Shipping 2019 Comparisons

Last Updated March 19, 2019

Contributed By Moon & Song

Law and Practice

Authors



Moon & Song shipping firm, based in Seoul, has a team of four partners and two other qualified lawyers, and is active in dry cases (including charter-party disputes, bill of lading disputes and cargo claims), wet cases (including ship collision, oil pollution, salvage, and accidents within ports), ship arrest (including prejudgment attachment order and court auctions by maritime lien), ship-building and ship finance (including ship mortgage, providing escrow account and ship-delivery services), crew claims, and matters relating to aviation, multimodal transport, ports and logistics. Clients include major Korean shipping companies, international ship-owners and the International Group of P&I Clubs.

In Korea, there is no specific integrated statute regulating maritime finance. Where there is a need to apply Korean law in Korean jurisdictions, however, other relevant laws can be applied, depending on each financing case. These may include the Civil Act, Commercial Code, Specialised Credit Finance Business Act, Ship Investment Company Act and the Financial Investment Services and Capital Markets Act.

Entities authorised to offer, structure or grant maritime financing in Korea can be summarised as commercial banks, financial leasing companies, ship investment companies under the Ship Investment Company Act, private equity funds under the Financial Investment Services and Capital Markets Act, and public institutions such as the Export-Import Bank of Korea (KEXIM), Korea Trade Insurance Corporation and Korea Ocean Business Corporation. In further detail:

  • commercial banks provide funds to shipping companies by providing loans such as lease financing based on BBCHP [bareboat-charter hire purchase] or issuing a letter of guarantee or standby letter of credit;
  • financial leasing companies, such as KDB Capital Corp or Shinhan Capital, usually offer loans to small- to medium-sized shipping companies based on the South Korean won, while their main financing is for bareboat charters;
  • a ship investment company (ship fund) is established in the form of a paper company (special purpose company/vehicle) under the Ship Investment Company Act, which was enacted in 2003 to invest assets in shipping and distribute profits to shareholders. It is similar to a KG (Kommanditgesellschaft) fund in Germany and a KS (Kommandit Selskap) fund in Norway.

In practice, management of a ship investment company is delegated to a ship investment management company, which is subject to permission from the Ministry of Oceans and Fisheries. As of 2018 there are five ship investment management companies operating in Korea – Korea Marine Finance Corporation, Korea Ship Finance, Global Marine Financing, Kukje Maritime Investment Corporation and KAMCO Ship Investment Management;

  • a private equity fund is a company established under the Financial Investment Services and Capital Markets Act to invest assets in ship or shipping companies, similar to a ship investment company; and
  • public institutions KEXIM and Korea Trade Insurance Corporation are known as export credit agencies in Korea, which act as the intermediary between the Korean government and exporters to issue export financing.

Also, it is notable that Korea Ocean Business Corporation was established in 2018 by the Korean government. Its purpose is to support liquidity to Korean shipping companies by investing in ship investment companies or new-building ships, or providing guarantees to borrowed funds.

In Korea, there is no limitation for an entity to be subject to maritime finance. In general, the vessel owner establishes a special purpose company for each vessel and is funded by the finance entities mentioned in the above. As with more general financing, these finance entities or financial institutions base their investment decisions on:

  • the credit rating of the shipping company (lessor);
  • the collateral value of the invested ship; and
  • the cash flow from the operation of the ship.

In general, bulk, container and oil tanker shipbuilding; construction of shipyards; and construction of offshore plants, including oil rigs, drill ships, floating production storage and offloading and semi-floating production systems are collectively considered maritime projects.

There are no statutory fiscal, labour and immigration incentives for maritime projects in Korea. However, we may introduce the following tax incentives for maritime projects or shipping companies:

  • tax incentives under the Foreign Investment Promotion Act and Restriction of Special Taxation Act – if a corporation that manages a maritime project in Korea receives foreign investment under the Foreign Investment Promotion Act, it is eligible to receive tax incentives. For example, if a such a corporation falls under the scope of a ‘new growth engine industry’, regulated by the Restriction of Special Taxation Act, or operates in a foreign investment zone under said act, that corporation is eligible to a reduction in or exemption from customs, acquisition tax and property tax (Articles No 121-2). Meanwhile, the same incentives for corporate and income tax were abolished from 1 January 2019; and
  • the tonnage tax system – a shipping company which meets the requirements regulated by the Restriction of Special Taxation Act, is subject to the ‘tonnage tax system’, whereby its tax is determined by the net tonnage of each vessel under operation/use by the company and does not include the profits thereof. This reduces the taxation burden of shipping companies (Articles No 104-10 of said act). The tonnage tax system is, however, valid only until 31 December 2019 (yet, the effective period could be extended by legislation afterwards).

