Foreword

 

In 2012, the international shipping market suffered a continued downturn due to the subsequent impact of the global financial crisis. From January to August 2012, the average Baltic Dry Index number (BDI) was 934, which fell about 3 percent compared with 2011. In order to cope with the instabilities of the shipping market, the Ministry of Transport of the People’s Republic of China promulgated the Circular on Promoting the Smooth and Orderly Development of the International Ocean Shipping Industry in China in August 2011. The Circular puts emphasis upon responding to the challenge and seizing the opportunity and highlights the importance of implementing effective policies aimed at the troughs of the shipping industry so as to support the development of the ocean shipping industry from the following aspects; promotion of the adjustment of the industrial structure of international shipping industry, establishment of favorable administrative service environment, strengthening of honest operation of the enterprises and the maintenance of fair and orderly competition, to further strengthen the management of the international ocean shipping market and to guide the smooth and orderly development of the shipping industry.

 

A rapid increase of admiralty and maritime disputes is the first reflection of the downturn of shipping industry in the maritime judicial field. Throughout 2012, the number of new cases heard by this Court totaled 2525, which was an all-time high, and the number of various types of cases increased substantially. The second reflection lies in the arrears of loans and wages of crew members together with a number of cases relating to ship arrest and auction. Such cases are mixtures of maritime disputes and livelihood issues, the existence and development of the enterprises and the interests and rights of laborers. Therefore, unstable factors, even if mass disturbance, may arise due to slight careless in dealing with such cases.

 

In coping with the new situation and problems relating to the shipping economy and admiralty and maritime cases, this Court adopted monitored the situation closely by streamlining the adjudicatory forces, handling cases in a similar manner and strengthening mediation so as to complete the judicial work effectively and efficiently. As a result, the growth rate of closed cases was higher than that of accepted cases and unsolved cases. In addition, this Court maintained a sound momentum with the rate of changing the original sentence being kept at a low level. In the mean time, this Court exercises judicial power in a flexible manner so as to protect the people’s livelihood and to protect the rights enjoyed by the disadvantaged groups, such as the crew members and employees and the legal interests and rights of the creditors such as banks. When resolving the disputes properly, this Court maintained an open, fair and just judicial reputation.

 

During 2012, this Court, in light of the legal issues found in the course of trials, provided the relevant authorities with judicial suggestions for improving their work in the form of written judicial suggestions. With regard to some typical and universal legal issues, such as the legal issues relating to the exploitation and management of the sea, and the loan on mortgage of a ship, we have made evaluations and provided corresponding guidance. Especially for the sectors where the shipping and trading disputes are likely to arise, we provide some focused suggestions for relevant enterprises to take precautions against the prevailing risks. Such suggestions are compiled in this Report and we hope that it may serve as a guidance for relevant enterprises to conduct their business according to law and to promote the healthy development of shipping industry.

 

Table of Contents

 

I      Basic Information on Maritime Trials

      

The Number of new cases increases substantially

The Number of cases of disputes over damages for pollution decreases substantially

       Acceptance and hearing of maritime administrative cases

       Foreign interested party voluntarily submits relevant disputes to this Court

 

II    Regulating the use and administration of sea areas according to law

       —Problems relating to the administration of sea areas and solutions we propose

      

Issues of administration according to law in the course of the administration of the right to use sea areas

Matters relating to the disqualification of relevant administration staff in the course of the examination and approval of the right to the use of sea areas

       Strengthen the costal residents’ awareness of use the sea areas according to law

       Issues of dumping sludge and garbage in the course of ocean engineering

 

III   Regulating the shipping financial service according to law

       —Problems pertaining to loan on mortgage of ships and solutions we propose

      

       Issues of exorbitant valuation of the ships for mortgage

       Issues that financial institution neglects the maritime lien

Matters relating to the protection of financial claim in the course of the implementation of preferential policy for fishing industry

 

IV   Regulating the Freight Market

       —Problems   in carriage of goods by sea and solutions we propose

 

Domestic importers shall be prudent in signing trade contract and be cautious of frauds

Attention required of sea carriers in the transport of ferrosilicon

Problems in the inspection of damaged goods by the carrier and the consignee

 

V    Regulating the Forwarding Business

— Problems in the forwarding business and solutions we propose

      

       Problems regarding cargo damage where container seals are intact

       Problems regarding the reimbursement of expenses paid by forwarders

       Actual shipper has the right to obtain shipping documents

 

VI   Regulating the Seafarer Labour Market

— Problems in seafarers’ contracts of service and solutions we propose

 

Some seafarers still work without a labour contract

Collusion in seafarers’ claims for wages

Disputes arising out of seafarers’ contracts of service may be brought to court without first being referred to arbitration

 

 

I.         Basic Information on Maritime Trials

 

In 2012, we implemented sound strategy for maritime trials so as to secure our status as a nation-wide pioneer court and a world-renowned court. Through bringing the judicial function into full play, the trials have shown a good momentum of “three increases and one decrease”: 2525 new cases were heard by this Court in 2012, which is a 79.08% increase over last year. The number of cases closed increased 111.12%, totaling 2582. The case settlement rate is 89.25%, which is a 12.38% increase over last year. The number of the unsettled cases total 311, which is a 15.48% decrease over last year.

 

Among new cases, 1235 were lawsuits at the first instance, 378 were cases on maritime enforcement, and other types of cases total 912. Lawsuits at the first instance included: 368 cases of disputes over labor contract of the crewmembers, comprising 29.80% of the cases at the first instance, 241 contract disputes dealing with carriage of goods by sea, comprising 19.51%, 146 cases regarding contracts related to the leasing of containers, comprising 11.82%, 105 cases of disputes over shipping agent contract, comprising 8.50%, 206 cases regarding contracts related to ships (including sale and purchase, financing, building, charter, agent, mortgage, operation management and operation loan), comprising 16.68%, 39 cases of disputes over the provision of marine stores and spare parts, comprising 3.16%, 28 cases regarding ship collisions comprising 2.27%, 15 cases regarding maritime personal injury, comprising 1.21%, 10 cases of disputes over contract of channel and port dredging, comprising 0.81%, 9 cases of disputes over insurance contract, comprising 0.73%, and 68 cases of other types of disputes, comprising 5.51%. Among the 1235 cases at the first instance, 402 concerned foreign, Hong Kong, Macau or Taiwan interests, comprising 32.6% of the cases at the first instance.

 

 

 

Chart No.1: cases heard in 2012 which were at the first instance

 

 

 

Other types of cases mainly concerned disputes over maritime special procedure and total 912, including: 346 cases of application for maritime injunction, comprising 37.94% of total number of the procedural cases, 250 cases of application for registration of maritime claims, comprising 27.41%, 177 cases of application for ship arrest, comprising 19.41%, 64 cases of application for auction of the goods carried by the ship, comprising 7.02%, 31 cases of application for preservation of property before the institution of an action, comprising 3.40%, 9 cases of declaration of death in maritime casualty, comprising 0.99%, 7 cases of application for maritime evidence preservation, comprising 0.77%, 5 cases of application for ship arrest and auction, comprising 0.55%, 4 cases of application for service by publication, comprising 0.44%, and 19 other procedural cases, comprising 2.08%.

 

 

Chart No.2: procedural cases heard in 2012

 

 

 

Chart No.3: Comparison of cases heard from 2010 to 2012

 

 

 

Chart No.4: Comparison of cases heard in each month of 2010 to 2012

 

Through analysis, the cases heard by this Court in 2012 were found to have the following characteristics:

 

—The Number of new cases increased substantially. The new cases heard by this Court in 2012 witnessed an increase of 79.08%, which hits the historical high since the foundation of this Court in 1984. Among these cases, lawsuits at the first instance witnessed an increase of 61% over last year, procedural cases increased by 165.88% over last year and the cases of enforcement increased by 26% over last year. Cases that increase substantially include: disputes over labor contract of the crewmembers (an increase of 27 times), disputes over contract of leasing containers (an increase of 20 times), disputes over contracts related to ships (an increase of 1.6 times) and the cases of application for registration of maritime claims witness an increase of 5.5 times.

 

—The Number of cases of disputes over damages for pollution decreased substantially. While other types of cases witnessed an increase to a certain degree, the cases of disputes over damage for pollution decreased substantially. Throughout 2012, new cases for dispute over damage for pollution heard by this Court totaled 3, which is a decrease of 93%. In this Court’s opinion, this type of cases may have decreased substantially due to the fact that the laws and regulations pertaining to ocean pollution improve gradually and the punishment intensity has been strengthened which deters the illegal pollution discharge. In addition,  a number of cases for disputes over damages for marine pollution were successfully settled through administrative mediation and pre-pleading mediation and were not submitted to the court for trial.

 

—Acceptance and hearing of maritime administrative cases. In December 2011, Guangdong Higher People’s Court issued a circular designating that this Court shall have jurisdiction over the maritime administrative cases, cases of maritime administrative compensation, cases of disputes over pollution to the sea areas and seaward inland river areas resulting from land-sourced pollutants and cases of disputes over ocean exploitation. In 2012, we have heard 5 maritime administrative cases with 2 of them closed, where respectively the interested party refused to accept the decision made by the governmental authority on revoking the certificate of the right to use sea areas and dissatisfaction on the governmental act to issue the certificate of the right to use sea areas to a third party.

 

—Foreign interested parties voluntarily submitted relevant disputes to this Court. From hearing cases involving foreign, Hong Kong, Macau and Taiwan interests, we have earned the trust of the litigants both at home and abroad through fair trials and by providing a first-rate service. At the time when large enterprises of port and shipping are concluding a contract and foreign enterprises are carrying out maritime business, they voluntarily choose this Court to have jurisdiction over their disputes. In respect of the cases at the first instance heard by this Court over 2012, the litigants choosing this Court to have jurisdiction over the disputes through agreement totaled 15, among which there were 4 cases in which one or both of the parties concerned were foreign enterprises. We heard and settled the cases in a timely manner, and the litigants submitted themselves to the judgment and resolved the matters accordingly. In addition, we have concluded a case where the litigants filed a parallel proceeding to this Court and the court in the Netherland due to that agreement that this Court has jurisdiction over the disputes has been made in the clause on the back of the bill of lading. Thanks to the great effort of this Court for mediation, the plaintiff withdrew the action filed with this Court and eventually the court in the Netherlands, and the case was settled through mediation.

 

II.      Regulating the use and administration of sea areas according to law

—Problems relating to the administration of sea areas and solutions we propose

 

(1)   Issues of administration according to law in the course of the administration of the right to use sea areas

 

A maritime administrative case involved the holder of the right to the use of sea areas being dissatisfied with the government decision to revoke the certificate. Mr. Chen obtained the certificate of the right to the use of sea areas in 2003 and built shrimp pond in such sea areas for marine aquiculture for many years. In 2011, part of the shrimp pond was occupied for the reinforcement project of the sea wall and the bureau of water resources destroyed the shrimp pond by force without reaching agreement on the compensation for such occupation with Mr. Chen. The river basin administrative bureau applied to the competent government authority for revoking the certificate of the right to use sea areas on the ground that the government authority has not notified it when issuing such certificate. The government authority determined that the issuance of such certificate is illegal on the ground of the existence of defect in the course of the application for such certificate filed by Mr. Chen and decided to revoke the certificate according to the provisions as stipulated by the Regulations of Guangdong Province on the Supervision of Administrative Law Enforcement of the People’s Government at all levels and the Regulations of Guangdong Province on the Accountability System for Administrative Law Enforcement. Mr. Chen was dissatisfied with the decision and filed an administrative litigation to the court. After hearing the case, the court held that the facts found are unclear, the evidence is insufficient and there existed a lack of legal ground for the government to make such a decision to revoke the certificate, and thus rendered a judgment to rescind the decision made by the government.

 

The issuance of certificate of the right to the use of sea areas falls into the category of administrative license, and the implementation procedure of administrative license shall be subject to the provisions stipulated by the Administrative License Law of the People’s Republic of China. Administrative license is administrative actions which the licensee could benefit from. The administrative license obtained by citizen, legal person or other organizations according to law is under the protection of law. Therefore the revocation of the administrative license, which could have great influence on the interests enjoyed by the licensee based on such license, shall strictly abide by the provisions provided by relevant laws and regulations. The administrative authority may, only under circumstances provided in Article 69 of the Administrative License Law of the People’s Republic of China, annul an administrative license according to the request of the interested party or according to its functions, or according to the provisions as stipulated in Paragraph 2 of Article 8 of the Administrative License Law of the People’s Republic of China, providing “in case the objective circumstances that the administrative license rests on change greatly, and in order to meet the demand of public interests, the administrative organ may modify or withdraw the effective administrative license. The damage caused to the properties of citizens, legal person or other institutions accordingly shall be compensated for by the administrative organ in accordance with the law.” There is a lack of legal ground for the government authority to revoke the certificate of the right to the use of sea areas which has become effective for several years, merely on the ground that there are some defects to the documents submitted by Mr. Chen for the application for such certificate, thus it is in violation of the credit benefit protection principle. What’s more, the Regulations of Guangdong Province on the Supervision of Administrative Law Enforcement of the People’s Government at all levels and the Regulations of Guangdong Province on the Accountability System for Administrative Law Enforcement, based on which the revocation was made, are the internal supervising regulations of administrative organs. These regulations are made for the purpose of punishing and limiting the illegal acts of the public servants when discharging their duties, but not the administrative counterpart. Therefore, it is improper for the government to adopt such regulations to annul the administrative license.

 

Following the development of marine economy of Guangdong Province, cases that the right of marine aquiculture or the right of the use of sea areas is revoked ahead of time due to the occupation of the sea areas resulting from the aquiculture planning, adjustment of marine functional zone, construction project and valley development, which causes the aquatic product farmers unable to continue their business, may emerge constantly. In case the interest of the fishermen and aquatic product raisers could not be protected and the government authority or the organization in charge of the construction project remove or occupy the culture facilities without paying corresponding compensation, antagonism between the aggrieved masses and the government may easily be triggered, and mass disturbance may even arise therefrom.

 

We recommend as follows: (1) the local government and the maritime administrative department shall perform the official duties in strict compliance with law. Since a number of laws and regulations are involved in marine administrative management, great attention shall be paid to the scope of validity of such laws and regulations in order to adopt the laws correctly. (2) Government authorities shall strengthen the protection of the right to the use of sea areas obtained according to law. Government authorities and the administrative departments have responsibility for protecting the right to the use of sea areas legally obtained by citizens. Protection of the right obtained by citizens according to law shall be strengthened and the effective administrative license shall not be modified without reasonable grounds. (3) Article 30 of the Law of People’s Republic of China on the Administration of Sea Areas provides that “in case the right to the use of sea areas is withdrawn prior to the expiration of the term of use for the purpose of public interest or the security of the state, appropriate compensations shall be made to the right holder.” Paragraph 2 of Article 26 of the Regulations of Guangdong Province on the Management to the Use of Sea Areas provides that “where the right to the use of sea areas is withdrawn prior to the expiration of the term of use, corresponding compensation shall be made to the right holder pursuant to the tenure of use and the situation of the exploitation of such sea areas”. Therefore, in case the right to the use of sea areas is withdrawn prior to the expiration of the term of use for the purpose of public interests and security of the state, the government shall properly deal with the issues by means of making compensation for the right holder according to relevant laws and regulations.

 

(2)   Matters relating to the disqualification of relevant administration staff in the course of the examination and approval of the right to the use of sea areas

 

An administrative case involved a villager being dissatisfied with the issuance of certificate of the right to the use of sea areas to a third party by the government authority. In the case, the third party and the staff member of the maritime administrative department who was in charge of the application for such certificate are in a conjugal relationship, and such staff member signed on behalf of the said department for the approval of the registration and the approval of the change of right holder of the sea areas. The plaintiff has conducted petition activities for 3 years prior to filing litigation to this Court. After visiting the maritime administrative department, discipline inspection department and people’s government at the local level and the above one, the conflict was escalating continuously instead of being settled.

 

Paragraph 2 of Article 38 of the Law of the People’s Republic of China on the Administration of Sea Areas provides that “the maritime administrative department and the staff members thereof shall not engage in the production or management relating to the use of sea areas”. According to such provision, no limitation has been made to the near-relatives of the staff members, and no clear provisions could be found on the disqualification of the manager who has an interest with the applicant in the course of the examining and approving of the right to the use of sea areas. However, in accordance with paragraph 2 of Article 70 of the Civil Servant Law of the People’s Republic of China, when a civil servant performs his duty in case any of the interests of his near-relatives or husband/wife is involved, he shall withdraw. Therefore, the said staff member did not withdraw from handling the administrative examination and approval which is in violation of the provision as stipulated in the Civil Servant Law of the People’s Republic of China. Thus the villager was challenging the fairness of the administrative examination and approval.

 

Fairness and justness are the basic principles for civil servant to perform the official duties lawfully. Where a staff member has an interest in the matter, the fairness and justice of the administrative action would be questioned by the administrative counterparts, which may cause the administrative counterparts to appeal to the central authorities for help. We recommend that: (1) the local maritime administrative department shall study the Civil Law in more detail, and the discipline inspection department shall strengthen the supervision on the law enforcement. (2) The provincial maritime administrative department may establish a withdrawal system in the examination and approval of the right to the use of sea areas so as to regulate the maritime administration and to build up the public credibility.

 

(3)   Strengthen the costal residents’ awareness of use the sea areas according to law

 

An administrative case involved a villager who was dissatisfied with the issuance of certificate of the right to the use of sea areas to a third party by the government authority, the villager leased the “ancestral sea areas” without obtaining the right to the use of sea areas. He occupied such sea areas after the user obtained the right to the use of sea areas and leased to other person separately. Upon examination, the court held that the plaintiff is neither the owner nor user of the sea areas involved in the case and he is not the holder of the contract for the managerial right to such sea areas. Therefore his legal interests have not been affected by the issuance of certificate of the right to the use of sea areas to a third party and he shall not be deemed as proper plaintiff. The court overruled the claims filed by the plaintiff. From this case we may learn that some of the coastal residents in Guangdong province are ignorant of the law and the traditional concepts of “one owns the sea areas in front of his door” and “ancestral sea areas” are deep-rooted.

 

The Law of the People’s Republic of China on the Administration of Sea Areas provides the basic system of state-owned sea areas, paid utilization of sea areas and the examination and approval of the right to the use of sea areas. According to this law, any entities or individuals have the right to apply for the utilization of the sea areas, and have an obligation not to usurp on, buy or sell or by any other means transfer sea areas. Prior to the use of sea areas, one shall apply for the right to the use of sea areas according to law. The right to the use of sea areas legally registered shall be under the protection of laws and may not be infringed upon by any entities or individuals. The villager in the aforesaid case is obviously in violation of the laws and regulations. The right to the use of sea areas held by the village collective is involved in the subject case as well. In accordance with Article 22 of the Law of the People’s Republic of China on the Administration of Sea Areas, if any sea areas have already used for aquatic breeding under the management and administration of rural collective economic organizations or villagers’ committee prior to the implementation of this Law, and if it is in conformity with the functional divisions of the sea and approval of the local people’s government on the county level has been obtained, the right to the use of sea areas may remain with the rural collective economic organization or villagers’ committee, so that the sea areas may be contracted by the members of the collective economic organizations for aquatic breeding. Time limit has been prescribed by law for the village collective to apply for the confirmation on the right to the use of sea areas which has already been used. According to Article 40 of the Regulations of Guangdong Province on the Management of the Use of Sea Areas, which has become effective on 1^st March 2007, for the projects in the sea areas without obtaining the certificate of the right to the use of sea areas prior to the implementation of this Regulations, relevant interested party shall go through the formalities of the certificate within 6 months after this Regulations becomes effective.

 

Therefore, we recommend that: 1. villagers’ committee or rural collective economic organization that is qualified for the use of sea areas shall actively exercise its rights and take the initiative to apply for the approval of the right to the use of sea areas to the local people’s government; 2. Provincial maritime administrative departments shall arrange the local people’s government and the maritime administrative department to carry out general survey on the use of sea areas by villager collective in order to solve the issue left over from the past; 3. The people’s government at all levels, especially the local government in the coastal regions, shall strengthen the legal promulgation and education on the management of the use of sea areas, so as to guide the coastal residents to use the sea areas according to law and to solve the disputes through legal means.

 

(4)   Issues of dumping sludge and garbage in the course of ocean engineering

 

In a case of dispute related to building contract of wharf, the plaintiff, which is not a qualified construction company, but one affiliating to a qualified construction company, is the subcontractor to the transportation of waste materials generated from the excavation project which is part of the building project of the wharf. However, it subcontracted part of the project to the defendant at a later stage. During the construction project, the cutter suction dredger owned by the defendant failed to satisfy the construction requirements, and cannot transfer the sludge to the dredging reclamation area as agreed by the contract. Consequently, the defendant employed another party to dump the sludge to the anchorage by ships, which resulted in fines imposed by maritime safety administration. With regard to the offshore engineering construction, the phenomenon of multi-level contracting and illegal subcontracting exist ubiquitously and the problems of marine environment pollution arising due to the illegal execution of work by the actual constructor emerged as major issues.

