the liable party behaved in such a way as to bar the limitation of liability set out in Article No 209 of the PRC Maritime Code. Afterwards, the liable party can rebut the allegations.

Articles No 210 and 211 of the PRC Maritime Code regulate the limitations of liability. The provisions are as follows:

“Article No 210: The limitation of liability for maritime claims, except as otherwise provided for in Article No 211 of this Law, shall be calculated as follows:

(1) In respect of claims for loss of life or personal injury:

a) SDR333,000 for a ship with a gross tonnage ranging from 300 to 500 tons; and

b) for a ship with a gross tonnage in excess of 500 tons, the limitation under a) above shall be applicable to the first 500 tons and the following amounts in addition to that set out under a) shall be applicable to the gross tonnage in excess of 500 tons:

  • for each ton from 501 to 3,000 tons: SDR500;
  • for each ton from 3,001 to 30,000 tons: SDR333;
  • for each ton from 30,001 to 70,000 tons: SDR250; and
  • for each ton in excess of 70,000 tons: SDR167.

(2) In respect of claims other than for loss of life or personal injury:

a) SDR167,000 for a ship with a gross tonnage ranging from 300 to 500 tons; and

b) for a ship with a gross tonnage in excess of 500 tons, the limitation under a) above shall be applicable to the first 500 tons, and the following amounts in addition to that under a) shall be applicable to the part in excess of 500 tons:

  • for each ton from 501 to 30,000 tons: SDR167;
  • for each ton from 30,001 to 70,000 tons: SDR125; and
  • for each ton in excess of 70,000 tons: SDR83.

(3) Where the amount calculated in accordance with sub-paragraph (1) above is insufficient for payment of claims for loss of life or personal injury set out therein in full, the amount calculated in accordance with sub-paragraph (2) shall be available for payment of the unpaid balance of claims under sub-paragraph (1), and such unpaid balance shall rank pro rata with claims set out under sub-paragraph (2).

(4) However, without prejudice to the right of claims for loss of life or personal injury under sub-paragraph (3), claims in respect of damage to harbour works, basins and waterways and aids to navigation shall have priority over other claims under sub-paragraph (2).

(5) The limitation of liability for any salvor not operating from any ship or for any salvor operating solely on the ship to, or in respect of which, he is rendering salvage services, shall be calculated according to a gross tonnage of 1,500 tons.

The limitation of liability for ships with a gross tonnage not exceeding 300 tons and those engaging in transport services between the ports of the People's Republic of China as well as those for other coastal works shall be worked out by the competent authorities of transport and communications under the State Council and implemented after its being submitted to and approved by the State Council.

Article No 211: In respect of claims for loss of life or personal injury to passengers carried by sea, the limitation of liability of the shipowner thereof shall be an amount of SDR46,666 multiplied by the number of passengers which the ship is authorised to carry according to the ship's relevant certificate, but the maximum amount of compensation shall not exceed SDR25,000,000.

The limitation of liability for claims for loss of life or personal injury to passengers carried by sea between the ports of the People's Republic of China shall be worked out by the competent authorities of transport and communications under the State Council and implemented after its being submitted to and approved by the State Council.”

The above provisions, in conjunction with those set out in Provisions Concerning the Limitation of Liability for Maritime Claims for Ships with a Gross Tonnage Not Exceeding 300 Tons and Those Engaging in Coastal Transport Services as well as Those for Other Coastal Operations (as explained in preceding Item 3), have shown that the PRC Maritime Code has only partially adopted the regime on limitations of liability under LLMC 76. For ships with a gross tonnage ranging from 20 tons to 300 tons and those exceeding 300 tons but engaged in transport services between ports of China as well as those for other coastal works, China has set a relatively low standard for limitations of liability.

Technically, if a party can prove that the loss resulted from the shipowner’s act or omission done with the intent to cause loss, or recklessly and with knowledge that the loss would probably result, then the shipowners may not be entitled to limit liability under the PRC Maritime Code.