See 1.5 Maritime Project Eligibility for Incentives.

See 1.5 Maritime Project Eligibility for Incentives.

See 1.5 Maritime Project Eligibility for Incentives.

To receive tax incentives under Foreign Investment Promotion Act and Restriction of Special Taxation Act, a company must be registered as a ‘foreign-invested corporation’ under the Foreign Investment Promotion Act, with total investment exceeding KRW100 million. Registration requires the investor’s Certificate of Incorporation, the Articles of Association and the minutes of the board of directors, the identification documents of each director of the newly established foreign-invested corporation, among other documentation.

To receive tax reductions under the tonnage tax system by the Restriction of Special Taxation Act, the operation net tonnage (net tonnage × vessels’ operation days in a year × utilisation rate) of a shipping company’s chartered vessels shall not be more than five times of the operation net tonnage of the company’s owned vessels. The company shall apply to the relevant tax office for these reductions.

A finance authority offering general financing to business entities in Korea can also offer maritime financing. As mentioned in answer to 3 Procedure for Judicial Sale of Vessels Before Maritime Courts, commercial banks, financial leasing companies, ship investment companies, private equity funds or public institutions would usually constitute the maritime finance authority.

In Korea, financial authorities providing finance to business entities are subject to approval by or permission from the Korean government. For instance, a ship investment company under the Ship Investment Company Act shall obtain the approval from the Minister of Oceans and Fisheries according to the act.

See 1.5 Maritime Project Eligibility for Incentives.

Korea is not a contracting party to LLMC 76 nor its 1996 protocol. However, the Korean Commercial Code (KCC) has adopted the basic principles and main provisions of the convention. The Korean Act on the Procedure for Limitation of Liability of the Shipowners etc (Limitation Procedure Act) also provides procedures for shipowners’ limitation proceedings.

Notably, according to the Conflict of Laws Act of Korea, the governing law of global limitation is that of the ship’s flag state and, therefore, anyone seeking to limit their liability shall look at the relevant provisions of the law of the ship’s flag state.

Korea is not a party to the LLMC 76, either with or without the 1996 protocol, as aforementioned.

Claims set out as being subject to limitation under Article No 2 (1) (d) and (e) of LLMC 76 are excepted from limitation under the KCC. Concerning the limits of liability in respect of claims for loss of life or personal injury to passengers of a ship, the KCC provides for a higher limit than that of LLMC 76, as the KCC has adopted the limits as provided for by the 1996 protocol. Furthermore, the KCC has a specific provision for lower limits to be applied to ships of less than 300 tons, ie 83,000 Special Drawing Rights (SDR) for a property damage claim and SDR167,000 for a personal injury claim for non-passengers.

A person who intends to limit liability under the KCC shall file an application to the court to start the procedure for limitation of liability no more than one year after they received a written claim specifying an amount exceeding the limit on liability from a claimant (Article No 776 of the KCC).

The following claims are subject to limitation of liability (Article No 769 of the KCC):

  • claims in respect of loss of life or personal injury, or loss of or damage to property other than the ship itself, which have occurred on board or in direct connection with the operation of the ship;
  • claims in respect of loss resulting from delay in the carriage of cargo, passengers or their luggage;
  • claims in respect of other loss resulting from infringement of rights other than:

(a)       contractual rights, occurring in direct connection with the operation of the ship; and

(b)       claims in respect of measures taken in order to avert or minimise loss arising from the cause of claims described in the above, and further loss caused by such measures.

The KCC, just as in Article No 2 (1) (a), (c) and (f) of LLMC 76, provides for the claims as mentioned below, occurring in direct connection with salvage operations, to be subject to limitation (Article No 775 of the KCC):

  • claims in respect of loss of life or personal injury or loss of or damage to property, or loss resulting from infringement of rights other than contractual rights, occurring in direct connection with salvage operations of the salvor or its servants; and
  • claims in respect of measures to avert or minimise such loss, and further loss caused by such measures.