 

The Administrative Regulation on the Prevention and Treatment of the Pollution and Damage to the Marine Environment by Marine engineering Construction Projects prescribe strict obligations on pollution prevention borne by the construction entity. For example, the construction entity shall, when applying for the construction project, submit an environment impact report, follow-up environment impact assessment shall be carried out where violation to the laws and regulations is found during the construction and corrective measures shall be adopted accordingly, corresponding fines would be imposed on the constructor who violates the laws and regulations, and in case of any pollution damage the polluter would be required to eliminate the hazard of the pollution and compensate the losses arising therefrom. Regardless of the relationship of contracting, multi-level contracting and subcontracting, the construction entity shall be responsible for the prevention of pollution to the marine environment caused by the marine engineering projects. According to Article 49 of the aforementioned Regulations, in case the construction entity cause erosion, siltation or damage to the territorial sea base points and their surroundings, the marine administrative department of the people’s government at or above the county level shall order it to stop the construction and operation, and to make restitution; if the construction entity fails to make restitution within the time limit, the marine administrative department may designate an entity with corresponding qualification for restitution, and the construction entity shall assume the fees incurred therefrom, as well as a fine of up to double the fees for restitution.

 

We recommend that: 1. the construction entity of the marine engineering project shall be the party which is directly responsible for the engineering project, and no matter how many times the construction project has been subcontracted, it shall be responsible for the supervision on the construction of the project being subcontracted. In case of any conduct of dumping the sludge and garbage freely by the actual constructor, it shall timely stop. 2. The marine administrative department shall strengthen relevant supervision on the marine engineering project construction. In case of any conduct of dumping the sludge and garbage freely by the construction entity, it shall take legal actions against the party who is directly responsible for the construction project so as to protect the marine environment.

 

III.   Regulating the shipping financial service according to law

—Problems pertaining to loan on mortgage of ships and solutions we propose

      

(1)   Issues of exorbitant valuation of the ships for mortgage

 

In a case of dispute over a loan on the mortgage of ships, with the bank as the plaintiff, the borrower, a shipping service company, obtained a loan in an amount of 100 million RMB from the bank with 27 ships owned by it as the pledge. The value of the ships was assessed by a property assessment institute and the estimated value of the 27 ships was 200 million RMB. Due to poor management of the shipping service company, the 27 ships were sold by the court through judicial sale to repay the loans. After going through the auction procedures, the aforesaid ships were sold only at the price of 40 million RMB.

 

With regard to the cases of disputes over loans on mortgage of ships which were entertained by this Court, we noticed that the estimated value of the ships served as pledge was too high on the whole, and after entering into the judicial auction procedures the price of the ships was on the low side. Many factors contribute to the phenomenon that the auction price of the ships is much lower than the estimated value. In addition to the objective cause of the downturn of the freight market, the following factors gave rise to the failure of the estimated value of the ships to truly reflect the change of the market price: firstly, the mortgagors intentionally raise the estimated value of the ships so as to get high loans. Secondly, the property assessment institute participating in the assessment of the ships is not good at the assessment of the value of ships, but only adopted the traditional assessment method for asset price to assess the value of the ships and failed to take into consideration the factors that could have influence on the price of the ships. Thirdly, due to the professional nature of the assessment of the value of ships, there are just few professional institutions engaging in the assessment of the value of ships in Guangdong province. Further, most of these institutions are not qualified for the assessment of asset price and could not meet the demand of the financial institutions for the assessment of the price of ships.

 

We recommend that: 1. the bank’s supervising department shall strengthen the supervision on the mortgagors so as to plug up loopholes and to avoid non-performing loans. 2. The financial institution shall employ qualified ship assessment institution for the value assessment of the ships served as pledge. Under the circumstance that most of the ship assessment institution is not qualified for asset price assessment, it may entrust professional ship assessment institution and asset price assessment institution to jointly carry out the assessment, so as to ensure that the estimated value of the ship can basically match up to the market price. 3. Ship assessment institutions should, pursuant to business development, hire and train some qualified personnel for asset price assessment and to obtain the qualification for asset assessment so as to meet the market demands.

 

(2)   Issues that financial institution neglects the maritime lien

 

In respect of a case that the ship owned by a shipping service company was sold by this court through auction procedure, the auction price of the ship is more than 500 thousand RMB, but the crew’s wages which are entitled to the maritime lien reached to more than 300 thousand RMB. Therefore, deducting the auction fees and other maritime liens, the bank, as the mortgagee, only got indemnification for tens of thousands RMB.

 

In recent years, in dealing with the auction of some ships involved in the loan on mortgage of ships, we noticed that after paying the auction fees and relevant claims entitled to the maritime liens, there is very little auction sale of the ships left for indemnifying the credit of the financial institution. In addition to the above-mentioned analysis that the auction price of the ship is much lower than the estimated price, the reason lies in that the financial institution fails to take the maritime liens into consideration when lending money. The regulations on maritime liens are prescribed in Article 21 to 30 of the Maritime Code of the People’s Republic of China, i.e. a maritime lien shall have priority over ship mortgage. The establishment and existence of the ordering of such claims are not essentially based on any possession, registration or agreement; therefore it has the so-called secretive nature. Once the ship under mortgage is arrested and sold by the court through auction due to maritime disputes, the maritime liens, such as the crew’s wages and the tonnage dues, would have the priority of compensation, thus the credit of the financial institution, as the mortgagee, would possibly not be completely indemnified.

 

We recommend that, financial institutions, when engaging in business of ship mortgage, give adequate consideration to the unpredictable risks which may be generated from the maritime liens and request the debtor to provide other securities for the performance of debt other than the ship mortgage. In addition, financial institutions should also supervise all the aspects concerned, including the status of vessel insurance, ship survey and operation of the ship ,so as to timely discern any problems and to take safeguards measures in respect of maritime liens.

 

(3)   Matters relating to the protection of financial claim in the course of the implementation of preferential policy for fishing industry

 

In a case of dispute over loans of mortgage on ships where the rural credit cooperatives filed a lawsuit against the ship owner, due to the fact that the rural credit cooperatives, as the mortgagee, failed to accurately provide relevant documents proving the qualification of the shipowner, the judicial proceeding could not be started and the financial creditor’s right could not be fulfilled by means of judicial proceeding.

 

For the purpose of the implementation of preferential policy for the fishing industry, the rural credit cooperatives provide small loans to a great number of local fishermen, which made great contribution to the development of the local fishing industry. However, in the course of hearing such type of cases, we noticed that the qualification of the borrower has not been strictly examined by the rural credit cooperatives, fishing boat serving as a pledge without a full set of license, and the value of the fishing boat is too low and no adequate security has been provided for the performance of debt, which left many loans unable to be recovered and harmed to the financial creditor’s right.

 

We recommend that, financial institutions, when implement the preferential policy for fishing industry, strictly examine the qualification of the borrower and the fishing boat on mortgage, so as to take precautions against relevant risks on the loans and to bring forth new ideas on the security pattern according to law. For example, the pattern of “diesel fuel subsidies + fishing boat mortgage + commercial loan” could be adopted, where the borrower may, of its own accord, open an account at the credit cooperative which provides the loan for the special fund of diesel fuel subsidies. Prior to paying off the loans, the special fund of diesel fuel subsidies shall only be used to repay the loans, which may reduce the risk of mortgage on ships to a certain degree.

 

IV.    Regulating the Freight Market

—    Problems in carriage of goods by sea and solutions we propose

 

(1) Domestic importers should be prudent in signing trade contracts and be cautious of fraud

 

In a dispute arising out of a contract for carriage of goods by sea, a large Chinese state-owned enterprise engaged in import and export had entered into a contract with an American trading company for the sale of copper scrap at the amount of over 2 million USD through letter of credit. When entering into the sales contract, the state-owned enterprise was aware that the American company as exporter of the solid waste did not have a registration certificate issued by the General Administration of Quality Supervision, Inspection and Quarantine under the State Council of China. When the subject container arrived in the port of destination, the contents were found to be earth and rocks etc. rather than the goods. Consequently the state-owned enterprise as consignee suffered total loss. Then it claimed against the carrier on the grounds that the carrier had issued an incorrect bill of lading which resulted in the cargo loss. The court tried the case and held that the goods at issue had not been inside the container before loading in the port of departure, and accordingly the cargo loss did not take place during the period of responsibility of the carrier; the carrier’s issuance of the incorrect bill of lading, which was a tort, was not the cause of the consignee’s payment of the letter of credit. The court accordingly dismissed the state-owned enterprise’s claims.

 

International trade involves a number of elements, such as buying, selling, payment and transport, and features many legal complexities. However, contracts of sale and contracts of carriage are independent of each other. If a fraud happens in the buying and selling, the liability may not be shifted onto the carrier and the victim of such fraud may only claim against the other party to the contract of sale. Nevertheless, it is difficult to claim against an overseas seller. Furthermore, with respect to international trade where solid waste and other special subject matters are imported, Article 16 of China’s Administrative Measures for the Import of Solid Waste says “the State requires for the registration of overseas suppliers of solid waste that can be used as raw materials. Overseas suppliers exporting such solid waste to China shall obtain the registration certificate issued by the General Administration of Quality Supervision, Inspection and Quarantine under the State Council.” In the above case, the state-owned enterprise as importer should have carefully examined the registration certificate of the overseas supplier; however, it entered into the sales contract with the overseas seller although it was fully aware that the seller did not have the required certificate, which gave rise to a hidden danger.

 

Our suggestions are: 1, before signing a contract of sale with large value of subject matter, the domestic buyer as importer should investigate the credit of the overseas seller to avoid trade fraud; 2, with respect to international trade of special subject matters such as solid waste, importers should get familiar with applicable laws, rules and regulations of China and the exporting country so as to reduce disputes and avoid losses.

 

(2) Attention required of sea carriers in the transport of ferrosilicon

 

In a case of cargo damage under a contract of carriage of goods by sea, the carrier accepted booking to transport ferrosilicon and a batch of compartments of intercity train with internal combustion engines to Europe from a port in North China. The compartments were loaded on the upper tweendeck space, while the ferrosilicon was loaded on the lower tweendeck space. There were chinks in the partition between the upper and lower spaces. As there was no continuous ventilation on the carrying vessal during the transport, the ferrosilicon loaded on the lower tweendeck space, which produced phosphine in suitable temperature and humidity; the gas then expanded to the upper tweendeck space through the chinks in the partition and reacted with the copper or copper alloy parts of the train compartments. The compartments were only covered in a film on the top; the phosphine entered the carriage from the lower space and was prevented by the film which formed a relatively enclosed environment. As a result the phosphine concentration increased and the reaction intensified, eventually leading to the damage of the compartments. Subsequently the consignee claimed against the carrier for the loss of the train at an amount over RMB100 million.

 

China is a big exporter of ferrosilicon, and exported ferrosilicon is mainly carried by sea. Ferrosilicon is classed as dangerous goods and is subject to the special conditions set forth in the International Maritime Dangerous Goods Code (hereinafter referred to as the IMDG Code). After the 29^th amendment to the IMDG Code came into force, China’s Ministry of Transport issued the Notice on Specifying the Requirements for Ferrosilicon and Other Dangerous Goods in International Shipping (No. [1999] 154) 1999, providing that IMDG Code“relaxes the requirements for the shipping of ferrosilicon and other dangerous goods. In order to facilitate marine transport and promote China’s foreign trade, we hereby state the provisions and detailed requirements of the 29^th amendment to IMDG Code with respect to ferrosilicon and other dangerous goods as follows: 1, when ferrosilicon (silicon ≥ 30%-90%) or ferrosilicon UN No. 1408 on page 4343 of IMDG Code is shipped in packing (including intermediate bulk containers and containers) and if the foreign trade authorities are provided with a certificate showing that the ferrosilicon has passed the Type 4.3 test set forth in Clause 33.4.1.4, Part III of the UN Recommendations on the Transport of Dangerous Goods, Manual of Tests and Criteria, it can be shipped as general goods.”

 

Although ferrosilicon may be shipped as general goods after a test certificate is obtained, during prolonged sea transport it is prone to produce phosphine and other toxic, corrosive gases in humidity; such gases corrode copper and copper alloy parts and may result in poisoning and explosion. For these reasons, we suggest that sea carriers should prudently stow and store ferrosilicon, with particular attention to avoid mixing with incompatible goods. Ferrosilicon should be stowed away from copper or copper alloy goods or equipment containing such metals. Furthermore, when stowing and carrying ferrosilicon, carriers should ensure the watertight integrity of the hold and maintain proper ventilation.

 

(3) Problems in the inspection of damaged goods by the carrier and the consignee

 

In a dispute arising out of a contract for carriage of goods by sea, the subject container was shipped from Malaysia, transhipped in Hong Kong and arrived in Guangzhou. The consignee took delivery of and transported the goods to its own warehouse, then opened the container and found the goods damaged. The consignee subsequently claimed damages against the carrier; whereas the carrier defended that the damage of the goods was found in the warehouse but not during the period of its responsibility and therefore it was not liable for compensation. As the consignee could not prove any evidence that the damage had occurred during the period of responsibility of the carrier, the court dismissed its claims.

In another dispute arising out of a contract of carriage of goods by sea, the container arrived in Guangzhou and damage of the goods was found during port tallying. The consignee then requested the carrier to conduct a joint inspection, but the latter ignored such request. Later the consignee and the shipper reached consensus on the disposal of the goods, namely by returning the goods to set off the residual value. After the consignee had claimed damages against the carrier, the carrier alleged that the goods did not suffer total loss and there was residual value, and it did not agree with the way the consignee disposed of the goods. As the consignee provided sufficient evidence to prove the amount of the damage of the goods, the court supported the claims filed by the consignee.

 

 

In similar disputes, carriers usually defend by alleging that the damage of goods did not occur during the period of their responsibility. Article 46 of the Maritime code provides that “the carrier is responsible for goods carried in containers throughout the period during which it is in charge of the goods, starting from the time it has taken over the goods in the port of loading till the goods have been delivered in the port of discharge. The carrier is responsible for non-containerized goods throughout the period during which it is in charge of the goods, starting from the time the goods are loaded on board till the goods are discharged. During the period the carrier is responsible for the goods, the carrier shall be liable for any loss of or damage to the goods, except as otherwise provided for in this Section.” The claimant needs to prove that the damage occurred during the period of responsibility of the carrier, and counterevidence is required if the carrier denies such allegation. Accordingly, we suggest that consignees should, when finding any damage to the goods when taking delivery, send a written Notice of Loss or propose a joint inspection in accordance with Section 5 (Delivery of Goods) of Chapter IV (Contract for Carriage of Goods by Sea) of the Maritime Code. The carrier and the consignee should each reasonably facilitate the cargo damage inspection. If one party proposes an inspection but the other party refuses to cooperate, the proposing party should commission a qualified inspection agency to identify the damage and the amount thereof to facilitate future claims.

V.       Regulating the Forwarding Business

— Problems in the forwarding business and solutions we propose

 

(1) Problems regarding cargo damage where container seals are intact

 

Nowadays, containerization plays a significant role in the carriage of goods by sea. Containers have become a major vehicle for the carriage of internationally traded goods by sea except for bulk oil and bulk cargo, such as crude oil, coal, mineral sand and grain. Nonetheless, containers induce increasing legal issues and disputes. A typical problem is cargo damage where container seals are intact. In such case, the shipper or consignee alleges cargo shortage or damage found in the port of destination, whereas the carrier states that it accepted a sealed container, was unclear of the condition of the cargo inside and has put a notation on the bill of lading declaring that the carrier would be exempted from any liability as long as the container is delivered with the seal intact.

 

As goods are invisibly loaded in closed containers, carriers often put notations on bills of lading so as to avoid possible future liability. Such notations include SLAC — Shipper’s Load and Count, SLCAS — Shipper’s Load, Count and Seal, STC — Said to Contain, SBS — Say by Shipper, and FCL — Full Container Load. In trial practice, there is a general consensus on the validity of such notations: with respect to full container load (FCL) and sealed by shippers, the validity of such notations is supported. As container ships are highly mechanized, the loading time is short in each port and it is thus difficult for carriers to exactly identify the marks, number, volume, weight and condition of the goods inside containers with an intact seal; therefore carriers are allowed to have reservations about the condition of the goods. With respect to less-than-container load (LCL), the validity of such notations will be determined depending on whether the container freight station loads on behalf of the carrier or the shipper. Containers loaded by the container freight station for and on behalf of the shipper will be deemed as loaded by the shipper, and the added “Unknown Clause” is valid; if the container freight station loads for and on behalf of the carrier, the “Unknown Clause” added by the carrier would be inconsistent with the fact and therefore such clause shall be found invalid. Thus it can be seen that where containers are loaded by the shipper, the shipper or consignee cannot prove the condition of goods merely by the descriptions on the bill of lading. Moreover, from the factory to theport of loading and to theport of discharge, container cargoes are transported by at least two modes, namely road and sea transport. Where the shipper commissions a road carrier and a sea carrier respectively for each section of transport, the shipper will be faced with great difficulties in claims if it is impossible to determine the section where the cargo damage occurred.

 

We advise the shipper, when delivering the goods to the carrier, to try to collect other evidence to prove the condition of goods , such as the weight of goods and the apparent condition of the container. A sea carrier is generally liable for FCL from yard to yard. We advise the shipper to load the goods in the factory, seal the container, and then weigh the container in the presence of a third party witness; to record whether the container is in apparent good condition and whether there is any damage to or dent in the container. When the container arrives in the port of loading, the shipper should weigh the container again with the weighing equipment of the port, and keep the equipment interchange receipt (EIR) from the port as evidence for the apparent condition of the cargo container upon delivery to the sea carrier. When the container arrives in the port of destination, the shipper should weigh it again before discharging and taking delivery of the goods, and should carefully inspect the apparent condition of the container as well as the goods inside. In case of any shortage of, or damage to the goods, the shipper can compare each record taken and it will then be easier to identify the section where such shortage or damage occurs and the fault of the carrier.

 

(2) Problems regarding the reimbursement of expenses paid by forwarders

 

In a dispute arising out of a forwarding contract, the forwarder arranged for the transport of goods as required by the principal and on behalf of the principal paid the freight to the carrier, as well as the detention and demurrage after the arrival of goods in the port of destination. However, the principal refused to reimburse the forwarder on the grounds that the forwarder paid the expenses without first obtaining its consent and that the expenses were unreasonable. Subsequently the forwarder brought an action to the court, and the court found that such expenses were necessary expenses incurred by the forwarder for fulfilling the commission and therefore should be reimbursed by the principal; eventually the court supported the claims filed by the forwarder.

 

The legal relationship between the forwarder and the principal is an agency relationship created under a contract. Although Article 398 of the Contract Law of   People’s Republic of China provides that the principal shall prepay all expenses to be incurred in completing the commission, in actual forwarding practice prepayment by the principal is rare. In most cases the forwarder has to pay such expenses on behalf of the principal. The forwarder is entitled to recover such expenses from the principal only when the following three conditions are met: 1.the expenses are necessary for completing the commission and paid by the forwarder for the benefit of the principal and for the purpose of the forwarding contract. Specific considerations include: whether the expenses are incurred in relation to the commission; whether the expenses are inevitable in completing the commission; whether the principal’s interests will be affected if the expenses are not paid in time; whether the forwarder is at fault for the incurrence of the expenses. 2. The expenses so paid shall be reasonable and not in breach of the agreement between the forwarder and the principal, and shall not be excessively higher than the market standard or the losses foreseeable by the principal upon commissioning the transport. The forwarder may seek recovery of freight so paid from the principal subject to the amount they previously agreed upon. With respect to detention and demurrage, where the principal has not determined the rates in advance or afterwards, consideration should be given to whether the rates accord to general market standards and whether the charge collector has taken proper measures to prevent any further losses. 3. Such expenses may only be paid to bodies entitled to such charges. The forwarder usually pays the expenses as per the carrier’s bills, but the carrier is not entitled to all charges. For example, demurrage should be paid to the port but not to the carrier. If the carrier claims for such charge, it must prove that it has paid the charge to the port.

 

We advise forwarders to observe the following principles before paying expenses on behalf of the principle: 1. to carefully examine the expenses against the above three conditions. As agents, forwarders are obliged to exercise due diligence instead of merely paying the expenses as per the carriers’ bills. 2. to request charge collectors for proof of expenses. For instance, before paying destination charges to the carrier, the forwarder should request the carrier to provide proof of charges incurred due to the retention of the goods in the port of destination as well as the local charging rates. 3. Before paying the expenses, the forwarder should try its best to inform the principal. It is the obligation of a qualified forwarder to promptly inform the principal of any expenses incurred in relation to the goods, which enables the principal to take timely measures to reduce losses; otherwise the forwarder might not be able to recover the expenses incurred due to further losses.

 

(3) Actual shipper has the right to obtain shipping documents

 

In a case of dispute arising from a forwarding contract, the plaintiff claimed that it was the seller under an international trade contract, and as agreed had delivered the goods to the carrier via the forwarder designated by the buyer. However, the forwarder had not handed over the bill of lading to the plaintiff, as a result, the consignee was not able to take delivery of the goods in the port of destination and eventually expenses were incurred as the goods were detained in the port. The plaintiff requested the court to order the forwarder to compensate it for all economic losses incurred due to the forwarder’s failure to hand over the bill of lading in time. On the other hand, the forwarder alleged that it was commissioned by the foreign buyer to arrange for the transport and not in any contractual relationship with the plaintiff, and therefore was not obliged to hand over the bill of lading to the plaintiff or to compensate for any losses incurred in relation to the goods under the contract. In accordance with applicable laws, the court held that the plaintiff as actual shipper had control over the goods. However, as the plaintiff did not provide any evidence to prove that it had instructed the forwarder to hand over the bill of lading or telex release the goods, its claims were eventually dismissed.