According to Article No 108 (2) of the PRC Special Maritime Procedure Law, the guarantee shall be approved by the maritime courts.

Article No 85 of the Interpretation of the Supreme People's Court on the Application of the Special Maritime Procedure Law of the PRC further explain the above article by providing that: “The term ‘security’ as prescribed in Article No 108 of the Special Maritime Procedure Law refers to the security provided by a bank or any other financial institution within the PRC.”

In light of the above, the guarantee provided for constitution of the limitation fund in China could be a cash deposit, a Chinese bank guarantee or a letter of undertaking (LOU) issued by a Chinese insurance company.

As a matter of Chinese judicial practice, LOUs issued by foreign P&I Clubs are not accepted by the Chinese maritime courts to constitute a limitation fund. That said, LOUs issued by China Shipowners Mutual Assurance Association (CPI) are acceptable.

According to Article No 214 of the PRC Maritime Code, where a limitation fund has been constituted, any person having made a claim against the person liable may not exercise any right against any assets of the person liable. Where any ship or other property belonging to the person constituting the fund has been arrested or attached, or, where a security has been provided by such person, the court shall without delay order release of the ship arrested or the property attached, or return of the security provided.

If the person against whom an arrest order is made has failed to provide security 30 days after the vessel is arrested and it is not appropriate to keep the ship under arrest, the maritime claimant, having brought an action or applied for arbitration, may apply to the maritime court to auction the arrested ship. Before the maritime court can order the judicial auction of the vessel, it must establish that:

  • the person against whom the arrest order is made failed to provide security within 30 days of the vessel’s arrest;
  • the applicant of the arrest has brought an action or applied for arbitration for the material disputes;
  • the applicant of the arrest or the person against whom an arrest order is made has applied to the court for the vessel’s auction; and
  • considering the maintenance cost, the risk of safety and pollution during the arrest period, the trend of the market price, the nature and the amount of the debt owed etc, it is not appropriate to keep the ship under arrest.

The maritime court shall issue a written notice 30 days before the ship auction and serve it on the ship registrar where the ship for auction is registered, the maritime lien holder, the mortgagee and the known shipowner.

Such notice shall contain the name of the ship, the time and venue of the auction, reasons and grounds for the auction, registration of debts, etc. The auction notice will further be advertised in a national newspaper and, in the case of foreign vessels, via an international newspaper or other media. It will also be announced on the auction platform, eg, Alabama.

The court will appoint a competent appraisal institution to assess the vessel’s value, or it may determine the vessel’s value based on interested parties’ agreement.

The court shall determine the reserve price (ie, starting price) of the auction, based on the appraisal. During the first round of judicial auction, the reserve price shall not be lower than 80% of the appraised price. If there is no sale in the first round, the court may reduce the reserve price by up to 20% for the second round. When the second round of judicial auction fails, the vessel can be put on judicial sale, with the starting price no lower than 50% of the vessel’s appraised price.

A maximum two rounds of judicial auction and one judicial sale round can take place in a judicial sale proceeding.

The minimum bid required in the first, second and third round of judicial sale is one bid.

The judicial auction takes place via one of the given online auction platforms, for which bidders must have an account and log in to participate.

The standard auction length is 24 hours. If a bid is made within two minutes of the time the auction is due to finish, the auction period automatically extends to five minutes from the time the bid was made. In effect, this sets a rolling five-minute extension for each new bid, without limitation. Henceforth, the auction ends only after five minutes has elapsed without a bid.

After the auction closes, the successful bidder is notified of their winning bid via the auction platform.

There is no need for a prospective bidder to make an appearance in the judicial sale proceeding; the judicial auction takes place online.

Citizens, legal persons and other organisations with full capacity for civil conducts under Chinese law can participate in the bidding. In order to participate in a judicial auction, a prospective bidder must:

  • register on the website of the auction platform;
  • pay the auction deposit (to be determined by the court) via the online platform before the bidding; and
  • where a prospective bidder entrusts others to participate in the bidding on their behalf, the prospective bidder shall complete the entrustment procedures with the court within the set deadline.