The following claims are excepted from limitation (Article No 773 of the KCC):

  • claims on the ship-owner by a ship Master, crew member or any other employee whose duties are connected with the affairs of the ship, including claims of their heirs, dependants or other interested persons entitled to make such claims;
  • for salvage or contribution in general average;
  • claims for oil pollution damage within the meaning of the International Convention on Civil Liability for Oil Pollution Damage (CLC Convention), dated 29 November 1969, or of any amendment thereto which is in force;
  • claims in respect of raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded, abandoned or involved with other marine accidents, including cargo and other goods which are or have been on board such ship; and
  • claims for nuclear damages.

The KCC had adopted the same standard for conducts barring limitation as prescribed in Article No 4 of LLMC 76. A person liable shall not be entitled to limit their liability if it is proved that the loss resulted from their personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result (Article No 769 of the KCC).

As Korean law is not familiar with the concept of ‘recklessness’, its meaning was a matter of construction and the Korean Supreme Court held that recklessness constituted a greater level of misconduct than gross negligence (Korean Supreme Court, 17 April 2012, Case No 2010Ma222).

The burden of proof in establishing conduct barring limitation rests on the claimant who brings a suit for a claim that would otherwise be subject to limitation. However, when a limitation procedure is initiated, the applicant seeking to limit liability shall produce prima facie evidence showing conducts barring limitation are not present.

The limits of liability under the KCC are the same as those in Article No 6 of LLMC 76, save for the two exceptions mentioned below.

In accordance with Article No 15(2) of LLMC 76, the KCC has a specific provision for lower limits to be applied to ships of less than 300 tons – the personal injury claim for non-passengers is set at SDR167,000 and the property damage claim at SDR83,000.

Korea has not ratified the Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea, 1974 (Athens Convention 1974). Instead, the limit for passenger claims in the 1996 protocol to LLMC 76 has been introduced to the KCC.

Article No 770, section 1, paragraph 1 of the KCC provides that the limit of liability in respect of claims for loss of life or personal injury to passengers of a ship is SDR175,000 multiplied by the number of passengers the ship is authorised to carry in accordance with the ship’s inspection certificate. The KCC has not adopted an individual limitation per passenger as provided for by the Athens Convention 1974.

The onus of proof for breaking limitation as set out in Article No 4 of LLMC 76 and Article No 69 of the KCC is extremely hard to discharge. The ship-owner is given a nearly unbreakable right to limit his or her liability for claims falling under said provisions of LLMC 76 and the KCC.

A claimant challenging the right to limit shall prove conducts barring limitation on the part of the person liable. For limitation to be broken, such conduct shall be committed by the actual person liable, not by their agents or servants. If the person liable is a corporation, not only the acts of a member of the board of directors or an equivalent post, but also the acts of an employee who has authority to actually make decisions on all or part of the corporation’s business concerned, may be properly regarded as the acts of the company itself (Korean Supreme Court, 5 June 1995, Case No 95Ma325).

The global limitation has never been broken in Korea. However, regarding the similar issue of the personal act or omission of the carrier, there is one Korean Supreme Court decision (Case No 2004Da27082, 26 October 2006) holding that the carrier’s package or kg limitation was broken where the carrier shipped cargo on deck without consent of the shipper.

The limitation fund shall be constituted in the sum of the limit of liability, together with interest thereon at the rate of 6% per annum accruing from the date of the occurrence giving rise to the liability or other accrual date determined by the court until the date of the constitution of the fund designated by the court (Article No 11 of the Limitation Procedure Act).

The limitation court orders the applicant to make a cash deposit. In lieu of cash, however, a letter of guarantee from a bank, insurance company or a P&I club is usually acceptable upon the court’s approval. When the applicant files a motion to permit substitution for cash deposit by a letter of guarantee, the guarantor’s capability to perform the obligations to deposit the limitation fund shall be proved with supporting evidence (Article No 13 of the Limitation Procedure Act).

P&I Clubs’ LOUs are acceptable as guarantees to constitute a limitation fund in Korea as mentioned in response to 2.10 Acceptable Guarantees. Whereas the Limitation Procedure Act does not specify P&I Clubs whose LOUs are acceptable, there is a list of P&I Clubs and insurers whose financial capabilities have been approved by the Minister of Oceans and Fisheries under the Compensation for Oil Pollution Damage Guarantee Act (OPA).