 

The above case involves a basic issue in FOB-based international trade contracts and the resulting carriage of goods by sea. Generally speaking, under the FOB condition in international trade, the foreign buyer is responsible for booking space while the domestic seller is responsible for delivering the goods as required to the vessel designated by the buyer. In accordance with Article 42(3) of the Maritime Code, the seller is the actual shipper whereas the buyer is the contractual shipper. In practice, the foreign buyer usually commissions a domestic forwarder to book space on its behalf. For convenience, the domestic seller often commissions the forwarder to deliver the goods to the carrier. Upon completing such commissions, the forwarder receives the bill of lading or other documents from the carrier. Should the forwarder hand over such shipping documents to the contractual shipper or to the actual shipper when it has received a commission from both parties respectively? As regards this issue, Article 8(1) of the Regulations of the Supreme People’s Court on Trials of Disputes Arising from Sea Freight Forwarding clearly provides as follows: “where the forwarding enterprise is commissioned by the contractual shipper to book space and by the actual shipper to deliver the goods to the carrier, the people’s court shall support the actual shipper’s request that the forwarding enterprise hand over the bill of lading, sea waybill or any other shipping documents obtained to it We advise the actual shippers to actively exercise their rights endowed by the law by requesting the forwarder to provide the shipping documents promptly after the goods are loaded on board, so as to have control over the goods and get the payment smoothly. If the forwarder refuses to hand over the shipping documents, the actual shipper should collect and preserve relevant evidence to facilitate future claims.

 

 

VI.    Regulating the Seafarer Labour Market

— Problems in seafarers’ contracts of service and solutions we propose

 

 

(1)  Some seafarers still work without a labour contract

 

In hearing a series of cases of disputes arising out of the seafarers’ service contracts of a shipping company in Guangzhou, the court found that hundreds of seafarers employed by the company did not sign a written labour contract and their wages were long overdue, mostly for years. Consequently, the series of cases featured the following problems: 1. the rights and obligations of the shipping company and the seafarers, in particular the payment terms of the seafarers’ wages and other remuneration, were unclear so that the seafarers’ legitimate rights and interests cannot be effectively protected. 2. the longstanding arrears of wages not only resulted in the meagre living of some seafarers, but also led to mass hostility. We have found similar situations when trying disputes arising out of the seafarers’ service contracts of other small and medium shipping companies. Some seafarers still work without a labour contract.

 

From our trials of such disputes, we learn that some small and medium shipping companies do not sign labour contracts with the seafarers they employ and fall in arrears of wages to these seafarers mainly for the following reasons: seafarers in these companies are legally illiterate as they mostly come from poverty-stricken and underdeveloped regions. Moreover, they are at a disadvantage in the labour relation as a result of the supply and demand in the labour market. Their claims are hence not fully and clearly established. On the other hand, some small and medium shipping companies for their own benefit are reluctant to sign labour contracts with seafarers and frequently fail to pay the wages fully and on schedule. In particular, when faced with operational difficulties, they often try to protect their own interests and ignore the seafarers’ interests.

 

We propose that labour authorities should strengthen the supervision and inspection of small and medium shipping companies within their jurisdiction with respect to the signing of labour contracts and payment of wages and remuneration, urge these companies to sign a written labour contract with each seafarer and fully pay the wages and remuneration on schedule, and legally punish any acts impairing the legitimate rights and interests of seafarers.

 

(2) Collusion in seafarers’ claims for wages

 

When a shipping company is in hard time and has its ship legally auctioned off by the court to pay off its debts, wages of the ship’s crew and other certain claims have a maritime lien on the ship and rank first in priority. The court’s determination of crew wages and other remuneration mainly relies on the plaintiffs’ requests and the defendants’ recognition. In trial practice, we find that some ship owners collude with their seafarers by offering to satisfy certain needs of such seafarers. In such cases, the seafarers falsely apply for registration of their claims of arrears of wages to the court and request the court to support their maritime lien and order the payment of the crew wages. Such practice seriously prejudices the interests of other creditors.

                                                 

In trying cases involving suspected collusion, we strictly apply the rules of evidence in civil actions and render judgments based on clear facts and ample evidence. With respect to evidence review, we require evidence of the existence of maritime lien in addition to evidence of debtor-creditor relationship. With respect to court hearings, all litigant parties shall appear in court except in special circumstances.

 

We suggest that ship owners and seafarers should be honest and law-abiding, and refrain from false action or any other acts that impair civil litigation; any violator will be held legally liable in accordance with Article 112 of the Civil Procedure Law.

 

(3) Disputes arising out of seafarers’ service contracts may be brought to court without first being referred to arbitration

 

In a case of dispute arising out of a seafarer’s service contract, the plaintiff first referred the dispute to Shenzhen Labour Dispute Arbitration Committee in September 2010. Later he disagreed with the arbitral award made by the Committee and brought an action to this court in February 2011. The court entertained the case in compliance with the law.

 

In some similar cases, the plaintiffs first referred the disputes to arbitration and then filed a case to the courts when they disagreed with the arbitral award. This resulted in a prolonged period of dispute resolution and hindered the protection of the legitimate rights and interests of the seafarers. As provided in Article 8 of the Interpretation of the Supreme People’s Court on Several Issues Regarding the Application of the Special Maritime Procedure Law of the People's Republic of China and the Reply of the Supreme People’s Court to the Query Whether Domestic Cases of Disputes Arising out of Seafarer Labour Contracts Should be Referred to Arbitration before Litigation ([2002]MSTZ NO. 16), arbitration is not a necessary procedure before litigation for disputes arising out of seafarers’ service contracts (including seafarers’ labour contracts) and such disputes may be directly brought to a maritime court. The latter economizes on arbitral resources, shortens the time it takes to resolve a dispute, and more effectively protects the legitimate rights and interests of seafarers.

 

We suggest that labour arbitration authorities should, when accepting labour disputes in relation to seafarers’ work on ships, explain to the seafarers that they may directly bring an action to a maritime court or apply for arbitration if the dispute falls within the jurisdiction of the maritime court; if the litigant files a claim after he disagrees with the arbitral award, the maritime court has jurisdiction over the dispute.

Foreword

 

The year 2011 marked the beginning of China’s implementation of the 12^th Five-Year Plan for Economic and Social Development, and was a milestone year for the development of the marine economy in Guangdong Province. On 5^th July 2011, the State Council approved the Development Plan for the Integrated Test Area of Marine Economy in Guangdong (hereinafter referred to as the “Plan”), which is another regional plan in support of national strategy, after the establishment of the Plan outline for the Reform and Development of the Pearl River Delta. The Plan puts forward the idea of constructing a new pattern for comprehensive marine development in Guangdong, named “three districts, three zones and three areas”[1], and gives Guangdong the role of a bridge connecting Hong Kong and Macau, Fujian Haixi, Guangxi Beibu Gulf and Hainan international tourism island via construction of the three Marine Economic Cooperation Zones.  These zones are the Marine Economic Cooperation Zone among Guangdong, Hong Kong and Macau, the Marine Economic Cooperation Zone between Guangdong and Fujian, and the Marine Economic Cooperation Zone among Guangdong, Guangxi and Hainan. This will increasingly upgrade regional cooperation and improve the ability of resource sharing. The implementation of the Plan demonstrates the progress made by the government toward constructing a province with a powerful marine economy and international shipping and logistics center in the Pearl River Delta.

 

The modern international shipping center refers to the junction between an international port and international shipping, combining the resources of the shipping industry, shipping services industry and shipping logistics, with the facilities and soft environment which are necessary to a pivotal shipping port. The shipping services industry encompasses finance, insurance, legal services and policy. Specifically, regarding the industrial composition of the modern international shipping center, dispute resolutions such as maritime trials and arbitrations fall within the scope of the shipping services industry. Therefore, maritime trials play a role in protecting and promoting the development of the marine economy and shipping industry, and also contribute to the construction of a modern international shipping center.

 

Over the last year, this court contributed to the implementation of national marine development strategy and social stability by increasing the role of the judiciary in overseeing maritime trials and issuing just and effective decisions.

This report is a selection of typical cases heard by this court in 2011.  The cases include analysis, corresponding measures and proposed advice to serve as a reference for port and shipping enterprises and a guide for the promotion and development of the marine economy. Any comments regarding the issues discussed in this report would be most welcome.

 

Guangzhou Maritime Court

January 2012

 

Table of contents

 

I.         General Information on Maritime Trials

----Number of new cases increases substantially

The value of the subject matter at issue in the case increases substantially

Number of foreign-related cases and those relating to HK, Macau and Taiwan increases substantially

Number of cases regarding disputes over freight forwarding contract decreases substantially

Cases regarding disputes over pollution damage compensation occur from time to time

Number of cases regarding applications to arrest and auction ships increases substantially

II.      Promoting sound development of marine economy

---- Issues and recommendations surrounding the exploitation and utilization of marine resources

Legal issues on marine underwater engineering

Safety management on the extraction of offshore oil and gas

Determination of rights to use sea area

III.   Exercise of relevant rights related to carriage of goods by sea

----Issues and recommendations related to non-taking delivery of goods at the port of destination

Ascertainment of the party who should be liable for the non-taking delivery of goods at the port of destination

Legal consequences of non-delivery by carrier

Carrier’s remedies

Legal issues related to the shipper’s exercise of the right to control goods

IV.     Governing the arbitration agreement according to law and application for recognition and enforcement of arbitration award

----Issues and recommendations related to judicial examination of arbitration

Issues related to the conclusion of the arbitration agreement

Issues related to the performance of the arbitration agreement

Issues related to an arbitration agreement included in an insurance contract

Issues related to the application for recognition and enforcement of an arbitration award

Issues related to the selection of an arbitration organization in China

V.       Safety management on marine operations

----Issues and recommendations related to personal safety during marine operations

Tragedies caused by negligent failure to take preventive measures

Operations in violation of regulations does harm to both operator and others

Failure of injured party to claim compensation due to the responsible party’s failure to inform

VI.    Exercise of the right to sue according to law

----Issues and recommendations related to the right of action and the right to defense

Filing suits in a timely manner to avoid expiration of the applicable statute of limitations

Legal issues related to the exercise of the right of action

Legal issues related to the exercise of the right to defense

VII. Cases on claims for damage arising out of pollution in the ocean and water areas leading to the sea

----Guidance for the aquaculture farmers on commencing a suit for damages

Definition of damage arising out of pollution in the ocean and water areas leading to the sea

Selection of the proper court for farmers to initiate a suit

Facts necessary to an aquaculture farmer’s case on claims for damages arising out of pollution in the ocean and water areas leading to the sea

Evidence necessary to a farmer’s case on claims for damages arising out of marine pollution and pollution in the waters areas leading to the sea

Period for adducing evidence

VIII.        Conclusion of a labor contract with crewman according to law

----Issues and recommendations related to the conclusion of a labor contract with crewman

When no written labor contract is concluded with the senior crewmen

Reasons why the senior crewmen refuse to conclude written labor contracts

Recommendations for the conclusion of a written labor contract with the senior crew

IX.    Application for ship arrest according to law

----Issues and recommendations related to the application for ship arrest before the institution of an action

Reasonable selection of the location for ship arrest

Observance of 30-day time limit stipulated by law prior to institution of an action

Requirement of reasonable guarantee

 

 

I.         General Information on Maritime Trials

 

In 2011, under the leadership of the Guangdong Provincial Party Committee and the supervision and guidance of the Standing Committee of Guangzhou Municipal People’s Congress and superior court, this court applied the scientific approach for development and focused on the implementation of the national marine development strategy. With these factors in mind, we implemented sound strategy for maritime trials in order to secure our status as a nation-wide pioneer court. Through bringing the judicial function into full play, the trials shown a good momentum of “five increases and one decrease”: 1410 new cases were heard by this court in 2011, a 6.41% increase over last year. The value of the subject matter of newly heard cases totaled RMB4,249,000,000, a 68% increase. The number of cases closed increased by 2.3%, totaling 1437. The case settlement rate increased by 1.74% at 90.32%, the rate of mediation and withdrawal showed a 5.1% increase at70.23%, and 177 cases remain unsettled, a 2.2% decrease over last year.

 

Among new cases, 767 were lawsuits at the first instance and 300 of them were cases on maritime enforcement. Cases heard by this court included: 285 contract disputes dealing with carriage of goods by sea, comprising 37.2% of the cases at first instance, 114 cases regarding freight forwarding contracts, comprising 14.9% of total cases, 61 cases regarding contracts related to ships (including sale and purchase, financing, building, charter and mortgage related to ships) comprising 8% of total cases, 53 cases regarding pollution compensation arising from ship and port operation, comprising 6.9% of total cases, 26 cases regarding ship collisions comprising 3.4% of total cases, 17 cases regarding marine insurance contracts comprising 2.2% of total cases, 32 cases regarding maritime personal injury, comprising 4.2% of total cases, and 23 cases regarding port operation, comprising 3% of total cases.

 

 

Chart No.1: cases heard in 2011 which were at the first instance

 

 

Chart No.2: Number of cases heard in 2011 compared with 2010

 

 

The above charts demonstrate the following:

-         The number of new cases increases substantially. The court heard a total of 1410 new cases in 2011, a 6.41% increase over last year. The single largest area of increase involved cases of enforcement, which comprised 300 of the total cases, and showed a 28% increase over last year. , Among lawsuits at the first instance, 285 involved contract disputes over carriage of goods by sea, an increase of 34.4%, and among the cases related to maritime special procedure 28 of them dealt with maritime evidence preservation, an increase of 300%.

-         The value of the subject matter at issue in the case increases substantially. The total value of the subject matter at issue in new cases was more than 4.2 billion RMB, an increase of 68% over last year, and the total value of settled cases was more than 3.9 billion RMB, an increase of 25.8%. These are the highest values recorded since this court has been in existence. The main reason for such increase lies in the fact that the cases newly heard by this court were substantial. Among such cases, 60 had a value that exceeded RMB50,000,000 (including serial cases), an increase of 500% over last year. There were 3 cases with a value that exceeded RMB100,000,000. One example of such a case was the application filed by HSH Nordbank for the arrest of M/V “First Ocean,” which was owned by a shipping company registered in Iran. The value at of the subject matter at issue in that case exceeded 1.7 billion RMB.

-         The number of foreign-related cases and those related to HK, Macau and Taiwan increases substantially. Among new cases, 489 of them were foreign-related cases or related to HK, Macau and Taiwan, comprising 63.8% of cases at the first instance and show a 79.8% increase over last year. Within this category, the following types of cases showed substantial increase: 53 cases of dispute over pollution compensation arising from ship and port operation, of which 53 were heard showing a 25% increase over last year and  cases of dispute over contract of carriage of goods by sea, of which205 were heard, a14% increase over last year.

-         The number of disputes over freight forwarding contracts decreases substantially. In 2011, we heard 114 cases dealing with disputes over freight forwarding contracts, a decrease of 45.97% over last year. The first reason for such decrease lies in the transition of the freight forwarding industry. The profit model of the freight forwarding industry has evolved from earning commission differential to providing comprehensive logistics services, including transportation, warehousing and relevant commercial services. A second reason is the downturn of the international shipping market in 2011, which caused a decline in forwarding and logistics business and as a result the number of related disputes.

-         Disputes over pollution damage compensation occur from time to time. In 2011, this court heard 53 cases regarding pollution damage compensation with the total value of the subject matter exceeding RMB170,000,000. Leakage of fuel oil and land-based pollutants were the two main reasons for the occurrence of such pollution. Pollution accidents can result in severe damage to the ecological environment, tourist resources and aquaculture in the nearby sea area. Matters of dispute arising from such an accident can include the amount of an entitlement to compensation for expenses arising from salvage and pollution clean-up carried out by maritime authorities and issues of liability for pollution, appraisal and indemnification.

-         The number of cases involving application for the arrest and auction of ships increases substantially. In 2011, this court accepted and heard 140 cases dealing with the pre-litigation arrest of ships, an increase of129.5% over last year. Since some respondents refused to provide security, 30 ships were auctioned by this court according to law, an increase of 400% over last year. The reason for this increase lies in the depression of the shipping market and excessive investment in the shipbuilding industry. In recent years, the freight capacity of the shipping market was oversupplied which lead the freight rate to decline dramatically. Even under such circumstances, some shipping enterprises still increased their investment in shipbuilding business. Some shippers even requested a loan from the bank to build new ships so as to join the price-cutting competition. In cases of default by these borrowers, the bank may apply for arrest and auction of the ships.

 

II.      Promoting sound development of the marine economy

------Issues and recommendations in the exploitation and utilization of marine resources

 

(1)   Legal issues on marine underwater engineering

 

In recent years, the number disputes over marine underwater engineering heard by the court has increased. These disputes involve the exploitation and utilization of the coastline, including the excavation of the harbor basin, waterway dredging, and land reclamation and wharf construction. This type of case involves huge amounts of money and professional knowledge, and a great amount of evidence must be produced. If the party concerned lacks professional knowledge and awareness of potential liability, it may bear unfavorable legal consequences. Take a case of dispute over wharf construction for example, where the written agreement concluded by the parties provides for liquidated damages at a rate of 3% of the overdue engineering payment per day. The legal representative of the construction company testified that the inclusion of such a clause was only for the purpose of allowing the opponent party to satisfy his superior, but was not applicable. The court was clearly not persuaded by such allegations, and therefore the said company paid a great amount in liquidated damages. Another example is a dispute over a waterway dredging operation. The engineering memorandum concluded by the parties concerned provided that one party hire the ship owned by the other party for a dredging operation for a period of 3 months with net proceeds in the amount of RMB2,000,000 per month. Although the agreement terminated after the dredging operation was carried out for only 1 month, the court, after hearing the case, supported the other party’s claim for the monthly net proceeds in the amount of RMB2,000,000. The court held that the memorandum, which was provided as key evidence, lacked detailed provisions on allocation of risk in the case of a breach, and thus the court could only make a judgment based on the net proceeds outlined in the parties’ agreement.

 

We recommend that parties concerned should be prudent when entering into construction contracts. If necessary, experts should be consulted for the examination and verification of the construction contracts so as to avoid disputes arising from inappropriate clauses. Meanwhile, we recommend that relevant supervision departments should increase supervision for contract regarding marine underwater engineering.

 

(2)   Safety management on the extraction of offshore oil and gas

 

Since China is a major consumer of energy, energy shortage has the potential to constrain economic development. Along with the improvement of science and technology on the extraction of offshore oil and gas, great progress has been made in the actual extraction of offshore oil and gas. However, because the extraction of offshore oil and gas involves a high degree of risk, greater safety precautions should be taken. In a case heard by this court, a Chinese offshore oil company and an American company signed a cooperative contract on the exploration and extraction of oil and gas within Chinese seas. According to the contract, the American company was in charge of issues related to the hiring of the drilling ship and the exploration and extraction operation. In the course of the cooperation, a drilling ship was overturned causing great economic losses and personal injuries. Although the insurance company with which the American company had comprehensive general liability insurance indemnified the aggrieved parties, the relevant parties filed claims to the court for compensation. According to statistics, the value of claims brought for disputes over marine exploration and utilization in the past three years amounts to 2 billion RMB.

 

We recommend that parties involved with the extraction of offshore oil strictly abide by the safe operation regulations, and relevant supervision departments enhance safety supervision so as to avoid personal injuries and economic losses.

 

(3)   Determination of rights to use sea area

 

Regarding disputes over rights to use sea area, a coastal village in Guangdong Province signed a contract with a Mr. Mo to lease an offshore fishing farm, providing that the offshore fishing farm with an area of 800 Mu owned by the said village was leased to Mr. Mo for a period of 30 years at the price of RMB90,000. Mr. Mo paid the contract price. The court, after hearing the case, found that the Certificate for the Right to Use Sea Area and the Certification for Aquaculture in Water Area and Intertidal Mudflat involved in the case did not prove that the village was the proper holder of the right to use the said sea area. Therefore, the court ascertained that the village had not obtained the right to use the sea area where the fishing farm was located, and thus it had no right to sublease the said sea area to Mr. Mo for the purpose of aquaculture, making the aforementioned contract invalid.

 

Since provisions on determining the right to use sea area had been explicitly stipulated by law, such mandatory provisions shall not be violated due to the exploration of marine resources. We recommend that relevant authorities and the local government should enhance their supervision of such issues so as to maintain a good environment for marine exploration.

 

 

III.   Exercise of relevant rights related to carriage of goods by sea

------Issues and recommendations related to failure to take delivery of goods at the port of destination

 

(1)   Ascertainment of the party who should be liable for failure to take delivery of goods at the port of destination

 

In hearing disputes over carriage of goods by sea we found that the matter of failure to take delivery of goods at the port of destination includes: 1) no consignee to take delivery of the goods after the goods arrived at the port of destination (including the situation that consignee is indefinite, consignee is unable to be contacted to take delivery of goods or the party who attempts to take delivery of the goods fails to present the original bill of lading and could not prove that he is the legal consignee), or 2) the consignee refuses to take the delivery of the goods. Under such circumstances, the carrier, as the aggrieved party, should only deal with the matter according to the contractual relationship of carriage of goods by sea and relevant laws.