The following are not mandatory but strongly recommended:

  • description of the vessel and video materials and/or pictures provided by the court are only for reference and do not constitute any guarantee of the vessel. Therefore, the bidder is recommended to inspect the vessel in person; and
  • before bidding, the bidder should confirm with the relevant department the processing time and whether the ownership can be transferred. If ownership cannot be transferred, if there is any delay in the transfer procedure, or if there is any cost increase for the second transfer due to the status quo and defect of the vessel, the consequences are at the bidder’s own risk.

After the judicial auction is completed, the deposit paid by the successful bidder is automatically transferred to the account designated by the court. The bidder must then pay the remaining balance and handle the ship delivery procedures within the period specified in the court-issued judicial auction instruction. This is usually seven to ten days after the auction’s close.

A party that has a judicially recognised credit against the vessel can place a bid during the judicial sale auction.

A maritime judge can approve the sale to the winning bidder even if the winning bid does not cover the arrest expenses incurred within the claim that gave rise to the judicial sale proceeding.

China is not itself a signatory to the Hague Rules, the Hague-Visby Rules, the Hamburg Rules or the Rotterdam Rules.

The PRC Maritime Code, particularly Chapter IV “Contract of Carriage of Goods by Sea” therein, is primarily applicable to cargo claims arising from international maritime transport. As regards the carrier’s obligations and exemptions, the main regime established in Chapter IV is basically the same as under the Hague/Hague Visby Rules, with minor changes to wording.

The PRC Maritime Code applies to the contract of carriage of goods by sea, to or from foreign and Chinese ports. However, it does not apply to shipments between Chinese ports, such as those made for coastal trade, or carriage of goods by inland waters, under which circumstances, the Contract Law and the General Provisions of the PRC Civil Law will apply.        

The bill of lading acts as evidence of the contract of carriage as provided by Article No 71 of the PRC Maritime Code.

The parties to a contact of carriage of goods by sea are defined as the carrier and the shipper under the PRC Maritime Code.

Modelled on the Hamburg Rules, the code provides for two types of carrier, namely 'carrier' and 'actual carrier'. A carrier is defined as a person by whom or in whose name contract of carriage of goods by sea has been concluded with a shipper. An actual carrier is any person to whom the performance of the carriage of the goods, or of part of the carriage, has been entrusted by the carrier, and includes any other person to whom such performance has been entrusted.

A 'shipper' as defined in the PRC Maritime Code refers to:

  • the person by whom or in whose name or on whose behalf a contract of carriage of goods by sea has been concluded with a carrier; or
  • the person by whom or in whose name or on whose behalf the goods have been delivered to the carrier in relation to the contract of carriage of goods by sea.

The lawful holder of the bill of lading or the subrogated cargo underwriter who has paid insurance indemnity under the marine cargo policy and then acquired the subrogation right has title to claim under the contract of carriage.

The cargo interests are entitled to file the cargo claim against the contractual carrier (ie, the carrier named on the bill of lading) and/or the actual carrier (ie, the registered owner or the demise charterer of the vessel, if any).

As regards the master bill of lading, the carrier normally refers to the vessel’s registered owner or demise charterer (if any). In voyage charter, the disponent owner can also be deemed the contractual carrier under that particular charterparty.

Notably, in the context of Chinese judicial practice, the scope of the carrier could be extended to the intermediaries who enter into contract of carriage of goods by sea in their own names – such as a non-vessel operating common carrier (NVOCC) or a freight-forwarder – if such a party issues a bill of lading and undertakes to carry and deliver goods in its own name as carrier.

The vessel cannot be directly sued in rem for cargo claims. Under Chinese law, only action in personam is allowed and there is no concept of action in rem.

Cargo claims give rise to a right of claim against the carrier in personam. Only shipbuilders and ship repairers can enjoy a maritime possessory lien under the PRC Maritime Code.