The minister has power to determine and name insurers or financial-providers that are financially capable of meeting the obligations imposed by the CLC Convention and the Bunker Convention (Articles No 15 and 48 (2) of the OPA).

Those currently named are the 13 P&I Clubs that comprises the International Group, Lloyd’s Syndicates, the Korea P&I Club and the Korea Shipping Association. LOUs issued by the P&I Clubs on said list under the OPA will be readily acceptable as guarantees to constitute a limitation fund under the Limitation Procedure Act.

When limitation commences upon a constituted limitation fund, limited claimants shall be barred from exercising any right in respect of such claim against any other assets of a person by or on behalf of whom the fund has been constituted (Article No 27 of the Limitation Procedure Act).

By order of the court, any arrested or attached ship or other property belonging to a person on behalf of whom the limitation procedure has been commenced may be released (Articles No 29 and 30 of the Limitation Procedure Act). Furthermore, once a limitation procedure is under way, no limited claimant may start a claim against a claim owing to the person liable, irrespective of the limitation procedure (Article No 28 of the Limitation Procedure Act).

When a court rules on commencing the judicial auction of a vessel, it shall order an execution officer to fetch from the Master a certificate of the ship’s nationality and other documents necessary for its navigation. Also, when motioned by the creditor, a court may make the necessary dispositions to maintain and preserve the vessel and order the creditor to pay a part of the cost in advance.

The court’s ruling for commencement of the auction shall be served on the debtor and the master, the latter being regarded as service upon the owner(s). When the time limit for requesting for dividend is fixed, the court shall publicly announce the auction and said completion period. Notification of such shall be given to the creditor (who either has an executory exemplification, has effected a provisional attachment subsequent to the commencement of the vessel auction or has the right to claim a preferential reimbursement under the Korean Civil Act, the Korean Commercial Act or other acts). The creditor must be known to the court.

A certified public appraiser is designated by the court to carry out an appraisal on the vessel. The price of the vessel is commonly appraised by the cost approach. If this is deemed as not being reasonable, the sales comparison approach can be adopted.

The court decides the minimum sale price for every round. If a successful bid is not made, the court decreases the minimum sale price by 10% at the next round. When a court deems that there shall remain no surplus if all encumbrances preceding the claim of execution creditors and the costs of procedures are reimbursed with the minimum sale price, it shall notify the execution creditor thereof. If, then, the execution creditor fails to furnish a sufficient guarantee, the court shall revoke the auction procedure.

The court decides the minimum sale price and it is publicly announced along with the auction date. The minimum sale price of the first round is, commonly, the same as the appraised value. The minimum sale price of the second and third rounds will be 10% less than during the previous round.

Sale of the vessel shall follow the method of sale fixed by the court of execution. The sale shall be effected by:

  • the quoted auction to be made on the date of sale;
  • the date auction to be tendered and opened on the date of sale; or
  • the term auction to be tendered within the bidding period and to be opened on the date of sale.

A prospective bidder can attend the bidding without attorney and, thus, the assistance of attorney is not compulsory in making a tender.

A prospective bidder must present reliable documents of indentification and, in the case of the date auction, furnish an execution officer with 10% of the minimum sale price as bidding guarantee.

Once a decision on granting permission for sale has become final and conclusive, the court shall fix the time limit for payment of the price and notify the successful bidder and the next highest bidder thereof. The successful bidder shall make the payment within this time limit.

Where money has been furnished as the guarantee for a request to bid, this shall be incorporated in the proceeds of sale. In Korean practice, payment may not be made in instalments – the successful bidder should pay the sale price in one lump sum.

Korea is not a party to any international convention concerning carriage of goods by sea, such as the Hague, Hague-Visby, Hamburg or Rotterdam Rules.

However, the KCC has almost wholly incorporated the Hague-Visby Rules, and partly incorporated the Hamburg Rules.

A carrier’s liability limitation on cargo claims under the KCC is SDR667.67 per package or SDR2 per kg (Article No IV 5 (a) of the Hague-Visby Rules).