 

There are three parties who are involved in the relationship of carriage of goods by seas, the carrier, the shipper and the consignee. Therefore, in the case of a failure to take delivery of goods at the port of destination, the carrier should first determine the party against whom he may bring a claim for compensation. In judicial practice, the first choice would be for the carrier to bring a claim against the consignee. The determination in this type of case would be whether or not the consignee should be liable for failure to take delivery of the goods. The consignee would argue that that Article 42 of the Maritime Code defines the consignee as the person who is entitled to take delivery of the goods, thus taking delivery is the right but not obligation to of the consignee. Therefore the consignee should not bear the responsibility for failure to take delivery of the goods and the losses arising therefrom. The carrier would counter that Article 86 of the Maritime Code provides “if the goods were not received at the port of discharge or if the consignee delayed or refused to take delivery of the goods, the Master may discharge the goods into warehouses or other appropriate places, and any expenses or risks arising therefrom shall be borne by the consignee”, thus the consignee should have the obligation to promptly take delivery of the goods and should bear the responsibility for failure to take delivery. The carrier’s second option is to bring a claim for compensation against the shipper. In defending such a claim, the shipper would hold that the right and obligation to take delivery of goods is transferred to the consignee with the bill of lading. Therefore the shipper is not responsible for failure to take delivery of goods. However, the carrier would hold that regardless of whether the shipper has transferred the bill of lading, he should bear the responsibility for failure to take delivery of goods at the port of destination.

 

In light of the above issues, we recommend that, 1) when filing a claim against the consignee the carrier should pay great attention to the identification of the proper consignee. In accordance with the definition of consignee provided in Article 42 of the Maritime Code, the consignee should be the party who legally holds the bill of lading. With regard to the consignee who holds the bill of lading, whether or not he is the proper consignee should depend on the information related to the sales of goods, statements in the bill of lading and the formalities of importing goods. The shipper who still holds the bill of lading after the goods arrived at the port of destination should be defined as the consignee. 2) When filing a claim against the shipper, the carrier should pay attention to the identification of different shippers. In accordance with the Maritime Code of the PRC, there are two kinds of shippers, the contracting shipper and the delivering shipper. Since taking delivery of goods at the port of destination is the right and obligation of the carriage contract, it is the contracting shipper who should bear responsibility for failure to take delivery of goods. In practice, if the delivering shipper books space with the carrier or holds the bill of lading, he can be deemed as the contracting shipper who enters the carriage contract with the carrier.

 

(2)   Legal consequences of non-delivery by carrier

 

In an example of a dispute over a contract for carriage of goods by sea, plaintiff is the carrier, defendant is the shipper stated on the bill of lading and the consignee is a Holland company. When the foreign buyer refused to take delivery of goods after their arrival, the plaintiff returned the cargo involved to the loading port. By virtue of the defendant’s refusal to take delivery of goods at the loading port, the plaintiff brought a lawsuit against the defendant requesting the court to order the defendant to indemnify them for the losses they sustained by way of retention and container detention charges incurred at the port of destination, charges arising from the return of the goods, retention charges, port charges, security charges, and container detention charges and terminal handling fees incurred at the loading port. After hearing the case, the court held that in a situation such as this where no one took delivery of the goods at the port of destination when the defendant had clearly requested that the plaintiff handle the goods involved at that port, and the plaintiff, as the carrier, failed to apply to the court for permission to sell the goods by auction at the port of destination according to law but rather returned the goods to the loading port, the plaintiff has breached the contract and failed to take “appropriate measures” as stipulated in Article 119 of the Contract Law. Therefore, the court did not support the plaintiff’s argument that return of the goods was a reasonable measure of mitigation of loss, and renders a judgment ordering defendant to indemnify the plaintiff for the retention charge and container detention charge incurred at the port of destination but overruling other claims filed by the plaintiff.

 

In cases involving failure to take delivery of goods at the port of destination, the carrier should pay attention to the following legal issues: 1) duration of the carrier’s liability. In contracts for the carriage of goods by sea, the duration of the carrier’s liability means the period when the carrier will bear civil responsibility for its failure to perform its obligations under the carriage contract. Article 46 of the Maritime Code provides that “the responsibilities of the carrier with regard to the goods carried in containers covers the entire period during which the carrier is in charge of the goods, starting from the time the carrier has taken over the goods at the port of loading, until the goods have been delivered at the port of discharge.” The term “delivered” means actual delivery of goods, not fictional consignment or putting the goods in escrow. Therefore, in the case of failure to take delivery of goods, the responsibilities of the carrier will extend to the time when the consignee takes delivery of the goods or waives the right to take delivery or the goods are sold by auction according to law. 2) The carrier’s obligation. Article 48 of the Maritime Code provides that “the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.” Article 86 of the Maritime Code provides that “if the goods were not received at the port of discharge or if the consignee has delayed or refused to take delivery of the goods, the Master may discharge the goods into warehouses or other appropriate places, and any expenses or risks arising therefrom shall be borne by the consignee”. Therefore, even if the goods could not be delivered at the port of destination, the carrier shall not be exempt from the obligations to take care of the goods. Article 119 of the Contract Law provides that “where a party breaches a contract, the other party shall take appropriate measures to prevent losses from increasing; where the other party's failure to take appropriate measures results in additional losses, that party cannot demand compensation for the additional losses.” Therefore, the carrier shall adopt appropriate measures to prevent the losses from increasing and shall take care of the goods in the manner which is favorable to the consignee or shipper for the prevention of additional losses. 3) The carrier should dispose of the goods according to law. Article 88 of the Maritime Code provides that “if the goods under lien in accordance with the provisions of Article 87 of this Code have not been taken delivery of within 60 days from the next day of the ship's arrival at the port of discharge, the carrier may apply to the court for an order on the selling of the goods by auction.” Such provision is the basis for the carrier to dispose of the goods and to prevent additional losses if the goods were received at the port of destination.” If the carrier wishes to adopt other measures to dispose of the goods rather than applying to the court for an order on selling the goods by auction, it shall notify the shipper and get its permission to do so. Otherwise, the carrier will be found to have failed to take the necessary “appropriate measures” provided in Article 119 of the Contract Law.

 

Therefore, we recommend that if goods are not received at the port of destination, the carrier should keep the goods under lien and take good care of them. At the time when the statutory period expires or the statutory condition appears, the carrier may apply to the court for permission to sell the goods by auction and should be compensated from the proceeds of the auction. Where the goods do not lend themselves to being taken care of or the expenses for keeping such goods would exceed their value, the carrier may apply for an earlier sale by auction. The difference in revenue gained by the earlier auction and what could have been earned at a later auction is borne by the shipper.

 

(3)   Carrier’s remedies

 

When goods are not received at the port of destination, retention charges and container detention charges may be sustained by the carrier due to the long-term detention of the goods at the port of destination. Such unnecessary charges may increase day by day. While the carrier bears the relevant responsibility, the shipper has the right to control the goods according to law. Unless the statutory period expires or statutory condition appears, the carrier shall notify the shipper and get its prior permission to dispose of the goods or follow the shipper’s instruction to do so. Returning the goods to the loading port will be deemed a breach of contract, which may keep the carrier in a dilemma. This is a common case in judicial practice.

 

Although the law provides the carrier with remedies when goods were not received at the port of destination, choosing the remedy that will properly protect its rights and interests and avoid losses from failure to deliver the goods is a matter that should be carefully examined. Accordingly, we recommend that the carrier exercise the following rights according to law and relevant agreement: 1) rights under the contract of carriage of goods by sea. In accordance with the contract for carriage of goods by sea concluded by and between carrier and shipper, the carrier has the right to exercise its rights under the contract according to the agreement reached by the parties concerned. 2) Lien on the goods. Article 87 of the Maritime Code provides that “If the necessary charges paid by the carrier on behalf of the owner of the goods as well as other charges to be paid to the carrier have not been paid in full, nor has appropriate security been given, the carrier may have a lien, to a reasonable extent, on the goods.” Article 315 of the Contract Law provides that “where the shipper or consignee fails to pay the freightage, storage fees and other expenses in connection with the carriage of the goods, the carrier is entitled to a possessory lien on the corresponding portion of the goods.” Therefore, the carrier may seek remedy via putting the goods involved under lien. 3) Right to put the goods in escrow. Article 316 of the Contract Law provides that “where the consignee is unclear or the consignee refuses to claim the goods without justified reasons, the carrier may have the right to place the goods in escrow according to Article 101 of this law.” By virtue of the above provision, the carrier is entitled to place the goods in escrow for the duration of its obligation to deliver the goods under the contract of carriage of goods by sea. 4) Right to claim compensation for the expenses arising from taking care of the goods. In accordance with Article 86 of the Maritime Code, if the goods were not taken delivery of at the port of destination, the Master may discharge the goods into warehouses or other appropriate places, and any expenses or risks arising therefrom shall be borne by the consignee. In light of this provision, the carrier is entitled to claim against the consignee for the expenses arising from taking care of the goods after discharge. 5) Right to apply to the court for selling of the goods according to law. Article 88 of the Maritime Code provides that “if the goods under lien in accordance with the provisions of Article 87 of this Code have not been taken delivery of within 60 days from the next day of the ship's arrival at the port of discharge, the carrier may apply to the court for an order on the selling of the goods by auction; where the goods are perishable or the expenses for keeping such goods would exceed their value, the carrier may apply for an earlier sale by auction.” This provision clearly provides that the carrier is entitled to apply to the court for selling the goods by auction after keeping the goods under lien for a prescribed period.

 

(4)   Legal issues related to the shipper’s exercise of its right to control goods

 

In the course of performance of the contract for carriage of goods by sea, the carrier may, prior to delivery of the goods to the consignee, receive a request from the shipper to return the goods, to deliver the goods to another port of destination or to deliver the goods to other consignees, causing the carrier to suffer great economic loss. The shipper shall be responsible for such losses.

This type of case involves the shipper’s right to control the goods in transit. Prior to delivery of goods to the consignee and prior to the expiration of the period when the carrier should be responsible for the goods, the shipper has the right to control the goods according to law. The shipper’s right to control the goods in transit is a way for the obligee to request modification of the contract for carriage of goods by sea, which should be deemed a right to lodge obligatory claim Article 308 of the Contract Law provides that “prior to a carrier’s delivery of the goods to the consignee, the shipper may require the carrier suspend the carriage, return the goods, change the destination or deliver the goods to another consignee, provided that it shall indemnify the carrier for any loss it sustains as a result.” Since no provisions exist in the Maritime Code to support the obligee’s right to control the goods, the aforesaid provision in the Contract Law should be construed as filling the gap of regulation on the said matter in Maritime Code, even if the Contract law provision was not specifically targeted at the carriage of goods by sea. Therefore under this application of the law, the shipper’s right to control the goods is founded in the relevant provisions provided in Contract Law. We hereby recommend that the shipper should be prudent in exercising its right to control goods. In case the shipper, prior to delivery of goods by the carrier to the consignee, exercises it’s right to control the goods according to provisions in Contract Law, the shipper shall be responsible for the resulting losses sustained by the carrier.

 

 

IV.    Law governing the arbitration agreement and application for recognition and enforcement of arbitration awards

------Issues and recommendations related to the judicial examination of arbitration

 

(1)   Issues related to the conclusion of the arbitration agreement

 

Regarding disputes over voyage charter party it was prescribed in the charter party that “any dispute arising from the performance of this agreement should be resolved by the parties concerned through friendly negotiation or submitted to the relevant Chinese arbitration organization for arbitration”. In many arbitration agreements, the parties concerned only agree on the place to carry out the arbitration but not the name of the arbitration organization. After entering into an arbitration agreement, if a dispute arises surrounding the agreement, the parties may also dispute the validity of the arbitration agreement, leading to delays in settlement and unnecessary litigation costs.

 

Arbitration and judicial proceedings are the two primary mechanisms for dispute resolution. Only a valid arbitration agreement can ensure that the arbitral procedure will go well. In hearing challenges to the effectiveness of arbitration agreements on substantive or jurisdictional grounds, and challenges to the recognition and enforcement of arbitration awards, the court found that ambiguous wording in the arbitration agreement was the main source of disagreement. A valid arbitration agreement should include the expression of the parties’ intention to submit to arbitration, the subject matter of arbitration and the arbitration organization. Therefore, we recommend that arbitration organizations (not only the maritime arbitration organization) should draft some standard arbitration terms for all kinds of maritime disputes that parties concerned could utilize. When arbitration is chosen by shipping enterprises as a means for resolving relevant disputes, the subject matter of arbitration and arbitration organization should be clearly agreed to in the arbitration agreement. In addition, the arbitration clause is independent of other clauses in a contract. Thus harbor-shipping enterprises should pay careful attention to dispute resolutions clauses when entering into a contract and prudently select a proper arbitration organization.

 

(2)   Issues related to the performance of arbitration agreements

 

In a case involving a dispute over a ship repair contract, the ship operator signed a repair contract with the shipyard, but the ship owner paid the repair costs and confirmed the work amount as requested by the shipyard. The agreement contained an arbitration clause that provided the dispute should be submitted for arbitration in Hong Kong. After a dispute arose, the entrusting party initiated arbitration in Hong Kong according to the repair contract, while the shipyard filed a lawsuit with this court.

 

When a dispute arises from one legal relationship and fact, if one party submits it to an arbitration organization outside mainland China for arbitration and the other party applies to a court within mainland China for confirmation of the validity of the arbitration agreement, or if one party applies to the arbitration organization outside mainland China for arbitration and the other party files a lawsuit to a court within mainland China, the outcomes may differ because different laws will be applied by the arbitration organization and court to determine the effectiveness of the arbitration agreement. In such case, the arbitration award made in London or Hong Kong may be different from the judgment rendered by the court within mainland China on the same matter. According to relevant provisions in the New York Convention, China has the state obligation to admit (recognize) and execute arbitration awards made outside mainland China. There would be conflict between the enforcement of judgment rendered by the court within mainland China and the enforcement of arbitration award made outside mainland China. We recommend that harbor-shipping enterprises that have entered into arbitration agreements, should abide by the principle of good faith in submitting disputes to arbitration. In the case of any disputes related to the arbitration clause, the parties concerned should submit to arbitration once the arbitration clause has been modified through friendly negotiation between both parties.

 

(3)   Issues related to arbitration agreements within insurance contracts

 

In a dispute over an insurance contract, the arbitration clause was included in the open policy entered into by the insurer and the insured, but a single insurance policy was issued for each shipment of goods. After a dispute arose, the insurer requested that the court find the arbitration clause in the open policy was invalid as applied to the single insurance policy. The court held that an open policy is a long-term insurance contract outlining insurance coverage and covering the goods under such insurance contract. In such case, the open policy serves as the general contract and the insurance policy is the subcontract. In accordance with the Maritime Code, in case of any inconsistency between the single insurance policy issued by the insurer and the open policy, the single insurance policy shall prevail and if there are no inconsistencies between them the open policy shall prevail. Therefore, the court ascertained that the arbitration clause under the open policy would be applied to the single insurance policy. With regard to disputes over marine insurance subrogation, the court does not support the allegation that an arbitration clause included in a carriage contract should be enforced against an insurer entitled to subrogation.

 

Insurance is the primary source of protection from marine risks and responsibilities in modern society and is involved in all aspects of maritime business. With an increasing number of cases dealing with the insurer’s right to subrogation, the insurer should pay more attention to dispute resolution. When an arbitration agreement is included in the open policy or insurance policy, the insurer is sure to remind the insured of the arbitration agreement. After the insurer satisfies the insured party’s claim, if the harbor-shipping enterprises or insurer wishes to solve the dispute through arbitration, a new arbitration agreement which is independent of the arbitration clause under the original insurance contract, needs to be concluded.

 

(4)   Issues related to application for recognition and enforcement of arbitration awards

 

In a dispute over recognition and enforcement of a London arbitration award, the respondent claimed that the statutory period for the applicant to apply for recognition and enforcement had expired. The court held that as per the relevant provisions in the Arbitration Act of UK, under which the arbitration procedure was carried out, service of notification and instruments related to the arbitration procedure should be deemed as effected by any effective means. Therefore, the arbitration award should become legally effective upon the reception of such award by the applicant. In accordance with relevant provisions contained in the judicial interpretation issued by the Supreme People’s Court, the application for enforcement of the foreign arbitration award should be filed within time limit provided by the law of PRC. Prior to the amendment of the Civil Procedure Law of PRC, regarding application for enforcement, if either or both parties concerned are natural persons, the time limit for such application is 1 year, and if both parties concerned are legal person or other organizations, the time limit is 6 months. Since the time limit for the application to apply for enforcement had expired, the court denied enforcement of the arbitration award.

 

In cases involving recognition and enforcement heard by this court, the arbitration awards at issue were primarily those made by a sole arbiter in Hong Kong or London. The main reason for the court’s refusal to recognize and enforce an arbitration award was either the time limit for such application had expired or the parties that participated in the arbitration procedure were different from the parties to the original arbitration clause on which the award was based.

 

Procedural laws of two countries or regions are involved in the recognition and enforcement of arbitration awards. With regard to arbitration procedure (including the service of an arbitration award), the law of the country or region where the arbitration takes place shall be applied, but the law of the PRC shall be applied to for matters of enforcement. Article 215 of the existing Procedure Law of the PRC provides that “the time limit for the submission of an application for enforcement shall be two years. The suspension or termination of the time limit for the submission of an application for enforcement shall be governed by the provisions on the suspension or termination of the statute of limitations. The time limit prescribed in the preceding paragraph shall be calculated from the last day of the period specified by a legal document for its performance. If a legal document specifies an installment performance, the time limit shall be calculated from the last day of the period specified for each installment of performance. If a legal document does not specify the period of performance, the time limit shall be calculated from the day when the legal document takes effect.” Therefore, we recommend that the parties to an arbitration agreement precisely understand the law of the country or place where the arbitration takes place and the law of PRC, in order to timely submit the application for recognition and enforcement. The arbitration organizations and arbiters shall pay close attention to the procedural matters related to the arbitration, especially whether or not the parties participating in the arbitration are the original parties to the arbitration agreement.

 

(5)   Issues related to the selection of an arbitration organization in China

 

In a case dealing with the effectiveness of an arbitration agreement, the parties concerned are Chinese legal persons and the agreement concluded by parties prescribed that any dispute should be submitted to arbitration in London. In this case, one party submitted the dispute for arbitration in London after submitting an application of property preservation to this court, while the other party applied to this court for confirmation of the effectiveness of the arbitration agreement. In accordance with relevant judicial interpretations for this type of case, English law should be applied to confirm the effectiveness of the arbitration agreement. However, if the party, claiming that English law should be applied fails to provide such law, the court will make a judgment on the principle of proximate connection. In another case involving the recognition and enforcement of an arbitration award from London, a ship repair contracts contained an arbitration clause stating that any dispute should be submitted to arbitration in London. When the shipyard failed to perform under the contract, the foreign entrusting party submitted it to arbitration in London, where the arbitration organization determined the shipyard needed to pay a substantial amount of liquidate damages to the entrusting party.

 

When a dispute is submitted to a foreign country or region for arbitration, unpredictable legal risks may arise due to the fact that the domestic natural person or enterprise is not familiar with the foreign laws, such as laws regulating liquidated damages. This can result in the relevant party being ordered to pay a substantial amount of liquidated damages. When it comes to foreign arbitration, an application for recognition and enforcement of the arbitration award must be submitted to the domestic court. This can be a complicated procedure leading to unnecessary litigation costs for the party or parties that participate in an arbitration procedure abroad and apply for recognition and enforcement of the arbitration award at home. Although arbitration in China has a short history, well established laws and regulations related to arbitration procedure have been developed in recent years. With more and more expert arbitrators joining us, the country is capable of handling all kinds of arbitration cases. Therefore, the best option is for the domestic legal or natural person to submit the dispute to a Chinese arbitration organization for arbitration, especially when both parties concerned are domestic legal or natural persons.

 

V.       Safety management on marine operations

------Issues and recommendations related to personal safety during marine operations

 

In 2011, this court heard and concluded 15 cases related to loss of life and personal injury at sea, in which 23 people died and 7 were gravely injured. In one case of a ship sinking due to a typhoon, the number of dead and missing crewmen reached 11 domestic and foreign crewmen. These painful lessons have drawn out attention to the importance of safety management on marine operations, and the attention of the ship-owners, ship operators, fishermen, maritime authorities, fishery administration departments and supervisory departments on safety management should be drawn to this issue as well.

 

(1)   Tragedies caused by negligent failure to take preventive measures

 

The most important step for maintaining personal safety is taking preventative measures, however, in reality many unnecessary injuries are caused by enterprise’s and personnel’s failure to take preventative measures. Here are some examples:

 

1)      Deciding to go out to sea in spite of bad weather. In one case, a ship took the risk of sailing out to sea when the meteorological department had forecasted that wind gusts would be at a level 7 or 8 and the 01 strong wind signals was in force, resulting in a crew member falling into the sea. In another case, a Panama container vessel ignored the typhoon warning and encountered typhoon “Parma” in the Taiwan Straits, consequently sinking into the rough sea. Rescue teams from both sides of the Taiwan Straits conducted a search.  In all, three crewmen were rescued, one died and 10 were missing (among the missing crewmen, two Chinese crewmen were declared dead by this court).