As for maritime liens, the following are permitted:

  • payment claims for wages, other remuneration, crew repatriation and social insurance costs made by the master, crew members and other members of the complement, in accordance with the relevant labour laws, administrative rules and regulations or labour contracts;
  • claims in respect of loss of life or personal injury that occurred in the operation of the ship;
  • payment claims for ship tonnage dues, pilotage dues, harbour dues and other port charges;
  • payment claims for salvage payment; and
  • compensation claims for loss of or damage to property resulting from a tortious act in the course of the operation of the ship.

The claimant can choose to sue by contract or in tort, but not both. The claimant cannot sue by contract and in tort concurrently or file two separate lawsuits for breach of contract and in tort.

Under Article No 58 of the PRC Maritime Code, if any legal action is brought against the carrier’s servant or agent for the loss of, damage to or delay in delivery of the goods covered by the contract of carriage of goods by sea, and the carrier’s servant or agent proves that his or her action is within the scope of his or her employment or agency, the carrier’s defence and limitation of liability provided in Chapter 4 of the code shall also be available to him or her.

According to the PRC Maritime Code, the carrier shall not be held liable for the cargo damage/loss caused during his or her period of responsibility, if the cargo damage/loss is caused by:

  • fault of the master, crew members, pilot or servant of the carrier in the navigation or management of the ship;
  • fire, unless caused by the actual fault of the carrier;
  • force majeure or perils, dangers and accidents of the sea or other navigable waters;
  • war or armed conflict;
  • act of the government or competent authorities, quarantine restrictions or seizure under legal process;
  • strikes, stoppages or restraint of labour;
  • saving or attempting to save life or property at sea;
  • act of the shipper, owner of the goods or their agents;
  • nature or inherent vice of the goods;
  • inadequacy of packing or insufficiency or illegibility of marks;
  • latent defect of the ship not discoverable by due diligence; and
  • any other cause arising without the fault of the carrier or his or her servant or agent.

The package limitation of carriers’ liability under the PRC Maritime Code is an amount equivalent to SDR666.67 per package or other shipping unit, or SDR2 per kg of the gross weight of the cargo lost or damaged, whichever is higher, except where the nature and value of the cargo had been declared by the shipper before shipment and inserted in the bill of lading, or where an amount higher than the limitation of liability set out above had been agreed upon between the carrier and the shipper.

Where a container, pallet or similar kind of transport equipment is used to consolidate cargo, the number of packages or other shipping units on the bill of lading as packed in such transport equipment shall be deemed the number of packages or shipping units. If no such number is recorded, the cargo in each unit of transport equipment shall be deemed to be one package or shipping unit.

Where the transport equipment is not owned or furnished by the carrier, such transport equipment shall be deemed to be one package or one shipping unit.

Where the loss of or damage to the cargo has occurred concurrently with its delay in delivery, the limitation of liability of the carrier shall be that as mentioned above. 

When applicable, the carrier may also enjoy tonnage limitation of liability as provided under the PRC Maritime Code. See detailed discussions under the limitation of liability section.

As a general principle, whoever advocates a cargo claim shall bear the burden of proof.

According to the PRC Maritime Code, the carrier shall undertake burden of proof if he intends to enjoy immunities, except the fire immunity as provided in 4.13 Immunities above, for which the shipper or consignee shall bear the burden of proof.

The carrier also needs to prove that he or she has exercised due diligence to make the ship seaworthy and its holds cargo-worthy before and at the beginning of the voyage, and has properly and carefully taken care of the cargo.

In a cargo claim, the consignee shall bear the burden to prove that the cargo loss or damage occurred within the carrier’s responsibility period, as well as the amount of loss or damage.

The carrier shall inform the shipper or the consignee in time in case of occurrence of cargo damage or loss.

The consignee shall give the notice of loss or damage in writing at the time of delivery. Where the loss or damage is not apparent, the consignee shall give the notice of loss or damage in writing within seven consecutive days from the next day of the cargo delivery or, in case of containerised cargo, not more than 15 days from the next day of the delivery. The notice in writing on cargo loss or damage may not be required if the cargo has, at the time of delivery, been jointly surveyed or inspected by the carrier and the consignee.