The exemptions of a carrier’s liability, due to, for example, error in navigation, fire etc (Article No IV 2 of the Hague-Visby Rules) are also enacted in the KCC. Under the KCC, a carrier may be liable for loss/damage arising from delay of carriage, as in the Hamburg Rules.

The KCC is a primary enactment applicable to cargo claims. As the KCC is enacted based on the Hague-Visby Rules, an existence and scope of a carrier’s liability on cargo claims under the KCC is almost the same as for the Hague-Visby Rules.

Furthermore, when it comes to requirements for cargo claims, such as a causal relationship, loss/damage etc, the Korean Civil Act would be applied to the matter as the fundamental civil law.

The scope of duty of care for cargo under the KCC is broader than under the Hague-Visby Rules. According to Article No 795 of the KCC, a carrier shall be bound to exercise due diligence from the time it receives the cargo, whereas carriage of goods under the Hague-Visby Rule covers the period from the time the goods are loaded on to the ship.

Meanwhile, the Korean Supreme Court takes the position that an agreement between a carrier and cargo receiver that a risk and cost for loading, stowage and discharging is borne by cargo receiver is valid and effective (Korean Supreme Court’s judgment dated 15 April 2010, Case No 2007da50649). Thus, as far as Korean law is concerned, a FIO [Free In and Out] or FIOST [Free In, Out, Stowed and Trimmed] agreement under a charter-party can be an available defence to an ocean carrier.

A bill of lading can be evidence of contract of carriage. Between a carrier (issuing the bill of lading) and shipper, it would be presumed that a contract of carriage has been concluded and the cargo has been received or loaded as stated in the bill of lading (presumptive evidence). Between a carrier and consignee, however, the carrier is deemed to have received or loaded the cargo as stated in the bill of lading and shall take the responsibilities of a carrier as stated in the bill of lading to the holder of the bill of lading (conclusive evidence), subject to other immunities and/or limitation of liability.

A contract of carriage is concluded between a carrier and shipper. Commonly, a shipper would be an entity described as such in the bill of lading, while a carrier would be an entity who issues the bill of lading. However, the Korean Supreme Court takes the position that, in some situations, an entity described as a shipper in the bill of lading may not be a party to the contract of carriage (Korean Supreme Court’s judgment dated 10 March 2000, Case No 99da55052).

Meanwhile, according to a Korean Supreme Court judgment, a seller would be a party to the contract of carriage in CIF or CFR terms, while a buyer would be a party to the contract of carriage in FOB term (Korean Supreme Court judgment dated 9 Feb 1996, Case No 94da27144).

When a bill of lading has been issued, it is the holder thereof who can make a cargo claim . Whereas, when a bill of lading has not been issued, a shipper as a counter-party to the contract of carriage can make a cargo claim against the carrier. If a consignee demands delivery of cargo to the carrier at the destination port, the consignee can also make a cargo claim against the carrier.

Where a cargo damage/loss is covered by the cargo insurance, the underwriter is automatically and immediately subrogated to the cargo receiver’s rights upon payment of the insurance money. In which case, the cargo underwriter may exercise the cargo claim directly, even without a letter of subrogation from the cargo receiver.

A contractual carrier who has concluded a contract of carriage with the shipper can be sued for cargo claims based on contractual liability.

In the meantime, an actual carrier who has performed a carriage by sea under an instruction from the contractual carrier can be sued for cargo claims in tort, if a requirement of tort can be established.

Furthermore, a ship-owner who is not a party to contract of carriage can be liable for a cargo claim in certain situations. Article No 809 of the KCC provides that “in cases where a voyage charterer or time-charterer has concluded a contract of carriage with a third party in his or her own name, the head owner shall be liable for loss/damage to the third party to the extent that fulfilment of such contract belongs to the duties of the captain (in other words, duty of care for seaworthiness and duty of care for cargo)”.

Where there are multiple parties involved in a carriage by sea through any sub-charter or involvement of a freight-forwarder, who may be considered the carrier in the matter can be a contentious issue. The Korean Supreme Court takes a position that:

  • a person who actually takes over a carriage by sea from a cargo receiver would be a carrier (ie a party to contract of carriage with the cargo receiver);
  • a person issuing a bill of lading would be commonly treated as a carrier, but it may not always be the case (Korean Supreme Court judgment dated 27 October 2004, Case No 2004da7040).