 

Loss of life and personal injury at sea arising from typhoons has always been a great threat to crewmen and fishermen but careful attention by relevant authorities can prevent such disasters. Here are some examples: in 2005, when typhoon “Matsa” hit the Zhejiang coastal area, the Maritime Rescue and Salvage Bureau of the Ministry of Communications of the PRC arranged searches for more than 150 ships with more than 608 people in distress. In 2009, when typhoon “Goni” hit Hainan, the number of ships needing to be rescued declined to 22 and the amount of people in distress dropped to 166. In 2011, when typhoon “Meari” hit Guangdong, the number of ships needing to be rescued declined to 4 and only 47 people were in distress. However, there are still some shipping enterprises which do not pay enough attention to the typhoon warning system, which can result in tragic loss of life and personal injury. Therefore we recommend that MSA tighten the management of relevant shipping enterprises and ship owners, and that heavier penalties should be imposed on those who violate relevant laws and regulations. With regard to shipping enterprises and ship owners who do not receive meteorological information as required or who take the risk of sailing out to sea instead of taking shelter from a typhoon as required, responsible parties should have penalties imposed according to the principles of malfeasance.

2) Failure to employ qualified staff. An example of this is a shipyard that employed welding operators who lacked certification of vocational qualifications and provided no professional training for them, which resulted in an explosion accident during a welding operation. One person died and two were severely wounded in this accident. A system of certification for vocational qualifications is used for work which requires special skill. Appraisal of a worker’s occupational technical skills should be carried out by an accrediting organization approved by the Labor and Social Security Administration Department. A worker engaging in this type of work must possess corresponding operational skills and must strictly follow safety production rules. However, for the purpose of immediacy and cost reduction, some enterprises employ workers without occupational qualifications to engage in the dangerous operations, which can lead to unnecessary damages. Therefore we recommend that enterprises should strictly abide by safety production rules, and that qualified workers should be employed for jobs requiring special technical skills or those involving dangerous operations. The Labor and Social Security Administration Department should improve the information and management related to this issue.

 

3) Failure to inspect the safety status of hazardous sites in advance. A foreign timber carrier, while sailing at Guishan anchorage, allowed three workers who engaged in recovery of waste materials in that sea area to board the ship to recover scrap iron and waste oil. Accompanied by two foreign crewmen, the three workers entered the cargo hold at the bottom of the ship, which was loaded with more than one thousand tons of diesel fuel resulting in the death of all five people. All five people who entered the hold died inside, and the hatch way was wide open after accident occurred. According to the inspection conducted by the center for disease control and prevention, the concentration of carbon monoxide in the said cargo hold exceeded the standard level. With marine operations, close attention should be paid to the safety of certain locations, including the cargo hold loaded with oil, special ships and facilities for the loading of inflammable and explosive chemicals, and the accident scene for the salvage of the wrecking or cargoes. We recommend that relevant enterprises and operators should carry out safety inspections of these locations prior to any relevant operations in order to ensure personal safety.

 

(2)     Operations in violation of regulations harms both the operator and others

1)      Operations carried out by workers without professional skills. In one case, a shipyard welding operator who did not have relevant certification for vocational qualification violated the basic safety regulations on fire control and prevention when he carried out a hot-machining operation without conducting any inspection on the ship’s oil tank and without taking any fire precaution measures.  This resulted in the explosion of the oil tank and the death of the worker. Another case was of a peasant from Sichuan Province who did not receive any professional training related to marine operation, had no nautical knowledge or seafarer certificate, and yet carried out a fishing operation onboard a fishing vessel which resulted in his death. When employees are engaged in ship repairing and marine operations, the employer should provide basic professional and safety training for them, pointing out matters that need attention. Employees should only start to work after receiving relevant professional and safety trainings. Relevant safety production supervision departments should take measures to ensure workers are qualified.

2)      Operations against safety regulations. The followings are some cases of accidents caused by irregular operations. A drunken seaman sailed a cockboat at night which resulted in his death. A seaman violated the safety regulations by carrying out relevant operations without wearing a life jacket which resulted in his drowning. During a discharging operation, a seaman, ignored another seamen’s advice and stood at the hatch way which caused him to fall to the bottom of the cargo hold resulting in a comminuted fracture to his body. When repairing a transmission belt that broke down during a discharging operation, the repairer paid no attention to other people around the transmission belt. As a result, when the transmission belt ran, a sailor was crushed by a horizontal bar which resulted in paraplegia to both of his legs. Since most of the accidents related to the safety of life at sea are caused when the relevant staff is in violation of basic safety regulations, we recommend that seamen and fishermen abide by regulations related to the safety of production, so as to avoid accidents related to loss of life and personal injury at sea.

3)      Accidents indirectly caused by the senior officer’s failure to perform his duty. An example of this occurred when a master did not sail out with the ship and the chief engineer filled in for him. The chief engineer failed to steer the ship properly due to lack of good seamanship and a collision accident resulted. The master’s certificate of competence was revoked. Therefore, we recommend that seamen abide by relevant regulations. Especially, the performance of senior offers’ duty could not be replaced by seamen of a lower level and the staff should not take the risk of sailing out to sea without adequate and qualified manpower.

 

(3)   Failure of the injured party to claim compensation due to the responsible party’s failure to inform

 

In a case involving a collision accident between a ship and a sand carrier, a seaman on a navigation bridge was injured during a collision and his subsequent death was confirmed by a doctor from a medical emergency center. During the collision accident, another seaman was busy rescuing the injured and failed to keep a record of the opponent ship’s name or ship number, resulting in the inability to claim compensation. As a result, a lawsuit was filed by the ship owner against the seamen onboard on the ground of negligence. Among cases related to loss of life and personal injury at sea, some are caused by collision accidents. In some of these collision accidents, no claim for compensation could be filed because of the failure to gather the opponent party’s basic information. This is common when a single fishing boat collides with a big ship at night. Therefore we recommend that seamen and fishermen keep a record of the responsible party’s basic information during an accident and report to the relevant department after being rescued or once they are in a safe state to provide the relevant information that will allow maritime authorities to find out the party who is responsible for the accident.

 

VI.    Exercising  the right to sue according to law

------Issues and recommendations related to the right of action and the right to defense

 

(1)   Legal issues related to filing suit prior to the expiration of the statute of limitations

 

In a dispute over cargo damage related to a contract for carriage of goods by sea, the cargo owned by the mechanical equipment company was carried by the shipping company from Shanghai to Karachi, Pakistan. Because the mechanical equipment company failed to perform its obligation to properly load, discharge, lash and secure the cargo, it shifted  during the voyage and caused damage to cargo owned by a third party. The third party filed a lawsuit against the shipping company in Pakistan seeking compensation for the damage. Not wanting the statute of limitations to expire on their action, the shipping company brought an action for recourse in this court against the mechanical equipment company. Since that case will depend on the outcome of the case heard in Pakistan, the shipping company agreed to file an application of or suspension of hearing. This court dismissed the action filed by the shipping company on the ground that it lacked factual and legal grounds.

 

Article 257 of the Maritime Code provides that “the Limitation period for claims against the carrier with regard to the carriage of goods by sea is one year. Within the limitation period or after the expiration thereof, if the person allegedly liable has raised a claim of recourse against a third person, that claim is time-barred at the expiration of 90 days, counting from the day on which the person claiming recourse settled the claim, or was served with a copy of the process by the court handling the claim against him.” In judicial practice, many carriers may lodge an action of recourse against a shipper after the consignee files a lawsuit abroad on the ground that they may have a duty to compensate the consignees and the expiration of the statute of limitations on the action may cause them to lose a lawsuit. Whether or not the carrier is liable depends upon the trial result abroad. Therefore, after hearing such a case, the court at home may suspend the hearing as per the provisions stipulated by Paragraph 5 of Article 136 of the Civil Procedure Law of the People's Republic of China. During the suspension of the case, the case is under the supervision of the court and the party concerned must report to the court about the litigation heard abroad.

 

There is a prescribed time limit for all judicial proceedings.  Legal issues related to the lawsuits filed to prevent expiration of the statute of limitations have drawn the attention of the Supreme People’s Court. In accordance with the Reply of the Supreme People’s Court (2002) Min Si Ta Zi No.21, “regarding actions of recourse related to cargo damage during the carriage of goods by sea, if the original claim was filed with the court, the statute of limitations on an action by the party allegedly liable to seek contribution from a third party should be calculated, as per the provisions stipulated by the Maritime Code and the Civil Procedure Law, from the day on which the party filing a claim for contribution was served with the judgment by the court handling the claim against him. Therefore, according to the Supreme People’s Court’s instruction, the statute of limitations on an action for contribution shall be calculated from the day on which the party filing a claim for recourse received the judgment in which they were found liable for compensation. It is meaningless for the carrier to file a claim for contribution against the shipper when their own liability has not yet been determined. Moreover, once judicial proceedings commence, related litigation expenses also begin accruing.  Therefore, when a carrier seeks contribution for cargo damage under a contract for carriage of goods by sea, it is unnecessary for the shipping company to lodge an action to ensure that it will not lose the right to win the lawsuit due to the expiration of the statute of limitations. One exception is in cases related to ship collisions, where it is necessary for the interested party to lodge an action before the collision case has been concluded and the statute of limitations is about to expire in order to protect its right to win the lawsuit. The reason for this exception is that the limitations period to bring a claim in the case of a ship collision is two years whereas the limitation period for disputes over carriage of goods by sea is one year.

 

(2)   Legal issues related to the right to bring a lawsuit

 

In a dispute over delivery under the contract of carriage of goods by sea, the shipper entrusted a forwarding company (A) to handle issues related to customs clearance taking delivery of goods, and transportation, and a subcontracted with another company (B) to handle the transportation of the goods after obtaining the shipper’s approval. B in turn subcontracted company C and natural person D to handle the land transportation. In a dispute over cargo shortage, the shipper lodged a lawsuit against A, B C and D and requested that the court hold them joint and severally liable under their subcontract agreements. After hearing the case, this court held that: 1)A legally entrusted B to handle the matters under a subcontract and were therefore was not liable for the cargo shortage, 2) C and D had no contractual relationship with the plaintiff, and 3) B should bear the liability and plaintiff’s claims against A, C and D should be overruled.

 

With regard to maritime trials in recent years, we have found that plaintiffs often file their lawsuits against an improper defendant. The first situation where this arises is when it is unclear who the proper defendant is, so the plaintiff simply sues someone in order not to miss the opportunity to bring suit. This leads to two categories of error. The first is that of the nonexistent defendant, where the defendant against who the suit is filed has either died or the organization has been dissolved. In this instance, the defendant cannot be sued. The second category is where the plaintiff fails to provide sufficient information to identify the defendant, such as the information related to the business registration and the accurate address for the service of relevant legal instruments. Since a lawsuit that does not clearly identify the defendant violates relevant provisions of the Civil Procedure Law on the requirements to commence an action, the court may dismiss the action. The second case of a claim brought against an improper defendant arises when the incorrect defendant is listed by the plaintiff due to the misjudgment of the legal relationship. If the defendant against whom the plaintiff files a lawsuit is not the appropriate party, and the plaintiff refuses to substitute a different party after requested to do so by the court, the claim filed by the plaintiff may be overruled by the court. In this case, the party who was incorrectly sued may sustain unnecessary losses. In addition to the waste of judicial resources and time and increased litigation costs, no benefit can be gained by the plaintiff seeking compensation.

 

By virtue of the above analysis, we recommend that the plaintiff provide evidence to prove that the defendant is the appropriate party to the dispute who infringed upon the plaintiff’s rights and interests. The name, title, addresses and telephone number of the defendant should be provided as well, so as to shorten the time for service of the legal instrument. Additionally, the plaintiff should be exercise greater care to select the proper defendant. Last but not least, when the judge exercises his right to interpret the rights of the litigants, the plaintiff should abide by the judge’s instructions to file a lawsuit on the proper grounds and against the proper defendant.

 

(3)   Legal issues related to the exercise of the right to defense

 

In a case of application for an injunction, a logistics company entrusted a forwarding company to book shipping space and paid relevant expenses to the forwarding company. The forwarding company went through the shipping procedures as entrusted but withheld the bill of lading, claiming that expenditures had not been paid by the logistics company for the last transaction. The logistics company applied to this court for an injunction ordering the forwarding company to hand over the bill of lading. After hearing the case, this court held that the logistics company, as the shipper, entrusted the forwarding company to book shipping space and paid relevant expenses, thus the forwarding company was in violation of laws and regulations by withholding the bill of lading. Therefore this court granted the injunction requested by the logistics company and ordered the forwarding company to hand over the bill of lading.

 

During the business activities of carriage of goods by sea, the shipper and forwarder usually agree on a clause stating the “bill of lading should be handed over upon the payment of relevant expenses.” Such a clause should be deemed as standard industry practice in the forwarding market. Article 67 of the Contract Law of the PRC provides that “where both parties have obligations toward each other and there is an order of priority in respect of the performance, and the party who is to perform first fails to perform, the party who is to perform later has the right to reject the other party's demand for performance. If the performance of the obligations of the party who is to perform first is not in conformity with the agreement, the party who is to perform later has the right to reject the other party's demand for corresponding performance.” In light of the aforesaid provision, the clause stating that the “bill of lading should be handed over upon the payment of relevant expenses” provides the forwarder with the right to withhold delivery if the shipper fails to pay relevant expenses. However, the clause stating that the “bill of lading should be handed over upon the payment of relevant expenses only applies to the single transaction at issue. Therefore the forwarder cannot reference such a clause as a ground for withholding delivery when the shipper failed to pay expenses under a previous transaction.

 

During the performance of the forwarding contract, if the performance of one party is not in conformity with the agreement, the other party may refuse to perform its obligation under the agreement due to the loss of trust. In judicial practice, the court may ascertain the legality and reasonableness of the conduct according to the provisions on “right to defense of simultaneous performance”, “right to defense of orderly performance” and “precarious right to defense” stipulated by the Contract Law of PRC. First, the court should ascertain the order of the parties’ obligations to each other, and then determine which right of defense is applicable. We recommend that the forwarding company should have a clear understanding of the relevant provisions on the exercise of the right to defense provided in the Contract Law and should not withhold the bill of lading blindly. If the shipper fails to settle the expenses for a previous transaction, the forwarder may file a separate lawsuit with the court.

 

VII. Cases on claims for damages arising out of pollution of the ocean and waterways leading to the sea

------Guidance for aquaculture farmers in filing a claim for damages

 

In the case of pollution of the ocean and water ways leading to the sea, farmers may bring suit for damages to protect their lawful rights and interests. However, some farmers are unaware they who to bring an action against and in which court they should bring their claim. Especially they also do not know how to present relevant evidence to the court. Such factors negatively influence farmers’ exercise of their rights to file suit to protect their own rights and interests.

 

Through investigation and as per the provisions stipulated by the Civil Procedure Law of PRC, Special Maritime Procedure Law of PRC and Some Provisions of the Supreme People’s Court on Evidence in Civil Procedures, the following guidelines are provided for the farmers’ reference.

 

(1)   Definition of damages arising out of pollution of the ocean and water ways leading to the sea

 

Such damages include damage to the marine living resources, human health and fish farming and other legal marine operations, and negative influence on the marine environment arising out of pollution caused by human activities. It includes the damage arising out of marine pollution which was caused by 1) costal engineering; 2) ocean engineering; 3) land-sourced pollutant; 4) ships and other marine operations; and 5) discharging of waste material.

 

(2)   Selection of the appropriate court in which farmers should file suit

 

Disputes over damages arising out of pollution of the ocean and water ways leading to the sea falls into the category of tortious disputes. For maritime tortious disputes, the party concerned should file suit in the maritime court located where the tort took place or the place where the defendant is located. The local people’s court does not have jurisdiction over such cases.

 

With regard to cases of dispute over marine pollution which was caused by pollutants discharged by ships, oil leakage from ships or other harmful substances discharged by ships, or damages arising from marine production, operation or shipbreaking and repairing operations, the suit should be filed in the maritime court located where the pollution accident occurred, where the damage took place or where the precautionary measures were adopted. Disputes over the pollution in water ways and intertidal zones which was caused by shipping, production and relevant operations carried out on sea or the water ways leading to the sea, shipbuilding, ship repairing, breaking or port operation and construction, should be submitted to the maritime court as well.

 

(3)   Facts that must be proved by  aquaculture farmers making a claim for damages arising out of pollution of the ocean and water ways leading to the sea:

1)      Farmer’s lawful rights and interests in the polluted area;

2)      Defendants actual discharge of pollutants in the area;

3)      Losses sustained by the farmers

 

(4)   Evidence that must be provided by the farmers in their claim for damages arising out of marine pollution and pollution of the waters ways leading to the sea:

1)      Evidence which can prove the farmer’s lawful rights and interests in the polluted area

 

A.     Evidence proving the qualification of the subject of action

 

a. Evidence proving the farmer’s qualification of the subject of action:

 

If farmers are natural persons, documents proving the farmers’ identity should be provided, such as the ID card and household register;

 

If the farmers are organized as partnership organizations or collective economic organizations (such as villagers’ committee), evidence that can prove the establishment of the organization should be provided

 

b.      When filing a lawsuit, the farmers should provide the basic information of the defendant:

 

If the defendants are natural persons, ID cards or certificates issued by the public security department, address and telephone number of the defendants should be provided.

 

If the defendants are legal persons, the information related to the defendant’s company name, business registration, address and telephone number should be provided.

 

B.     Evidence proving the legality of the aquaculture farming

 

The farmers shall provide the relevant certificates for aquaculture in water area and intertidal mudflats (where the certificate was issued after 1^st Jan. 2011, aquaculture permits should be provided, where it was issued before 31^st December 2010 a certificate for aquaculture in water area and intertidal mudflats should be provided) or an aquacultural contract or agreement; a certificate of the right to use sea areas should be provided as well if sea areas are used by the farmers.

 

2)      Evidence proving that defendant actually discharged pollutants in such area

 

The fishery administration department and its subordinate supervision and management department have the right to carry out investigation on fishery pollution accidents. Therefore after the occurrence of a pollution accident, farmers should promptly report to the fishery administration department and the subordinate supervision department at the county level. Such government authorities should promptly confirm the occurrence of the pollution accident and ascertain the damage to the fishery industry. Investigation on the pollution accident and collection of evidence related to such accident should be carried out by the said authority, and appraisal conclusions should be made by a relevant qualified monitoring organization on maritime and fishery environment or other qualified accrediting organizations. The investigation report and appraisal conclusion issued by the fishery administration department and its subordinate supervision department should be served as valid evidence in a dispute over damage compensation arising out of pollution of marine aquaculture.

 

In addition, farmers should promptly report to the local maritime authorities and environmental protection departments, so that relevant departments can issue the liability allocation report.

3)      Evidence proving the losses sustained by the farmers

 

Farmers shall promptly seek assistance from lawyers or relevant professional organizations and make every effort to preserve relevant evidence in the meantime. Qualified accrediting organizations should be authorized to appraise the losses.

 

A.     Timely entrust notary department to notarize the current situation of the pollution and losses, and issue notarial documents.

a. The content of the notarization should include the size of aquaculture area which sustained pollution, the species, quantities and weight of the damaged aquatic products, and damaged aquaculture facilities, such as fishing raft, fishing gear and net cages.

b.      Color photos of the pollution site should be attached to the notarial documents issued by the notary department, video records would be even better.

c. In the course of notarization, it would be best to notify the defendant or the parties who are responsible for the discharge of pollution.

B.     Timely appraise the economic losses arising out of the pollution

a. Qualified accrediting organizations higher than county level should be entrusted to carry out the appraisal.

b.      The content of the appraisal should include the breeding condition of the sea water, breeding requirements and breeding density.

c. The costs of breeding (including feed and labor cost), damaged aquatic products and damaged aquaculture facilities should be appraised as well.

d.      Detailed information on the size of the aquaculture area which sustained pollution, the species, quantities and weight of the damaged aquatic products and damaged aquaculture facilities should be included in the appraisal report.

e. The price published by the commodity price department at the time when the damage took place should be used for the calculation of the losses.

f.  It would be best to calculate losses by referring to the aquaculture farmers who are similarly situated.

C.     In order to prove the losses sustained by them, it would be best for  farmers to provide the following evidence:

a. Evidence proving breeding costs

Receipts for purchasing fingerlings and feed, bills for labor costs;

b.      Evidence proving the value of the aquaculture farm

The assignee of the aquaculture farm should provide the assignment agreement and the size of the aquaculture area and the transfer price can also serve as evidence of the amount of losses.

c. Evidence proving the price of the aquaculture facilities

If the aquaculture facilities were built by the farmers, the invoices for purchasing timber piles and nets should be provided.

If the facilities were built by a third party contracted by the farmer, the construction contract and the project settlement documents should be provided.

d.      Supply agreements for the fingerlings and feed, sales agreements for the aquaculture products.

e. Information about the average profits nearby farmers or those similarly situated.

 

(5)   Period for submitting evidence

 

After the case is accepted by the court, the parties concerned shall peruse the legal instruments, especially the request for submission of evidence, and present relevant evidence as requested:

1)      Evidence should be collected and provided as requested within the period for submission of evidence; any party failing to submit evidence within the prescribed time limit shall be deemed as waiving the right to adduce evidence;

2)      If any party has difficulty in producing evidence during the prescribed time period, it should apply to the people’s court for a seven day extension prior to the expiration of the prescribed time period;

3)      Where a party provides witness testimony to the court, information about the name, address and telephone number of the witness should be provided as well, and the party concerned should apply to have witness appear in court;

4)      Where a party applies to the court for investigation and collection of evidence, a written application should be submitted to the court seven days prior to the expiration of the period for submission of evidence; the court has discretion over whether or not to approve the application;

5)      Where a party applies to the court for preservation of evidence, a written application must be submitted seven days prior to expiration of the period for submission of evidence.