The notice on the economic loss resulting from delay in cargo delivery shall be given not more than 60 days from the next day of the actual delivery, otherwise the carrier shall not be liable for compensation.

According to PRC Maritime Code, the time bar for cargo claims is one year, starting from the day on which the cargo was delivered or should have been delivered by the carrier. If the liable party intends to bring a recourse claim against the liable third party, the time bar is 90 days, counting from the day on which the recourse claimant settled the original claim, or was served with a copy of the claim against them.

The time bar provision is mandatory and non-negotiable under Chinese law.

Recognition of the validity of jurisdiction and choice of law clauses contained in a bill of lading is subject to satisfaction of the following:

  • the carriage contract of goods by sea involves foreign elements;
  • the carrier has reasonably reminded the bill of lading counterparty of and explained to them the jurisdiction and choice of law clauses, and these clauses are agreed under full negotiation between the parties;
  • the chosen jurisdictions have actual connections with the carriage contract, such as a party’s domicile, where the contract is performed, the place of signing the contract, etc.

It shall be noted that there are case precedents revealing that if a third party such as the cargo insurer with the subrogation right does not expressly accept the jurisdiction and choice of law clauses contained in the bill of lading, the Chinese court will not recognise these clauses as binding upon the subrogated insurer.

China has not promulgated any particular law to govern marine accidents in waterways. The relevant regulations mainly include:

  • Regulations on the Administration of Traffic Safety on Inland Waters (RATSIW);
  • Regulations on Investigation and Handling of Accidents on Inland Waters (RIHAIW);
  • COLREG72 (rules shall apply where the waterway is navigable by seagoing vessels and connected to high seas); and
  • Rules for Preventing Collisions on Inland Waters.

Article No 91 of RATSIW provides that waterways refers to navigational waters, such as rivers, lakes, reservoirs, and canals within the territory regime of the PRC.

In accordance with Article No 19 of RATSIW, pilotage is compulsory for foreign vessels, vessels in restricted navigable conditions and vessels carrying passengers or dangerous cargo which are requested by the Ministry of Transport to have pilotage, among others.

According to the Law of PRC on State Compensation, if the damage is caused by unlawful acts of an administrative department or its staff when exercising their functions and powers, the aggrieved person shall have the right to claim damages against the department. Thus, a shipowner can theoretically claim for damage arising from the misconduct of an administrative department or its staff.

Nevertheless, in Chinese judicial practice, there are few case precedents concerning claims for damages against the authority regarding maritime accidents. In the event that a maritime accident occurred due to the fault of a pilot, the shipowner seldom claims damages against the pilot or the authority to which they belong.

Maritime accident investigations are carried out by the administrative officers of the Maritime Safety Administration (MSA). They are empowered to conduct a series of investigative activities to ascertain the cause of maritime accidents and the cause and resulting damage of water traffic accidents; to analyse the nature of accidents; to collect evidence/documents; and to determine the apportionment of liability between the parties involved in the accidents.

There is no concept of a Board of Inspectors in China. According to the Statistical Measures for Marine Traffic Accidents (SMMTA), accidents are graded into five levels of severity, as judged by casualties, direct economic losses and environmental pollution. These are defined as minor accident, ordinary accident, major accident, serious accident and extremely serious accident. 

In accordance with the RIHAIW, serious accidents and extremely serious accidents should be investigated by the highest level of MSA in Beijing, ie, China MSA. Minor, ordinary and major accidents shall be investigated by the direct affiliations of China MSA or the provincial MSA where the accident takes place.

The MSA is responsible for conducting a preliminary inspection of water traffic accidents to decide whether to docket a case formally for investigation. If an accident falls into the regime of a water traffic accident as stipulated in the SMMTA, the MSA may initiate the investigation.