The Korean Supreme Court takes a position that, if it is unclear whether or not a freight-forwarder has taken over not only forwarding, but also transportation, an overall circumstance such as the issuance of a house bill of lading, a way to pay freight, etc, should be comprehensively considered.

Korean jurisdiction does not provide a system of in rem action.

In Korean jurisdiction, while it is not possible to exercise a right in rem, a maritime lien is practicable. Furthermore, the law of the flag state of the vessel is the governing law that determines whether a maritime lien is attached to a certain claim (Article No 60 of the International Private Law, which is the Conflict of Laws Act of Korea). Thus, if a cargo claim gives rise to maritime lien in the law of the flag state, the vessel may be arrested by a maritime lien.

However, as far as we know, it is not a common legislation that a cargo claim gives rise to maritime lien, and the KCC does not grant a maritime lien to cargo claim.

See 4.9 Suing the Vessel.

It is, of course, right that a claimant can sue in tort against a carrier, but not for a contractual claim. If a tort can be established, a claimant can try to recover its loss/damage against a third party which has no contractual relation with the claimant. An exemption/limitation of liability on cargo claims under the KCC is also applied to tort (Article No 798 (i) of KCC). A one-year time-bar on cargo claims is also applied to tort claims.

As with the Hague-Visby Rules, the KCC also provides that a servant or agent of a carrier may be availed of the defences and limits of liability that the carrier is entitled to invoke under the KCC. An independent contractor, such as a terminal operator, is not considered to be a servant or agent in the above (Korean Supreme Court judgment dated 20 September 2009, Case No 2007da82530).

Korean courts recognise the effectiveness of Himalaya clauses in a bill of lading (Korean Supreme Court judgment dated 27 April 2007, Case No 2007da4943). Thus, in case where a bill of lading confers Himalaya clauses on an independent contractor, it may also enjoy the defences and limits of liability the carrier is entitled to invoke under the bill of lading.

Immunities available to the carrier under the KCC are:

  • act, neglect or default of the Master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship;
  • fire, unless caused by the actual fault or privity of the carrier;
  • perils, dangers and accidents of the sea or other navigable waters;
  • force majeure;
  • act of war, riots and civil commotions;
  • piracy and other similar acts;
  • judicial seizure, quarantine restrictions and other restrictions by public authorities;
  • act of the shipper or owner of the goods, or his or her servant;
  • strikes or other acts of dispute, or lockout of a ship;
  • acts of salvage of life or property at sea, or a deviation by this reason or by other good cause;
  • insufficiency of packing or inadequacy of marks; and
  • latent defect of a ship.

A carrier’s liability on a cargo claim shall be limited to the extent of SDR666.67 or SDR2 per kg of gross weight of the goods lost or damaged, whichever is the higher. Furthermore, a carrier’s liability shall not exceed an available market price at the discharging port.

The above limitation shall not apply in cases where the damage in relation to the cargo was caused due to an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

To succeed in a contractual cargo claim, a claimant needs to prove that:

  • it sustained loss/damage; and
  • the loss/damage took place in the custody of the carrier.

On the other hand, to defeat such a contractual cargo claim, the carrier must prove that:

  • it exercised due diligence with respect to seaworthiness and care for cargo; or
  • it was subject to at least one of the immunities listed in answer to 4.13 Immunities.

In a tort claim, it is the claimant who shall bear the burden of proof for intent or negligence over damage/loss to cargo. Thus, to succeed in a tort claim, the claimant needs to prove that the carrier failed to exercise due diligence with respect to seaworthiness and care for cargo.

When a cargo receiver discovers a partial loss of or damage to cargo, he or she shall give written notice to a carrier immediately upon receipt of the cargo. If such partial loss or damage is not readily discoverable, he or she shall give such notice within three days of receiving the cargo.

The claims and obligations of a carrier against a consignor or consignee shall be terminated, whatever the causes for the claims may be, if no judicial claim is made within one year of the delivery of the cargo by the carrier to the consignee.

The time-bar may be extended by an agreement between the parties.

In most cases, Korean courts recognise the validity of jurisdiction in a bill of lading. However, in some extraordinary cases, a Korean court has ruled the jurisdiction clause invalid on the grounds of a lack of a reasonable relationship with the foreign jurisdiction in the bill of lading, and of the jurisdiction clause being remarkably unreasonable and unfair (Korean Supreme Court judgment dated 3 July 2001, Case No 2000na10002).