 

VIII.        Conclusion of labor contract with crewman according to law

------Issues and recommendations related to the conclusion of labor contract with crewman

 

The number of disputes this court heard regarding labor contracts concluded by and between the crewman and shipowner declined in 2011 compared to last year. However, cases in which a senior crewman, such as the master or chief engineer, fail to conclude a written labor contract with the shipowner and then claim double the amount of monthly wages happen from time to time. Careful attention should be paid to matters related to the recruitment of senior crewmen and legal issues arising therefrom.

 

(1)   When no written labor contract is concluded with the senior crewmen

 

Mr. He, a chief engineer, was employed by a shipowner in January 2010 to hold the post of chief engineer on M/V “Feng Sheng You 15” which provides costal cargo transportation services. It was agreed by both parties that Mr. He’s monthly wage would be RMB29,000, but no written labor contract was concluded between the parties concerned. During Mr. He’s employment, the shipowner timely paid Mr. He’s monthly wages in full. On March 2011, Mr. He went to work for another shipping company that provided a monthly wage of RMB32,000. Consequently, Mr. He, with the assistance of his lawyer, brought suit in this court claiming that the former shipowner should pay him his monthly wages at double amount under the provisions stipulated by Paragraph 1 in Article 82 of the Labor Contract Law of PRC, on the ground that no written labor contract had been concluded between the two parties concerned.

 

This is a typical labor contract dispute involving senior crewmen and shipowners. In judicial practice, since explicit provisions are provided by the Labor Contract Law and other relevant laws and regulations, if no agreement can be reached between the parties concerned, the senior crewmen’s claim may be upheld by the court and the shipowner may need to pay double the amount of monthly wages.

 

In addition, the court has also found that the certificate held by some senior crewman, especially the master, was not consistent with their actual qualifications. Some senior crewmen were suspected of falsely using others’ certificates. This is a great hidden danger to the safety of navigation and offshore operations. If an accident would occur that results in cargo damages or property losses, the shipowner would bear liability.

 

(2)   Reasons why senior crewmen refuse to conclude  written labor contracts

 

The main reason that senior crewmen refuse to sign written labor contracts is the shortage of senior crew in the shipping market. In the past 10 years, along with the development of carriage of goods by sea, the demand for senior crewmen, such as the master and chief engineer, has grown rapidly. The supply of senior crewmen is inadequate to meet the demand. Therefore in order to maximize the potential profits, the senior crewmen are unwilling to be bound by a labor contract which may prevent them from looking for jobs with higher wages and better conditions.

 

Another reason why no labor contract is signed with the senior crewman lies in the shipowner’s ignorance of legal matters and desire for economic gain. Where laws and regulations are in conflict with the shipowner’s immediate interests, they choose the immediate interests over compliance with laws and regulations. This is another reason why the senior crewman might refuse to sign a written labor contract. Some of the shipowners are unfamiliar with the Labor Contract Law and employ crew members as per the usual practice. They are not aware of the importance of concluding a labor contract. However, there are some shipowners who know about the importance of a written labor contract, but fear that the performance of the carriage contract would not be fulfilled if the senior crewman refuses to sign the labor contract, and so choose to employ the senior crewman without signing any written labor contract. Such conduct is in violation of laws and regulations. The result is shipowners having to pay double the amount of agreed upon monthly wages when the senior crewman later decides to file a claim for compensation.

 

The great conflict of interest between employers and employees seeking to protect their own rights and interests is another reason why senior crewman may refuse to sign a written labor contracts with the ship owner. Most of the ship owners who engage in costal transportation business activities are fishermen who benefit from the reformation and more open policies, thus they lack the legal awareness to collect and preserve relevant evidence in order to protect their own rights and interests. On the contrary, senior crewmen are well educated and know how to collect relevant evidence to protect their rights and interests. Once the senior crewmen get onboard the ship, they often take pictures of the daily logbook which can served as evidence of the existence of a contractual labor relationship and their employment period onboard the ship. Such evidence can give the senior crewmen the dominant position in future litigation.

 

(3)   Recommendations for the conclusion of written labor contracts with the senior crew

 

Article 82 of the Contract Law of PRC provides that “if an employer fails to conclude a written labor contract with an employee after the lapse of more than one month but less than one year as of the day when it began employing him, it shall pay to the worker his monthly wages at double the amount.” This provision should be applied to the conclusion of written labor contracts both with senior employees and ordinary employees. Therefore the shipowner shall sign written labor contracts with all employees, regardless of the position they hold. The Labor Contract Law essentially falls into the category of social law, aimed at resolving matters related to infringement of employees’ rights and interests due employers’ refusal to sign labor contracts, failure to pay employees’ wages and shortening of the labor contract period. The Labor Contract Law protects the lawful rights and interests of the employees who are economically and politically marginalized via increasing the employers’ responsibilities and the economic burden on them. Shipowners should be aware that even if senior crewmen possess a dominant position in the labor market, they are still members of a class that is economically and politically marginalized and needs to be protected from the perspective of current laws and regulations. The signing of a written labor contract with the senior crewmen is the shipowner’s legal obligation as an employer. And shipowners who fail to perform such obligations must face the resulting consequences. .

 

IX.    Application for ship arrest according to law

------Issues and recommendations related to the application of ship arrest before the institution of an action

 

(1)   Reasonably select the location for ship arrest

 

In January 2011, a German bank filed an application to this court for the arrest of M/V “First Ocean——” which was berthing at Chiwan terminal in the western part of Shenzhen City， due to a dispute over a ship mortgage. After hearing the case, this court rendered a ruling to arrest the subject ship in the waters of Shenzhen Port. It was a large container ship with a loading capacity of more than 8000 containers and the laden draft was more than 17m.  The arrest of the ship at Chiwan terminal had a negative influence on the port operation and the operation of other ships, and the port authority complained. In this respect, M/V “First Ocean” needed to change her berth at Chiwan Terminal from time to time. Since there is no such anchorage for large ships at the western water area under the jurisdiction of Shenzhen MSA, the ship could not move from Chiwan Terminal to the anchorage. There were some anchorages fit for large ships, however legal impediments to ship arrest may have arisen because the ship would need to pass through Hong Kong’s territorial waters when moving from the western port to the eastern waters. Since Guishan anchorage is under the jurisdiction of Guangzhou MSA, in order to move a ship to Guishan anchorage, the transfer of arrest formalities and supervision would be involved. If control or supervision were lost during the transfer, serious consequences may result. Therefore, if a large ship must be arrested at the western port in Shenzhen City, it can only be detained at the terminal. In such a case, in addition to losses for detention, a huge sum of port charges may arise as well. What’s more, it may have a negative impact on the port operation and the berthing plan of other ships. Overall, the party applying for ship arrest may sustain a huge sum of port charges and other indirect losses in addition to losses for detention. These losses should fall into the category of counter guarantees if these losses exceed the court’s expectation, the court may increase the amount of the counter guarantee at any time, which may in turn increase burden on the applicant.

 

Due to the ship’s mobility, it’s difficult for the applicant to know the exact location where the ship may call.  When seizing the opportunity to arrest a ship, the applicant should carefully plan in order to avoid unnecessary losses in the process of arresting the ship and in order to avoid negative influences on port operation and the normal operation of other ships. We recommend that when applying for ship arrest, especially for large ships, the applicant should carefully select the arrest location. The basic information of the location where the ship is berthed should be provided to the court. In case of a long-term arrest, the aforesaid information is absolutely necessary for choosing a proper arrest location.

 

(2)     When applying for ship arrest prior to the institution of an action, the applicant must strictly adhere to the legal requirement that a claim be filed within 30 days

In hearing a case of application for ship arrest prior to a lawsuit being filed, this court found that after the ship was arrested, the respondent failed to provide a guarantee or reach an agreement with the applicant within the 30-day time limit, but the applicant and the respondent were willing to resolve the dispute outside litigation proceedings. In such a case, the applicant may, at the time near to the prescribed 30-day time limit, submit a settlement agreement between the parties to the court. Such an agreement may state that both parties agree to extend the time limit for ship arrest and are willing to carry out negotiations outside litigation proceedings. It may also prescribe that the provisions in the Special Maritime Procedure Law of PRC requiring that the applicant lodge an action or apply for arbitration within 30 days after the ship is arrested are waived and the respondent agrees that the court may continue to keep the ship under detention if the applicant fails to lodge an action after the 30-day time limit expires.

 

However, the requirement that a claim be filed within 30-days of arresting a ship is explicitly prescribed by the Special Maritime Procedure Law of PRC and may not be amended by the interested parties’ agreement. Arrest of the ship should lead to legal action between the parties. The rights and obligations of the interested parties may be varied by different laws and regulations. Unless the respondent provides guarantee to the court or the applicant, or the applicant agrees to release the ship, the applicant must file a lawsuit in the court which has jurisdiction over the subject case or apply to the relevant arbitration organization for arbitration within the 30-day time limit. In order to successfully release a ship, the respondent shall, within the 30-day time limit, provide a guarantee to the court or the applicant in the amount listed on the ruling rendered by maritime court. In that case the court may render a ruling to release the ship according to the laws and regulations or as per the application filed by the applicant. Therefore, if the applicant and respondent desire to enter into an out of court settlement negotiation, they should do so within the time limit prescribed for ship arrest. Otherwise the court may handle the case as per the provisions stipulated by the Special Maritime Procedure Law of PRC.

 

(3)   The amount of the guarantee should be reasonable

 

In accordance with the provision of the Special Maritime Procedure Law of PRC, the amount of the guarantee requested by the applicant against the respondent should be equal to the amount of his creditor’s rights, but must not exceed the value of the preserved property. With regard to the arrest of a ship prior to the institution of an action, the applicant may request that the respondent provide a guarantee at a random amount. Some applicants may request that the respondent provide a guarantee which exceeds the value of the ship. Under such circumstances, the ship may be arrested for a long period and the charges for property preservation may increase accordingly.

 

In judicial practice, the respondent usually provides the guarantee to the court or to the applicant if it agrees to the amount of the guarantee. There are four methods of providing the guarantee as per the provisions of the Special Maritime Procedure Law of PRC. In reality, the dispute is most often over the amount of the guarantee. Due to the requirement that an action be filed within 30 days of arresting the ship, it is difficult to verify the exact value of the arrested ship. However, it is possible to calculate the approximate value of the ship. If the respondent is asked to provide a guarantee which exceeds the value of the arrested ship, it may not actively provide such a guarantee to release the ship in consideration of the commercial profits. As a result, the ship may be sold via judicial sale and thus the market value of the ship would likely not be realized. What’s more, after the ship is arrested, the applicant must file a claim within the 30-day time limit and the value of the subject matter of the action should equal the amount of the guarantee requested by the applicant. Otherwise, the suit would not be viewed as being filed for the purpose of property preservation and the court may release the ship on the ground that the applicant failed to lodge an action within the prescribed time limit. We recommend that the amount of the guarantee requested by the applicant from the respondent when applying for ship arrest be practical and reasonable. If the amount of an applicant’s request for a guarantee that exceeds the value of the arrested ship, it would be inconsistent with the goal of protecting f its creditor’s rights.

Foreword

 

The Report on Trials 2010 of Guangzhou Maritime Court is the first judicial report that we have released to the public. It mainly analyzes the cases of maritime disputes tried by this Court throughout the year of 2010, and offers advice and solutions from a legal perspective. It aims to regulate the order of the shipping market and promote the sound growth of the shipping industry.

 

As Guangdong strives to establish itself as a maritime power in China, its marine economy becomes one of the major engines of social and economic development. The Outline of the Plan for the Reform and Development of the Pearl River Delta (2008-2020), approved by the State Council, clearly proposes to build the Pearl River Delta into an international shipping and logistics centre developing in a coordinated and complementary manner alongside Hong Kong and Macao. To contribute to the realization of this grand aim, Guangdong Province needs to speed up the structural optimization of its shipping and trading, and to promote the sound and sustainable development of the shipping industry. Furthermore, the shipping market needs to function in a good legal environment. Such an environment will provide superior and efficient maritime legal services and protection that benefit the scientific development of the marine economy and shipping industry.

 

Throughout 2010, we insisted on rendering judicial services for the people under the leadership of the CPC Guangdong Provincial Committee, and under the supervision and guidance of the Higher People’s Court of Guangdong and the Standing Committee of the Municipal People’s Congress of Guangzhou. We constantly improved maritime trials, carefully fulfilled our judicial function in maritime matters, and conducted surveys of and provided legal services for shipping companies; we handled maritime cases in accordance with law, properly resolved disputes, and played a positive role in the scientific development of the marine economy of Guangdong. On the above basis, we hereby present this report. It first analyzes the types, main characteristics and change in quantity of maritime disputes. Second, it discusses the current trend in the shipping industry and reveals new challenges and problems emerging in the shipping market. Last but not least, it analyzes dispute-prone areas in shipping and studies typical cases, and on this basis puts forward countermeasures and advice, which may be referred to for government decision-making, industrial development and business operation.

 

The report is prepared and released by this Court as a contribution to the national aim of building an international shipping and logistics centre. It is also an attempt to resolve social conflicts, innovate within social management, and promote fair and just law enforcement. If any problem or advice herein is inappropriate in any way, please feel free to point it out to us.

 

Guangzhou Maritime Court

January 2011

Table of Contents

 

I  History of Guangzhou Maritime Court

 

II  Basic Information on Maritime Trials

Largely affected by the financial crisis.

Highly linked to trading, logistics and other service industries.

Emergence of new cases.

A high proportion of dispute cases involved foreign, Hong Kong, Macao and Taiwan elements.

The proportion of cases in connection with marine resource exploitation was relatively small.

Cases were of distinct regional features.

 

III Active Response to the Risks to Shipping Industry Brought by the Global Financial Crisis

— Problems under the impact of the financial crisis and solutions we propose

Legal matters in handling cargo pile-up in ports

Impact of the financial crisis on shipbuilding

Impact of the financial crisis on the shipping & logistics industry

Impact of the financial crisis on the ship finance lease market

 

IV Regulating the Order of the Shipping Market

— Problems in goods carriage and port management and solutions we propose

Problems with package deal forwarding

Problems with cargo release without the presentation of original bill of lading

Problems with ship operations while berthing in dock

 

V Regulating the Labour Market

— Problems with seafarer management and solutions we propose

Problems with seafarer labour export and offshore dummy companies

Problems in ship operation safety and seafarer visa management

Problems with fair protection of rights and interests of labourers and employers

Problems with properly understanding and applying policies benefiting the common people

 

VI Regulating the Shipping Insurance Business

— Problems with the shipping insurance industry and solutions we propose

Problems in executing contracts for insurance

Problems with the credibility of insurance surveyors

Problems with inspection before acceptance of special cargo insurance

 

 

VII Protecting Eco-environment of Waters

— Problems in dealing with pollution of water resources and solutions we propose

Problems with actions taken by ship owners to minimize risk of pollution caused by accidents

Problems with pollution assessment techniques

Problems with pollution assessment mechanism

Problems with the plaintiff capacity of water management functional authorities

 

VIII Conclusions

 

 

 

 

I  History of Guangzhou Maritime Court

 

Guangzhou Maritime Court was established on 1 June 1984 under the Decision on the Establishment of Maritime Courts in Coastal Port Cities. It is one of the first six maritime courts in China. Originally, it was administered by the former Maritime Court Office of the Ministry of Transport, and had jurisdiction over the sea areas in Guangdong Province, Guangxi Zhuang Autonomous Region and Hainan Province. In 2000, the General Office of the CPC Central Committee and the General Office of the State Council relayed the Opinions of the Supreme People’s Court, State Commission Office for Public Sector Reform and Ministry of Transport on Adjusting the Administration of Dalian and the Other Five Maritime Courts, which provided that each of the six maritime courts was to be jointly administered by the party committee, government and higher people’s court of the province or municipality where the court was located. Accordingly, this Court has since been jointly administered by the CPC Provincial Committee, Provincial Government and the Higher People’s Court of Guangdong Province. As Haikou and Beihai now have their own respective maritime courts, this Court’s jurisdiction has been adjusted too. Currently we have jurisdiction over the trial of first instance of maritime dispute cases occurring within the 3,368 km coastline, 2,414 km island coastline, 420,000 km² sea areas and over 4,000 km navigable inland waters within Guangdong Province. With numerous ports, this jurisdiction is one of China’s regions with the most vigorous coastal shipping, ocean shipping and other marine economic activities.

 

To satisfy the growing need for trials, the Court is now divided into the Case Filing Chamber, Admiralty Tribunal, Maritime Tribunal, Tribunals of Shenzhen, Shantou, Zhanjiang and Jiangmen, Trial Supervision Division, Enforcement Division, Research Division, offices, Division of Politics, Discipline Inspection Office, Supervision Office, Judicial Police Detachment and Logistics Service Centre. We have in total 121 judges and staff, with the 55 judges each holding a bachelor's degree and 76.4% of them Master of Laws or higher. In view of the long coastlines under our jurisdiction, we have drawn support from the higher authorities and successively set up four detached tribunals in major coastal cities Shenzhen, Shantou, Zhanjiang and Jiangmen respectively to facilitate litigation and trials. The Shenzhen Tribunal was set up in 1993 as a pioneer detached tribunal among Chinese maritime courts, exercising jurisdiction over Shenzhen, Dongguan, and Huizhou etc.; Shantou Tribunal was set up in 1996, exercising jurisdiction over Shantou, Chaozhou, Jieyang and Meizhou etc.; Zhanjiang Tribunal was set up in 1997, exercising jurisdiction over Zhanjiang, Yangjiang and Maoming etc; Jiangmen Tribunal was set up in 2007, exercising jurisdiction over Foshan, Zhuhai, Jiangmen and Zhongshan etc. Since 2008, case filing circuit offices have been successively set up in places such as Nan’ao Island of Shantou and Bohe Port of Zhanjiang.

 

Ever since our establishment on 1 June 1984, we have been devoted to the development of marine economy; our judicial areas have been expanded, and the cases of maritime disputes we accept have been steadily increasing. By the end of 2010, we have handled 19,544 cases with subject matters amounting to nearly 20,000 million Yuan and involving more than 60 countries and regions. We have concluded a number of cases influential both at home and abroad, including the M.T. Mariner case which involved over 10 countries. CCTV presented a series of reports on the case with the title “The Most Significant Case after China’s Entry into the WTO”. The following charts illustrate the rapid growth of trials and enforcement conducted by this Court since 2000.

 

Figure 1: Cases entertained since 2000

 

 

Table 1: Comparison of cases entertained since 2000

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Number of cases	1019	1226	1081	1306	1097	1411	1136	1489	1587	1579	1325
Growth (%)		20.31	-11.83	20.81	-16.00	28.62	-19.49	31.07	6.58	-0.50	-16.09

 

Figure 2: Subject matter values of cases entertained since 2000

Table 2: Comparison of subject matter values of cases entertained since 2000

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Subject matter value of cases (Thousand Yuan)	1167480	988510	1149260	1531820	2334310	2262410	1305870	1173070	1581670	2412640	2588010
Growth (%)		-15.33	16.26	33.29	52.39	-3.08	-42.28	-10.17	34.83	52.54	7.27

 

 

Figure 3: Cases closed since 2000

Table 3: Comparison of cases closed since 2000

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Number of cases closed	1062	996	1100	1266	899	1479	1215	1348	1624	1604	1404
Growth (%)		-6.21	10.44	15.09	-28.99	64.52	-17.85	10.95	20.47	-1.23	-12.47

 

 

 

 

 

 

 

Figure 4: Enforcement cases since 2000

 

Table 4: Comparison of enforcement cases since 2000

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Number of cases closed	389	278	307	337	235	344	284	378	359	351	281
Growth (%)		-28.53	10.43	9.77	-30.27	46.38	-17.44	33.10	-5.03	-2.23	-19.94

 

Figure 5: Subject matter values of enforcement cases since 2000


Table 5: Comparison of subject matter values of enforcement cases since 2000

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Subject matter value of cases (Thousand Yuan)	298550	311900	370190	468470	597170	383760	339550	148180	113150	188140	928830
Growth (%)		4.47	18.69	26.55	27.47	-35.74	-11.52	-56.36	-23.64	66.27	393.69

 

 

II  Basic Information on Maritime Trials

 

In 2010, we insisted on rendering judicial services for the people under the leadership of the CPC Guangdong Provincial Committee, and under the supervision and guidance of the Higher People’s Court of Guangdong and the Standing Committee of the Municipal People’s Congress of Guangzhou. We constantly improved maritime trials, actively fulfilled our judicial function in maritime matters, and promoted the progress of maritime trials. Throughout the year, we accepted 1,585 cases (including 260 cases carried over from the previous year), of which 1,409 were closed. The closing ratio was 88.58%, up 2.48% on a year-over-year basis. The subject matters of the closed cases valued 3,167 million Yuan, increasing by 1.08 times compared to the previous year; 283 enforcement cases were closed, and the enforcement closing ratio was 95.9%, up 10.74% year over year.