According to the RIHAIW, if necessary, the higher MSA department is empowered directly to investigate the accidents even if the accident falls under the jurisdiction of the lower MSA department.

No hearing will be conducted in the course of an MSA accident investigation.

According to the Law of PRC on State Compensation, a party is entitled to file an administrative claim for compensation against the authority whose wrongful acts caused the damages.

An administrative claim is understood as administrative reconsideration or administrative litigation against the administrative authority.

According to the Administrative Reconsideration Law, if a citizen, legal person or other organisation considers that a specific administrative act infringes its legitimate rights and interests, it is entitled to file an application for administrative reconsideration within 60 days of becoming aware of the specific administrative act.

According to the Administrative Litigation Law, as a judicial remedy against an administrative reconsideration decision, a citizen, a legal person or any other organisation is entitled to file a claim before a people’s court up to 15 days from receipt of the written reconsideration decision. If the reconsideration department fails to make a decision during the statutory period, the party is entitled to file a claim before a people’s court within 15 days of expiry of the reconsideration period, unless the law provides otherwise.

It should be noted that the filing of administrative reconsideration is not the precondition of an administrative litigation. In such a circumstance, the party is allowed to start administrative litigation proceedings before a people’s court directly, up to six months after the day the citizen, legal person or other organisation knew or should have known that the administrative action was taken, unless the law or regulations stipulate otherwise.

Damages are available only if they are caused by the authority’s misconduct when exercising its functions and powers. Normally, the damages are direct losses excluding consequential losses.

Non-monetary damages, such as psychological damage, cannot be recovered. 

According to Article No 5 of the Law of PRC on State Compensation, the state shall not be liable for compensation in one of the following circumstances:

  • where the personal act by personnel of the state department does not relate to the exercise of their functions and powers;
  • where the act by a citizen, legal person or other organisation itself causes damage; or
  • any other events or circumstances as stipulated by law.

The judicial claim is understood as a claim filed against an administrative authority for state compensation.

Such a claim must contain the following:

  • basic information of claimant and respondent;
  • specific requested claims, factual grounds and reasons; and
  • date of application.

According to Article No 39 of the Law of PRC on State Compensation, the claimant’s time bar for filing a claim for state compensation is two years, counted from the day the claimant knew or ought to have known that his or her personal right or property was infringed by the unlawful act of exercising the functions and powers of the state department and its personnel. Any period of custody shall be excluded.

The limitation of time shall be suspended if, during the previous six months, the claimant was unable to exercise his or her right to file a claim due to force majeure or other obstructions. The limitation period shall resume from the day the grounds for suspension are eliminated.

There is no administrative court in China with exclusive jurisdiction to hear and adjudicate judicial claims. Claims for state compensation shall be heard by people’s courts at an administrative level corresponding to the administrative department where the authority is seated.

Wang Jing & Co

Guangzhou Office:
11/F., Block D, GT Land Plaza
8 Zhu Jiang West Road
Zhu Jiang New Town
Guangzhou 510623
P. R. China

+86 20 8393 0333

+86 20 3808 2990

chenxiangyong@wjnco.com www.wjnco.com
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Law and Practice

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Wang Jing & Co has earned a reputation as one of the strongest shipping law firms in China, offering broad, international-standard expertise in handling admiralty cases. Its lawyers have abundant professional and practical experience working for shipping companies and maritime courts, and in maritime administration. In addition, the firm retains several ocean captains as marine consultants. Wang Jing & Co has handled hundreds of complicated and severe casualties involving ship collisions, oil pollution, fire and explosion, and salvage and wreck removal. It has participated in legislative argumentation organised by the PRC Supreme Court and the China Maritime Safety Administration in respect of mechanisms on limitation of liability for maritime claims and on oil pollution damage compensation, as well as the establishment of the oil pollution civil liability insurance system. The shipping team consists of about 40 lawyers and marine consultants spread across offices in Guangzhou and Shanghai (dual heads), Beijing, Tianjin, Qingdao, Xiamen, Fuzhou and Shenzhen.

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