The Korean court also recognises the validity of choice of law in a bill of lading. Meanwhile, the Korean Supreme Court has even accepted a separate designation of governing law regarding the scope of a carrier’s liability, apart from a general governing law clause (eg paramount clause), in so far as such a separate designation may be admitted as a choice of law rather than an incorporation into the contract (Korean Supreme Court judgment dated 29 March 2018, Case No 2014da41469).

The Korean Commercial Code is the basic law covering the civil responsibility applicable to the collision of vessels. Article No 876 of the KCC provides that where a collision occurs between sea-going ships or between a sea-going ship and a ship of inland navigation, the provisions of this section shall apply to compensation for damage in relation to a ship, goods or persons on board, on whatever waters the collision takes place.

Besides, Korea has ratified the International Regulations for Preventing Collisions at Sea, 1972 (COLREGS) and the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978. The Maritime Safety Act (MSA) is a law adopting the rules of COLREGS.

Other than those rules, the Seafarers’ Act, the Act on the Arrival, Departure, etc. of Ships, the Excursion Ship and Ferry Business Act and the Water-Related Leisure Activities Safety Act govern various kind of marine accidents in waterways.

Waterways are the line for the vessels to safely navigate. According to Article No 31 of the MSA, the Minister of Oceans and Fisheries may publicly notify the bounds of the water zone, sea routes (waterways) and speed of vessels, and other matters necessary for the safety in navigation of vessels if he or she finds that marine accidents are likely to occur due to topography, tidal current or other natural conditions, or the traffic volume of vessels in a water zone through which vessels pass. The Navigational Aids Act is the law for installing navigational aids and managing them for the waterways.

Article No 20 of the Pilotage Act regulates compulsory pilotage. Where the Master of any of the following operates within the pilotage area prescribed by the Ordinance of the Ministry of Oceans and Fisheries, he or she shall have a pilot board and pilot the ship:

  • ships of 500 gross tonnage or more, not registered with the Republic of Korea;
  • ships of 500 gross tonnage or more, registered with the Republic of Korea and sailed on an international route; and
  • ships of 2,000 gross tonnage or more, registered with the Republic of Korea and not sailed on an international route, provided that, as for a barge, it shall be limited to a barge combined with a tugboat and the gross tonnage thereof shall be calculated by adding the gross tonnage of the barge and the tugboat.

Other than the above, pilotage is not compulsory. The Pilotage Act also provides certain circumstances where compulsory pilotage obligation is released.

The Korean laws does not have any article such as “the government shall not bear any responsibility for loss or damage suffered through employment of any pilot” since the pilot is not a government employee. Rather, a ship-owner can recover damages from the government authority if the authority’s negligence contributed to the accident. The claim against the government authority is governed by the State Compensation Act (SCA). Article No 2 of the SCA provides that where public officials or private persons entrusted with public duties inflict damage on other persons by intention or negligence in performing their official duties, in violation of the statutes, the state or local government shall compensate for such damage. The basic principle is the same as the responsibility by tort law governed by general civil law. 

The Act on the Investigation of and Judging on Marine Accidents (AIJMA) is the law regulating the Maritime Safety Tribunal (MST) and the Inspectors. The MST is a quasi-judicial administrative tribunal that investigates accidents within the territorial seas of Korea. The MST investigation is independent and separate from the coast guard’s investigation, with the purpose of finding the cause of the accident and imposing administrative sanction, if necessary, for the prevention of similar accidents in the future.

After investigation, the MST determines the cause of the accident and the relative faults of the involved vessels, if requested, including the blame ratio between them. The process is analogous to criminal proceedings, with the investigator fulfilling a role similar to that of a public prosecutor in criminal proceedings.

Article No 2 of the AIJMA provides the list of marine accident which the MST should investigate as follows:

  • accidents in which a person dies, disappears or is injured, in connection with the structure, equipment or operation of ships;
  • accidents that cause damage to a ship, shore or marine facilities, in connection with the operation of ships;
  • accidents in which a ship is lost, derelict or missing;
  • accidents in which a ship collides with another ship, is stranded, capsizes, sinks or is impossible to steer;
  • accidents that cause marine pollution damage, in connection with the operation of ships.