 

Cases we entertained mainly fell into the following types: 154 cases of disputes arising out of carriage of goods by sea (coastal), accounting for 19.9% of the first instances of maritime cases; 138 cases of disputes arising out of freight forwarding contracts, accounting for 17.8%; 73 cases of disputes arising out of ship contracts (sale, financing, repairs, shipbuilding, chartering and mortgage etc.), accounting for 9.4%; 69 cases of disputes arising out of seafarers labour contracts, accounting for 8.9%; 55 cases of disputes over damages for pollution caused by vessel or port operations, accounting for 7.1%; 37 cases of disputes over damages for ship collision, accounting for 4.8%; 29 cases of disputes arising out of marine insurance contracts, accounting for 3.7%; 20 cases of disputes over personal injury or death at sea, accounting for 2.6%; 12 cases of disputes over port operations, accounting for 1.6%. Through analysis, these cases were found to have the following characteristics:

 

— Largely affected by the financial crisis. In 2010, the number of cases of ship contract disputes soared to 73, with the value of subject matters amounting to 1,440 million Yuan. In many cases of disputes over shipbuilding, the dispute arose when the shipowner, due to a lack of funds, cancelled the shipbuilding order or requested to adjust the price or change the term of payment or the contracted ship type. The number of cases of ship chartering disputes sharply increased from 3 in 2009 to 34 in 2010, mostly caused by the charterer’s failure to timely pay the shipowner or the crew as a result of broken capital chain and deteriorating financial conditions; disputes also arose over ship finance lease, which had been rare before. Furthermore, among disputes over ship repair, there were cases in which the shipyard initiated proceedings and requested the court to auction off the repaired ship to pay off debts when the shipowner defaulted on repair charges. Likewise, under the continuous impact of the financial crisis, shipping enterprises were constantly faced with operation problems such as declining freight rates, reduced orders and freight arrears, while port enterprises were faced with lower throughput, cargo pile-up and port charge arrears; consequently, there was a sharp increase in proceedings in connection with disputes over arrears of freight/port charges or non-delivery taking.

 

— Highly linked to trading, logistics and other service industries. Since China’s entry into the WTO, the government has gradually opened up the trading, logistics, intermediary and other service markets; consequently foreign trade agencies have been flourishing. As the Asian Games were hosted by Guangzhou in 2010, more resources were input into the city’s infrastructure, thus promoting its trading, shipping, logistics and other service industries. Such growing business gave rise to a large increase in disputes arising out of forwarding contracts in 2010. Cases of such disputes numbered 138, accounting for 17.8% of all cases. Note that as the shipping market and logistics develops, there have been changes in the business scope and service modes of forwarders. In some forwarding contracts that gave rise to a dispute, package deal forwarding was agreed as the mode of forwarding. In these contracts, traditional forwarding was replaced by package deal forwarding, which covered on-site pick-up, road transport, loading and delivery. These changes pose a new challenge to the application of law.

 

— Emergence of new cases. Over the past three years, the Court has entertained 141 cases of maritime disputes other than disputes in connection with maritime tort and maritime contracts. A number of new types of cases have emerged. Examples are disputes arising from marine construction technology contract and contract for setting of navigation marks, as well as disputes over fuel subsidies for fishing vessels, maritime subrogation, compensation for damage to offshore/underwater installations caused by vessels, and damages for negative effects on navigational safety. The Court has also tried and closed a case of dispute over damages for water pollution from land-based sources, the claimant being a procuratorial authority on behalf of the State, which is the first case of its kind in China. These new cases have largely enriched the specialized functions of the maritime court. As marine economy develops, quality and efficient judicial services through maritime trials are increasingly in demand. Cases we entertained have extended from traditional cases involving vessel, cargo and port to cases involving water, island and the sea, and from traditional shipping dispute cases centring on cargo, to new cases related to the marine economy.

 

—A high proportion of dispute cases involved foreign, Hong Kong, Macao and Taiwan elements. As cases of maritime disputes largely involve foreign elements, and as Guangdong is adjacent to Hong Kong, Macao and Taiwan, in 2010 the Court entertained 388 dispute cases of first instance involving foreign, Hong Kong, Macao and Taiwan elements. These cases accounted for 43.67% of all cases of first instance and involved more than 60 countries and regions. Covering almost all shipping powers around the world and major trade partners of China, they had a far-reaching influence worldwide. During the trials of such cases, other than Chinese law, foreign laws and international conventions, treaties or practice may also apply. This poses a great challenge for the professionalism and ability of judges.

 

— The proportion of cases in connection with marine resource exploitation was relatively small. The main types of cases we entertained were of traditional disputes arising out of contracts for carriage of goods by sea, disputes over forwarding, disputes arising out of ship contracts, and disputes over marine insurance. These cases took up 42% of the total number of cases. This was closely related to the developed marine economy and brisk shipping market in the Pearl River Delta Region. On the contrary, throughout the year, there were only 10 cases in connection with exploitation of marine resources. As Guangdong carries on its strategy of marine economy, it can be predicted that dispute cases in relation to marine resource exploitation will emerge and increase, such as disputes over island development, coastal reclamation, offshore oil, seafloor exploration, hydrographic charting, buoys, clean-up markings, and seabed sweeping.

 

— Cases were of distinct regional features. The development of shipping and marine economy in Guangdong represents distinct regional features. Here are some statistics from our four detached tribunals. The Shenzhen Tribunal, located in a core city in the Pearl River Delta, mainly handled disputes arising from forwarding contracts and contracts for carriage of goods by sea; forwarding contract disputes handled accounted for 65% of such disputes handled by the Court as a whole. The Jiangmen Tribunal, located in the hinterland of the Pearl River Delta, largely dealt with disputes arising from contracts for waterway transport of goods and disputes over compensation for bridge damage caused by ship contact; the Shantou Tribunal in the East handled considerable disputes over compensation for port damage caused by ship contact; Zhanjiang Tribunal entertained a large proportion of cases for disputes arising out of seafarer labour contracts. Furthermore, as Shantou and Zhanjiang Tribunals each has jurisdiction over numerous fishing ports, the fishing disputes they handled accounted for 83% of all similar cases entertained by the Court as a whole. These were mainly disputes arising from aquiculture and fishery partnership contracts, and disputes over damages for infringement in relation to fishing. Over the past few years, the four detached tribunals have played an active role in serving the public. They have efficiently resolved the difficulties with maritime proceedings for ordinary people in coastal areas. Cases they entertained accounted for 59.4% of the total number of cases entertained by the Court.

 

III Active Response to the Risks to Shipping Industry Brought by the Global Financial Crisis

— Problems under the impact of the financial crisis and solutions we propose

 

(I) Legal matters in handling cargo pile-up in ports

 

In a case where cargo delivery was no taken in port, the frozen beltfish exported by an enterprise arrived at Shekou Port, Shenzhen, and was detained in the port as no one came to take delivery; consequently, the storage life of the beltfish ran out and a large sum of storage charges were incurred. The customs authorities stated that they had no right to deal with this matter as the Customs Law of the People’s Republic of China makes no provisions for handling export cargoes. The Court consulted with the customs authorities, inspection authorities and other departments concerned, and eventually ruled that the enterprise should dispose of the detained beltfish so as to avoid further loss of storage charges.

 

Under the impact of the financial crisis, delivery of cargoes is frequently not taken and containers unclaimed remain in ports in Guangdong Province. These cargoes and containers pile up in goods yards and create a series of legal matters, mainly including: first, when delivery of cargo is not taken in the port of destination, the carrier often incurs loss of freight and prepaid storage charges. As a contract for carriage of goods by sea involves a consignor, carrier and consignee, the carrier is also faced with the legal question as to whether to claim against the consignor or the consignee. Second, while the carrier may apply to a court for finding unclaimed goods unowned and auction off such goods, the law makes no provisions on whether the carrier is entitled to be compensated directly from the auction proceeds. Third, there are legal barriers to the disposal of export cargoes detained in ports.

 

With respect to legal matters arising when delivery of cargo is not taken in the port of destination, relevant laws in effect only provide for general principles and offer no case-by-case approach. We suggest enacting relevant laws, rules or judicial interpretations to offer the following solutions: first, clear provisions on how the carrier may claim the freight, storage charges or container demurrage when the delivery of cargo is not taken in the destination port; second, judicial interpretation providing that the carrier may obtain compensation for loss directly from the proceeds of the auction of unowned cargo; third, amendments to the Customs Law to the effect that unclaimed export cargoes may be disposed of by the customs authority with reference to import cargoes. Furthermore, the courts should cooperate and communicate more with the customs authorities and frontier inspection authorities, so as to better connect different means of disposal, i.e. the discharge, retention and application by the carrier for finding the property unowned, with the auction by the court, and with the sales by the Customs; to avoid long-term pile-up of goods and make best use of logistics resources of the ports.

 

(II) Impact of the financial crisis on shipbuilding

 

In a case where a petition was submitted for recognition and enforcement of a foreign arbitral award, a Greek company and a Chinese shipyard had entered into a ship conversion contract which agreed that all disputes arising therefrom should be referred to arbitration in London. The parties thereto later had a dispute over contract performance, and after arbitration subject to the arbitration clause, the arbitral tribunal awarded that the Chinese shipyard should be liable for damages; accordingly, the Greek company petitioned the Court for recognition and enforcement of such arbitral award made in London. Based on the cause of such dispute, the competent judge of the Court interpreted applicable laws to, and considered the issue with both parties. Eventually the parties reached conciliation and the petition was withdrawn.

 

Shipbuilding enterprises in the Pearl River Delta Region have been under tremendous impact of the global financial crisis. First, orders for new ships have fallen sharply, with prices showing a downward trend. Shipowners frequently cancel shipbuilding contracts or request a reduction in price; second, in the downward market caused by the financial crisis, variables exist in shipowners’ operating conditions and capacity for due performance. These variables will increase the risks of shipbuilding enterprises in executing contracts; third, the rising prices of steel and other raw materials puts more of a burden on shipbuilding enterprises and exerts new pressure on the industry. Under the combined effects of these factors, the shipbuilding industry turns to a buyer’s market, and shipbuilding enterprises are in an adverse situation with difficulties in financing, acquiring orders and delivery. Besides, some smaller shipbuilding yards are mainly engaged in ship repair with shipbuilding as a supplement. Under the impact of financial crisis, some of these shipyards were involved in ship repair disputes arsing when the shipowner failed to pay the repair charges on schedule. Consequently the shipyards initiated proceedings and applied for the sale of the ships by auction.

 

At present, large shipbuilding enterprises in Guangdong enter into shipbuilding contracts as contractor and in forms with reference to English law. Such contracts model on sales contracts, and are based on principles different from those understood by Chinese shipyards. A lot of miscomprehension is generated as a majority of Chinese shipyards know little about the UK Sale of Goods Act and provisions on shipbuilding contracts. For this reason, we advise shipbuilding enterprises to timely adjust the scale of production and operation according to changes in the market, and to select forms of contracts with more prudence. When handling disputes, the Court will offer more clarifications and mediate in the conflicting understanding of a contract, so that the parties may again reach consensus on and maintain the shipbuilding contract.

 

(III) Impact of the financial crisis on the shipping & logistics industry

 

In a case of dispute arsing from a contract for carriage of goods by sea, a shipping company had carried a cargo for an industrial company which later had deteriorated production and ceased to operate, with the freight and container demurrage unpaid. The shipping company brought an action to the Court after placing a lien on the cargo. In accordance with law, the Court adjudged that the industrial company should pay the freight and container demurrage to the shipping company, and the shipping company should have a priority right to the cargo auction proceeds.

 

With a decrease in exports, shipping and logistics enterprises have seen the shipping market change from “whoever owns a ship makes a profit” to “whoever owns a ship loses money”. Some port and shipping enterprises relying on export have been heavily impacted, and some with poor performance have to cut down staff or even close down. Manufacturers have financial difficulties and generally fall into arrears with freight. Consequently it takes a longer period to recover freight, with higher bad debts ratio of accounts receivable and higher operational risks. Operating costs have also increased, as more human and material resources have to be input in order to develop the market and cope with operational risks. As freight rates drop sharply, some merchants, who have entered into a long-term contract of affreightment or space booking, refuse to pay the freight and request to modify the contract. They want to renegotiate with the shipping company to reduce the freight rates, resulting in an increasing number of disputes.

 

For the above reasons, we advise shipping enterprises to keep track of changes in the market, timely adjust production and operation scales, and optimize the industrial structure. In trials of disputes over freight, the Court will apply the principle of changed circumstances on a case-by-case basis to reconcile the interests of all parties concerned; with respect to manufacturing enterprises under greater impact of the financial crisis, when handling applications for property attachment, the Court will fully consider such enterprises’ survival and development, their employees’ livelihood and the social stability; on this basis the Court will take flexible attachment measures, in an attempt to ensure the realization of lawful rights and interests of creditors while avoiding causing operational difficulties to the enterprises with improper attachment measures.

 

(IV) Impact of the financial crisis on the ship finance lease market

 

In a case of dispute arising from a contract for a ship finance lease, the plaintiff, a finance company, and the defendant, an ocean engineering company, had entered into a finance lease contract for the leaseback of three ships, the rent of each exceeding 100 million Yuan. The defendant suffered sharp deterioration in its financial situation and ceased to operate, and fell into arrears of crew wages and rent to the plaintiff. For this reason, the plaintiff put claims to the Court for the return of ships and payment of rent. In view of the huge value of the subject matter, the Court maintained the normal operation of the ships to minimize the losses of both parties, and presided over the mediation between the parties based on ascertained facts. Eventually the parties reached agreement and the case was closed in mediation.

 

Ship finance leasing is an emerging financial business in China. It is a civil arrangement where the lessor lets a ship to the lessee in accordance with a lease; the lessee possesses and operates the ship and pays rents to the lessor during the lease term. Generally, in a ship finance lease, a bank or another financial institute provides the funds for ship construction or purchasing to acquire ownership of the ship, and then lets the ship to a shipping company to get profits from the rent. As an emerging financial business, ship finance leasing integrates funds and assets. It provides shipping companies with a good solution to shortage of funds for ship construction or purchasing, and is therefore well received in the shipping market. However, as a ship finance leasing involves a huge amount of funds and complicated relations, and concerns finance, trade, insurance and material supply, the market risks it may bring are prominent during the financial crisis. The main risks are: 1, performance risks, mainly the risk that the lessor is unable to recover his investment when the lessee fails to timely pay the rent and interest thereon due to changes in the shipping market, poor performance, or bad capital turnover; 2, exchange rate risk: if the ship for lease has been imported, international payment and settlement is involved. As exchange rates are volatile during the financial crisis, a large price difference may occur if the lessor and the lessee use different currencies for income and debt. As a medium- and long-term investment project, a ship finance lease involves a particularly prominent risk of exchange rates; furthermore, a ship finance lease may also involve operational risks and force majeure risks, and is therefore prone to disputes.

 

To cope with these problems, we advise the transport authorities to further regulate the industry and strictly implement the Notice of Regulating the Domestic Ship Finance Lease Business; to control market access, ensure the credit and performance capacity of the lessor and the lessee, and further regulate such leasing. Both the lessor and the lessee are advised to fully measure the market risks and its respective risk-bearing capacity. In case of foreign exchange settlement, the cost difference caused by fluctuations in the exchange rate should also be considered. These measures will help to facilitate the economic benefits of financing while avoiding its disadvantages.

 

IV Regulating the Order of the Shipping Market

— Problems in goods carriage and port management and solutions we propose

 

(I) Problems with package deal forwarding

 

In a case of dispute arising out of a forwarding contract, the plaintiff, a garment company, had entrusted a shipment of jeans to the U.S. to the defendant, a logistics company. The defendant sub-entrusted another logistics company with the task of goods collection from the plaintiff’s factory via a trailer. During the transport by the trailer, an employee of the second logistics company stole part of the goods. After the goods had arrived in the U.S., the plaintiff found out the shortage and accordingly claimed for damages against the defendant, who refused to compensate by alleging that it was the forwarding agent of the plaintiff.

 

With the high-speed development of the shipping market, there have been changes in the business scope and service modes of forwarders. These changes facilitate cargo transport, but in turn create new legal matters. The Court has lately entertained a number of cases similar to the foregoing, all of which involve package deal forwarding. In this mode of forwarding, when entrustment is unclear and a shortage of goods occurs, there comes the issue as to whether the forwarder has to assume liability. Problems with these cases are: 1, the consignor contacts the forwarder orally without a written power of attorney; 2, the forwarder “sub-entrusts” all or part of the arrangements to a third party without gaining express consent of the consignor; 3, a shortage of goods occurs in transit from the factory to the loading port by a trailer company sub-entrusted by the forwarder, or, in the case of multimodal transport, a shortage of goods is found at the destination port; 4, where the consignor does not pay the “freight”, the forwarder requests the consignor to make the payment by withholding the bill of lading, detaining the goods or taking other measures. Under such circumstances the forwarder claims that the two parties are in a relation under a contract for carriage of goods; however, in the event of a shortage of goods in transit or cargo release at the destination port without the presentation of original bill of lading, the forwarder claims that the parties are in a relation under an agency contract.

 

To conduct fair trials of disputes arising out of forwarding contracts and equally protect the lawful rights and interests of forwarders and consignors, the Court has drawn up guidance and judgment criteria, which to a certain degree regulate the forwarding market. To resolve the abovementioned problems, we propose the following solutions: 1, the consignor and the forwarder should clearly define each other’s rights and obligations in writing, which will serve to protect their lawful rights and interests; 2, if the forwarder sub-entrusts all or part of the transport arrangements to a third party, the express consent of the consignor should be obtained in advance; 3, the forwarder should select a trailer company in good standing and with good reputation, e.g. one equipped with a GPS monitoring system to prevent stealing. Where multimodal transport is concerned, the forwarder should see to the smooth handover of goods through all links; 4, the forwarder should fulfil its obligations and report to the consignor with the progress of the entrustment.

 

(II) Problems with cargo release without the presentation of original bill of lading

 

In a case of dispute over cargo release without the presentation of original bill of lading (BL), a Chinese seller had sold the goods to a foreign buyer at FOB price (cost price exclusive of freight and insurance), and the carriage of goods was taken charge of by the foreign buyer. After the seller had booked space from a Chinese forwarder as instructed by the buyer, the forwarder issued a BL to the seller. The carrier recorded on the BL was a foreign non-vessel operating common carrier (NVOCC) in a name similar to the forwarder. The BL was not registered with the Ministry of Transport; and the cargo thereunder was released at the destination port without the presentation of original BL. Accordingly the seller initiated proceedings and requested the Chinese forwarder and the foreign NVOCC to compensate for the loss of cargo jointly and severally. The forwarder refused to compensate by alleging that it was the agent of the foreign NVOCC.

 

Similar cases are not rare in recent years. According to the statistics from competent authorities, Chinese sellers have consequently suffered huge losses and the domestic shipping market is seriously disturbed. Problems in these cases are: 1, when a Chinese seller sells goods to a foreign buyer at FOB price and the buyer appoints a foreign carrier, the carrier is likely to deliver the goods to the buyer at the destination port without collecting the original BL, after which the buyer may not make the payment to the seller; as a result, the seller, though holding an original BL, has no control over the goods thereunder, while it is difficult to claim against the foreign NVOCC as it has no assets in China; 2, without obtaining the qualification for non-vessel carrier operation and paying a deposit, the foreign NVOCC operates non-vessel carrier business in China and issues a house bill of lading (HBL) not registered with the Ministry of Transport so as to avoid supervision; 3, some NVOCCs are actually dummy affiliates of Chinese forwarders set up to avoid legal liability and taxes. Their main characteristics are: each of these NVOCCs has similar name, same staff and same place of business with a Chinese forwarder, and uses special invoices issued by a third party. When negotiating with a Chinese consignor about carriage of goods, the forwarder obscures its agency relation with the foreign NVOCC. It merely indicates in the BL, which is issued to the seller after loading, that it issues the BL as agent of the foreign NVOCC. In the event of a dispute over cargo release without the presentation of original BL, the forwarder will refuse to assume liability by alleging that it is the agent.

 

In the trial of the foregoing case, the Court took into account these facts: the Chinese forwarder did not disclose its agency relationship with the foreign NVOCC and did not obtain the explicit authority of the NVOCC, and the NVOCC did not obtain the qualification for non-vessel carrier operation. Based on these facts and in accordance with law, the Court adjudged that the forwarder should be jointly and severally liable. The judgment protected the lawful rights and interests of the Chinese seller, and came as a blow to such behaviours that disturb the domestic shipping market. We also advise Chinese consignors to avoid selling goods at FOB prices, and to arrange for the transport on their own, and select a carrier with good reputation to carry the goods. Once a court has discovered any of the abovementioned violations or illegal activities, it should timely report to the shipping administration and tax authorities.

 

(III) Problems with ship operations while berthing in dock

 

In a case of dispute over compensation for dock damage caused by ship contact, the dock owned by the plaintiff had a berthing capacity of 1,000 tonnage, yet the plaintiff told the defendant to berth with reference to a ship with a cargo capacity of 5,000 tonnage. The subject ship had a gear box failure during berthing and consequently contacted the dock, causing serious damage to the latter.

 

The Court has analyzed many cases of disputes over compensation for dock damage caused by ship contact, and concluded the following causes of such accidents: 1, some docks have complicated waters and the masters are not familiar with the waters and currents in these docks; 2, failures in ships’ equipment and apparel (towline); 3, port operators do not provide adequate control over port operation safety. For example, due to a lack of port patrol officers or immature safety facilities, ships cannot receive prompt and effective instructions from the ports, resulting in contacts, or port operators allow ships beyond the ports’ berthing capacity to berth.

 

To avoid or reduce such contact accidents, we propose the following solutions:

1, shipping enterprises should exert greater control over the safety of ship berthing, urge navigators to get familiar with port waters and to berth with good seamanship, and when necessary hire a tugboat or pilot to assist in the berthing; furthermore, they should pay more attention to the maintenance of ship equipment, so as to ensure the ships’ seaworthiness. 2, port operators should exert greater control over port operation safety, implement a safety responsibility system, and provide lighting and other safety supporting facilities for ship berthing; they should try to raise awareness of port operation safety, and only allow ships within the ports’ capacity to berth.

 

V Regulating the Labour Market

— Problems with seafarer management and solutions we propose

 

(I) Problems with seafarer labour export and offshore dummy companies

 

In a case of dispute over labour remuneration and medical expenses initiated by seafarers against a shipping company, some seafarers were deployed to a foreign ship without signing a labour contract; when the seafarers left the ship, they initiated proceedings on labour remuneration and medical expenses. Through analysis of similar cases, the Court has found that some overseas shipping companies lack legal awareness and in many cases do not sign written contracts, while relevant Chinese companies or intermediaries have poor management and inadequate control, both resulting in the frequent occurrence of such disputes.

 

We also find that some shipping companies have set up an offshore company, the operations of which are run by a Chinese company as agent so as to avoid legal liability. In one case, a management company claimed against a Chinese shipping company for a shipping agency fee. However, the contract concerned had been entered into between the management company and a Hong Kong company, rather than the said shipping company. The Hong Kong company did not appear in court, and the shipping company insisted that it merely acted as agent of the Hong Kong company. It was ascertained that although the aforesaid contract bore a seal of the Hong Kong company, all operations including payment to the management company were handled by the Chinese shipping company. The Court holds that the Hong Kong company was actually a shell company that the shipping company set up in Hong Kong. Accordingly, if the shipping company was ruled to be agent of the Hong Kong company and therefore not liable, it would be difficult to enforce any judgment in favour of the management company against the Hong Kong company. The establishment of such offshore dummy companies enables shipping companies to illegally avoid legal liability, and consequently disturbs the shipping market.

 

We suggest that labour authorities should exert greater supervision over the labour protection of seafarers, and the foreign affairs authorities should have better control over the seafarer labour export market, and should timely caution against and report on offshore companies with bad credit or poor management; seafarer management agencies or intermediaries should have greater legal awareness and do their best to protect the lawful rights and interests of seafarers deployed overseas. Administration for industry and commerce should widely disseminate and apply the Company Law, and look into the actual relationship between offshore and domestic companies. Furthermore, they should prevent the practice of setting a nominal company to avoid liability, and hold any violating domestic companies legally liable.

 

(II) Problems in ship operation safety and seafarer visa management

 

In trials of certain ship disputes, the Court finds that some inland ship managers have absolutely no awareness of safety. They not only fail to fulfil their basic obligations under their operation contracts, i.e. to ensure seaworthiness of ships and eligibility of seafarers, but also fail to rigorously manage ships and seafarers’ visas in accordance with regulations on safety management. A few ship managers even apply to the Maritime Safety Administration for voyage visas for ships in the name of seafarers who do not serve on such ships. Such practice gives rise to hidden troubles in operation and management safety. In accordance with the Regulations on Traffic Safety in Inland Waters, one condition for the seaworthiness of a ship is that the ship shall be crewed by seafarers meeting the regulations stipulated by the transport authorities under the State Council. Each seafarer shall be competent and eligible for his post. This is a fundamental requirement for safe navigation and management, as well as a significant guarantee of traffic safety at sea and in navigable inland waters.

 

We advise ship owners and mangers to raise awareness of production safety and of law, eradicate illegal or untrue applications, and eliminate hidden troubles in all links of shipping operations. The Maritime Safety Administration should conduct a strict examination of ship safety and seafarers’ eligibility and exert greater supervision over ship inward and outward visas.

 

(III) Problems with fair protection of rights and interests of labourers and employers

 

The Court finds that it is quite common that written contracts are not signed for labour relations involving seafarers. In particular, in small or private shipping companies, a large proportion of seafarers are deployed or self-employed seafarers in temporary employment. In the event of a dispute between such seafarers and their employers, it will be difficult to produce evidence for the agreed wages, working conditions and period, and other facts. In accordance with the Labour Contract Law, as long as a seafarer is able to prove that labour relation de facto has been formed and wages have been agreed upon, the employer shall make payment doubling such wages to the seafarer. This provision is intended to urge employers to timely sign labour contracts with labourers, so that the rights and interests of labourers can be protected. The Court also entertained some cases of disputes over overtime payments to seafarers. These disputes arose when shipping companies failed to timely settle overtime payments while there were no applicable regulations in place. Viewed from the enforcement of relevant judgments, the aforesaid double wages and overtime compensation paid to seafarers are usually higher than the wage arrears. For this reason, a shipping company that fails to sign written labour contracts with seafarers will have to pay a higher price. Shipping companies and employers should attach great importance to this issue and manage labour contracts in compliance with applicable regulations.

 

In trials of these cases, the Court finds that a few seafarers intentionally did not sign a labour contract, and started to purposely collect evidence of their service on the ship from the date they got on board, e.g. taking and keeping photos of the daily log. After some time they resigned with an excuse, and then claimed for double wages on the ground that no written labour contract was signed. The labour authorities, shipping companies and employers should be aware of this problem.

 

We advise the labour authorities to exert greater supervision over these labour contracts, and when necessary cooperate with the customs or port authorities to carry out activities within their jurisdiction, so as to examine and rule out arrears of wages and employment of seafarers without written labour contracts. Furthermore, when hiring a seafarer, each shipping company should make sure to sign a written labour contract with the seafarer, so as to fairly protect the rights and interest of both parties. These measures will help to regulate the seafarer labour market and create a more harmonious labour market.

 

(IV) Problems with properly understanding and applying policies benefiting the common people

 

Due to increasing fuel prices, China has offered diesel subsidies to power-driven fishing vessels since 2006 to help the fishing population cope with rising costs. Although the subsidies are given to the owner of each fishing vessel, the government has not made provisions for the allocation and use of such subsidies. Disputes and conflicts thus arise in practice, mainly including the following circumstances: in a partnership, a partner holds that the other party wants to pocket all or most of the diesel subsidies; a party holds that the other party is not cooperative, resulting in the failed application for diesel subsidies; after collecting the diesel subsidies, a party withholds the allotment to the other party without authorization. In 2010, courts in Guangdong Province closed some cases in which the crew of fishing vessels claimed for allotment of diesel subsidies. As the government intends the subsidies to reduce the oil costs of production and operations, the Court holds that in cases where the owner and the crew of a fishing vessel share the production costs, the owner has no right to dispose of the diesel subsidies at its discretion. Accordingly, it was adjudged that the crew were entitled to an allotment of the subsidies. This decision facilitates the implementation of governmental policies benefiting the common people.

 

We advise the local government or fishing authorities to promote relevant laws and regulations, and to ensure owners and crews of fishing vessels or fishermen properly understand and implement such laws and regulations. By making effective agreements on the allotment and use of diesel subsidies during production and operation, disputes will be reduced and the fishing industry will develop in a sound and orderly way.

 

VI Regulating the Shipping Insurance Business

— Problems with the shipping insurance industry and solutions we propose

 

(I) Problems in executing contracts for insurance

 

In trying cases of disputes arising out of contracts for cargo transport insurance, the Court finds that it was agreed on some insurance contracts that in the event of cargo loss, the insured should first lodge a written claim or even bring an action against the carrier or another third party; if the insured waived its claim against the third party, the insurer does not assume any liability for compensation. The Court holds that in accordance with the Insurance Law, the insured has the right to request the insurer to settle the claims in advance. The law does not support any agreement on the insured’s obligation to first claim or even proceed against the carrier or any liable third party. The time limit is one year for a consignor to claim against the carrier under a contract for carriage of goods by sea, while the time limit is two years for the consignor to claim against the insurer under an insurance contract. If the consignor is negligent in claiming or unable to claim against the carrier as agreed, and one year later claims against the insurer, the insurer will be at risk of exceeding the time limit to claim against the carrier after it has obtained the subrogation after settling the insured’s claim. For this reason, such agreement is not conducive to the protection of the lawful rights and interests of the insurer, or to the sound development of the shipping insurance market.

 

In addition, it is agreed in some insurance contracts that if the insured requests the insurer to settle the claim first, the insured shall sign and hand over to the insurer a subrogation form and a statement of claim against the carrier or a third party, together with other relevant documents and materials, and shall assist the insurer with the recovery from the liable party. The Court holds that this restriction is impracticable. The claim settlement by the insurer is a precondition for the issuance of a subrogation form; accordingly, it would be unreasonable to require the insured to issue a subrogation form before the insurer has made the payment. As the above agreement is a standard term provided by the insurer, when no other evidence is available, the Court has to interpret such agreement to the disadvantage of the insurer.

 

We advise insurers to properly manage insurance contracts, study applicable laws and regulations and discuss feasibility before drafting standard terms, and take into account the lawful rights and interests of both the insured and the insurer.

 

(II) Problems with the credibility of insurance surveyors

 

In trying cases of disputes arising out of ship insurance contracts, the Court finds that with respect to the evaluation of a ship involved in a covered accident and the calculation of the ship repair or salvage expenses, the surveyor reports issued by a few insurance surveyors firms aroused a lot of controversy. In some cases, two consecutive surveyor reports even came to contradicting conclusions on the same issue; consequently the Court had to ascertain relevant facts with the help of other evidence. This hinders trials and dispute resolution. It is known that in some places, a surveyors firm can carry on business after simply registering with the local administration for industry and commerce; founders or employees of some surveyors firms are former employees of insurance companies, and may be prone to bias drive by illegal benefits; some surveyors have limited ability and competence that they fail to offer authoritative opinions on specialized issues. These phenomena have impaired the credibility of insurance surveyors firms to different degrees.

 

We advise insurance regulatory authorities to attach more importance to these problems and cooperate with insurance companies in improving the supervision and control over insurance surveyors firms, surveyors and the reports they issue.

 

(III) Problems with inspection before acceptance of special cargo insurance

 

In a case of dispute arsing out of a marine insurance contract, an insured imported a cargo of second-hand electromechanical equipment and took out all risks insurance on the transport of such cargo with an insurer. However, no inspection was conducted of the equipment conditions before loading, and damage was found when the cargo arrived at the destination port. The insured and the insurer disputed bitterly on the value of cargo loss. The cargo damage survey report, issued by a surveyors firm after the accident, was not able to illustrate the actual conditions of the equipment before loading; accordingly there was no basis for the equipment repairs costs it estimated with reference to the actual prices in the repair market. Through the efforts of the Court, the case was eventually closed in mediation. Nevertheless, where such special cargo is not inspected or secured before loading, it would be more difficult for courts to ascertain the relevant facts once an accident occurs, and the dispute resolution among the consignor, insurer and carrier would be hindered. We advise insurers, before signing a transport insurance contract in connection with special cargoes, to conduct a pre-inspection before loading, so as to minimize the risk of settlement.

 

In view of the promise made by the Chinese government upon entry into the WTO, i.e. to open up the domestic insurance market, we advise domestic insurance companies to practically improve their services and enhance their credibility, so as to gain better integrated competitiveness in the global shipping insurance market.

 

VII Protecting Eco-environment of Waters

— Problems in dealing with pollution of water resources and solutions we propose

 

(I) Problems with actions taken by ship owners to minimize risk of pollution caused by accidents

 

In a dispute case, two foreign vessels, i.e. M/V “Hyundai Advance” and M/V “MSC Ilona” collided at the Pearl River estuary, resulting in serious pollution from oil spill. As the two foreign vessels had respectively taken out insurance with the Swedish Club and the Steamship Mutual Underwriting Association Limited before the accident, the shipowners eventually reconciled with the plaintiff, the Administration of Ocean and Fisheries of Guangdong Province, with the assistance of the P & I clubs. This case inspires all shipowners. In most similar cases the Court has tried and achieved reconciliation, the owner of a ship causing such an accident has taken out insurance on the ship, and therefore is able to reach reconciliation with the strong support of the insurer. We advise shipowners to ensure that proper ship insurance is in place, so as to reduce and diversify risks of polluting the waters and avoid going bankrupt when an accident happens.

 

Shipowners should make every effort to reduce pollution once an accident takes place. When pollution happens, some liable shipowners adopt a negative and evasive attitude, which is highly undesirable. For instance, when M/V “Minghui 8” collided with another ship and sank after incurring damage to her cargo oil tank, the MSA sent a letter to request the shipowner to remove the oil so as to eliminate the threat of pollution; however, the shipowner ignored such request, and was eventually ordered by the Court to indemnify the MSA for the expenses of the compulsory actions to remove the oil. In the event of spill of oil or fuel on board a ship, the liable shipowner should take positive actions to minimize pollution, i.e. by timely blocking the spill and immediately calling a marine rescue centre, so that the MSA will send people to deploy booms and oil absorbent mats to contain oil pollution. The shipowner should timely report to the MSA on the details of the accident, the overall ship condition, the location of spill and dimensions of drain outlets of the ship, approximate speed of spill, total volume and loading positions of oil on board, and degree of risk of oil spill etc. The shipowner should make every effort to minimize oil spill and reduce pollution of the marine environment and any other losses. Furthermore, pointless rescue actions should be prevented lest secondary pollution may occur. For example, when oil spill occurred when M/V “Ocean Success” was unloading oil at port, the ship interests poured oil dispersant into the sea and used a fire hydrant to spray over the floating oil within the booms. When people sent by the MSA arrived, a white oil film had been formed over the water surface, resulting in secondary pollution.

 

To solve these problems, we propose the following solutions: 1, to engage an assessment agency as early as possible to collect evidence. The shipowner of M/V “Ocean Success” did not engage a foreign expert until 10 days after the accident, and the other Chinese expert engaged had never appeared on the scene. Consequently, the evidence it provided was not admitted by the Court in that such evidence was not adequate to refute the evidence provided by the plaintiff. The liable shipowner should actively collect evidence at the scene upon occurrence of the accident, including taking photos and video of the accident scene, keeping water samples, engaging a qualified assessment agency for prompt investigation and evidence collection, and acquiring initial data. These will be necessary conditions for the resolution of any future dispute; 2, to set up a fund to limit the amount of compensation. After the occurrence of an accident causing pollution of water resources, the liable shipowner should fully exercise the special mechanism to protect shipowners’ rights and interests, and set up a fund of limitation of liability for maritime claims so as to keep the amount of compensation within the statutory limit.

 

(II) Problems with pollution assessment techniques

 

In a dispute case, the defendant challenged the claim that the marine pollution in dispute was caused by an oil spill on the part of the defendant, and held that an assessment should be conducted of the oil pollution in order to indentify the oil concentration of the waters before the pollution accident. However, restricted by time, geography and other factors, it was difficult to identify the exact oil concentration of the waters before the accident. This is one of the difficulties in the technical assessment of water pollution.

 

There are two technical barriers to claims in relation to water resources pollution: 1, there are no adequate technical means to exactly assess the scale of pollutant spread and the extent of damage to the marine life and environment. Due to the fluidity of the waters, and as pollutants will flow away as time goes by and marine creatures will swiftly escaped from a polluted scene, it becomes extremely difficult to determine the extent of damage caused by pollution. 2, there is no basis for the calculation of the amount of most losses. Oil pollution accidents mainly cause two types of damage to the national and public interests: the first type is damage to the national environmental resources, such as natural fishery resources, aquatic plants, mangrove, birds and landscape; the other type is damage to the environmental quality, such as deteriorated water quality, temporary or permanent loss of various uses and functions, disappearance of habitats for animals and plants. Nevertheless, the plaintiff can only claim for the loss of fishery resources, mainly because it is clearly stipulated in the Regulations on Calculation of Fishery Loss Caused by Pollution of Water Resources, issued by the Ministry of Agriculture, that the loss of natural fishery resources can be estimated at no less than 3 folds of the direct damage to aquatic products. As there is no basis for the calculation of other losses, the plaintiff cannot claim for such losses.

 

To overcome the foregoing technical barriers, we suggest setting up an oil pollution compensation fund and cooperating with international experts. In accordance with the Regulations on the Prevention and Control of Marine Pollution from Ships enacted by China in 2010, owners of cargo oil shall contribute to the ship oil pollution compensation fund. The State is contemplating setting up a ship oil compensation fund and the management committee thereof. We suggest drawing lessons from the practice of the International Oil Pollution Compensation Funds (IOPC Funds), namely to actively participate in assessing and determining the damage as the party providing the compensation. After an accident, an expert team is formed consisting of experts from the IOPC Funds and the International Group of P&I Clubs to assess the cleanup costs and other claims made by the victims. Experts sent by the IOPC Funds are generally experts from the International Tanker Owners Pollution Federation (ITOPF). They not only encourage reasonable cleanup actions, but also rapidly assess claims caused by the pollution and facilitate the resolution of disputes over damages.

 

(III) Problems with pollution assessment mechanism

 

In a case of public interest litigation caused by water pollution, the defendant challenged the objectivity and fairness of an investigation report issued by a fishery environment monitoring centre and provided by the plaintiff, the fishery authorities. The defendant held that the data used in the investigation report, including oil concentration in the waters and monitoring records, were all provided by fishery inspectors affiliated with the plaintiff. This reveals the institutional defects of assessment organizations. Some assessment organizations are affiliated with the plaintiff, and some participate in the investigation as accident investigators and are accordingly obliged to provide technical support and services for plaintiffs such as marine administrations; consequently, the credibility of investigation reports they issue are widely challenged. Furthermore, assessment organizations have different qualifications. Some are only qualified for environmental monitoring, some are qualified for assessing damage to fishery resources and do not have  adequate ability and experience for assessing damage to environmental resources and the environment.

 

To cope with these problems, we suggest forming a specialized organization consisting of maritime experts, marine environment researchers and price evaluation experts to assess pollution of water resources and damage to environment, thereby supporting relief for environmental damage.

 

(IV) Problems with the plaintiff capacity of water management functional authorities

 

In a case of dispute over damages for marine pollution initiated by the Environmental Protection Bureau of Zhuhai, Guangdong against two shipowners, the two defendants raised objection to the capacity of the plaintiff, alleging that it was legally groundless for the plaintiff to initiate public interest litigation on behalf of the State. In most cases of public interest litigation, the capacity of the plaintiff is challenged, showing that this is a highly controversial issue. In China, other than the Marine Environmental Law, no other laws directly provide for public interest litigation. Accordingly, functional authorities are not legally authorized to initiate public interest litigation. Furthermore, the Civil Procedure Law provides that one condition for the plaintiff to bring an action is that the plaintiff must “have a direct interest in the case”, while one of the features of public interest litigation is that the plaintiff has no direct interest in the damage at issue. The aforesaid provision becomes a legal barrier hindering functional authorities from initiating public interest litigation. As a result, only a small number of public interest litigation is initiated, failing to effectively reduce the pollution of water resources. Over the 26 years since our establishment, we have entertained cases of public interest litigation over water pollution with subject matters amounting to approximately 70 million Yuan. According to preliminary statistics provided by the Administration of Ocean and Fisheries of Guangdong Province, Guangdong suffered economic losses of nearly 200 million Yuan as a result of pollution of the ocean and fisheries merely between 2001 and 2007. Plus the losses caused by pollution of water resources under the administration of the MSA, environmental protection bureau, port authorities, water authorities, Pearl River water resources authorities and other government agencies, the amount of claims known only takes up a very low proportion. According to the statistics on China’s Green National Accounting Study Report 2004, China sustained losses of around 511,800 million Yuan due to environmental pollution in 2004, yet few cases of public interest litigation were thus initiated.

 

We advise the People's Congress or local governments to enact laws and regulations to explicitly authorize relevant functional authorities to initiate public interest litigation over water pollution. Moreover, in cases of public interest litigation over water pollution, the courts can only adjudge the damages to be turned in the national treasury, while no monitoring mechanism is available to supervise whether the damages are used to restore the water environment. To cope with this problem, we suggest setting up a water resources pollution compensation fund, with contributions from the government, polluters, environmental organizations and the society. Damages adjudged by maritime courts in public interest litigation should also be included into the fund. The fund should be managed by an appointed body, and be exclusively used to restore and control the loss of national and public interests caused by pollution of water resources.

 

VIII Conclusions

 

The Report on Trials 2010 of Guangzhou Maritime Court is the epitome of the overall maritime trials conducted by the Court throughout 2010. By reviewing the maritime trials completed, the Court has analyzed changes and legal issues in shipping-based financing, forwarding, labour, and insurance markets, and proposed solutions and countermeasures. We hope our efforts will provide some empirical reference and guidance for shipping companies in preventing risks and disputes, thereby promoting the sound and orderly development of the shipping economy.

 

A clear objective to promote the marine economy is set out in the Proposal for Formulating the Twelfth Five-Year Plan for National Economic and Social Development, passed in the 5^th plenary session of the 17^th Central Committee of the CPC. 2011 is the first year of China’s 12^th Five-Year Plan. Protecting and promoting the sound development of the shipping economy is vital to the growth of trade and economy of Guangdong Province. The Court will insist on rendering judicial services for the people, improving maritime trials, and actively fulfilling our judicial functions. Through these efforts, we will make greater contributions to the growth of the marine and shipping economy of Guangdong.