At the relevant parties’ request, the MST may examine the extent of the cause attributable to each person involved in a marine accident, if it is deemed necessary to examine such causes. The MST also may investigate the ‘interested party’, who is not a ‘person involved in a marine accident’, but a person financially affected by an inquiry into or judgment upon the marine accident.

As the first step in the MST proceedings, the investigator interviews the duty officer and/or any other crew-member or party involved in the marine incident. After collecting sufficient information, the MST investigator may file a request for MST’s decision.

Upon receipt of such a request from the MST investigator, the MST holds the first hearing, usually within one month. Generally, before rendering a decision, the MST holds one to three hearings within three to four weeks of one another and issues its judgment another three to four weeks after the final hearing. Thus, generally, the MST proceedings last up to about three months from the first hearing.

If the concerned party is dissatisfied with administrative sanction imposed against them, they may file an appeal against the decision to the higher tribunal, namely the Central Maritime Safety Tribunal (CMST). The party may file an appeal against the CMST’s decision to the Daejeon High Court and further to the Korean Supreme Court.

Claim against the government authority is the matter of civil proceedings and not an administrative proceedings. The ship-owner who is claiming that he or she suffered a loss/damages from the negligence of the government authority can file a civil lawsuit against the authority in a competent court which has the rightful jurisdiction on the matter.

As explained in the above paragraph, the damage claim against the government authority is not an administrative claim but a civil claim. The time-bar for damage claim against the government authority is, like ordinary legal prescription for tort claims, three years from the date on which the suffered party becomes aware of the damage and the liable party and ten years from the time when the tort was committed.

If the marine accident occurred due to government authority’s fault or both parties’ faults, the suffered party can claim any and every kind of damages of life and property against the liable party. Property damages include the damages to the hull itself, cargoes on board, wreck-removal costs, fuel oil, etc. The damages to life include death or bodily injury of a third party.

There is no such type of damages which cannot be recovered from the liable party, even if the liable party is the government authority. However, for reference, the ship-owners cannot pursue the pilot with any liability for damages or losses resulted from negligence of the pilot in rendering his or her service unless the accident is caused by his or her intentional or serious fault.  However, this is not relevant to the question of whether one can claim against the government authority, since the pilot is not an employee of government authority, but it is relevant to protecting the activities of the pilot.

When a collision of ships takes place due to force majeure or the cause of the collision is not clear, no sufferer shall claim damages incurred due to the collision.

Korea is a civil-law country the legal proceedings of which are different from those of common law countries. The plaintiff can commence legal proceedings by filing a civil lawsuit in a competent district court against the government authority. Generally, there are four to six hearings held in one case at about four-week interval between hearings; from filing of a lawsuit till rendering of a judgment generally takes about six to ten months. However, for complex cases or due to the court’s own scheduling the proceedings can last for more than a year. At any time during the proceedings before the judgment is rendered, the parties can submit their argument and evidence. Korea has three levels of court: District Court (first-instance court), High Court (second-instance court), and Supreme Court.

A claim for damages which has arisen due to a collision of ships shall terminate if no judicial claim is made within two years from the date of that collision. This period may be extended by an agreement between the parties. The time-bar for other types of accidents is, like ordinary legal prescription for tort claims, three years from the date on which the suffered party becomes aware of the damage and the liable party and ten years from the time when the tort was committed.

In Korea, there is no such kind of exclusive jurisdiction as the admiralty court or maritime law court. The ordinary district courts will hear and render its judgment regarding the marine accident claims.

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Moon & Song

Naeja Building
33 Gyeonghuigung-gil
2nd floor
Jongno-gu
Seoul 03176
South Korea

+ 82 2 722 7447

+ 82 2 722 7077

mail@moonsonglaw.com www.moonsonglaw.com
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Law and Practice

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Moon & Song shipping firm, based in Seoul, has a team of four partners and two other qualified lawyers, and is active in dry cases (including charter-party disputes, bill of lading disputes and cargo claims), wet cases (including ship collision, oil pollution, salvage, and accidents within ports), ship arrest (including prejudgment attachment order and court auctions by maritime lien), ship-building and ship finance (including ship mortgage, providing escrow account and ship-delivery services), crew claims, and matters relating to aviation, multimodal transport, ports and logistics. Clients include major Korean shipping companies, international ship-owners and the International Group of P&I Clubs.

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