Guangzhou Maritime Court

                                                                Civil Judgment


                                                                                            (2000)GHFZZ No.45&50


Plaintiff (defendant in counterclaim):		Zhao Yangsheng, male, born on November 19, 1968,  Han nationality, living in Zhaozhai Village, Naozhou Town, Dong Hai Dao Economic Development Zone, Zhanjiang City


Plaintiff (defendant in counterclaim):		Liang Hongfang, male, born on June 14, 1959, Han nationality, living in Yingming Village, Naozhou Town, Dong Hai Dao Economic Development Zone, Zhanjiang City


Agent ad litem acting for above two plaintiffs:

		Zhong Yonghua, lawyer of Hai Dong Law Firm, Zhanjiang 

Agent ad litem acting for above two plaintiffs:		Qin Guanquan, lawyer of Guangdong Yue Hai Law Firm

		

Defendant (plaintiff in counterclaim):		Guangzhou Gao Hua Yachts Manufacturing Co., Ltd.


Address:		Shenjing Village, Changzhou Town, Huangpu District, Guangzhou


Legal representative:		Qiu Zhanwei, chairman 


Agent ad litem:		Zhang Zhaohui, lawyer of Guangzhou Zhong Lian Law Firm


Agent ad litem:		Chen Leiming, assistant lawyer of Guangzhou Zhong Lian Law Firm

	


With regard to the case of dispute arising from the contract of construction filed by the plaintiffs Zhao Yangsheng and Liang Hongfang against Guangzhou Gao Hua Yachts Manufacturing Co., Ltd. (hereinafter referred to as ?°Gao Hua Co.?±), this court accepted it for handling on October 18, 2000 and thereafter formed a collegial bench in accordance with law, and organized the parties concerned to exchange evidences on November 14. Gao Hua Co. raised a counterclaim on November 27. This court organized the parties to exchange evidences for the second time on December 14 and held open hearings on the same day. The plaintiffs Zhao Yangsheng and Liang Hongfang and their agents ad litem Zhong Yonghua and Qin Guanquan, as well as the agents ad litem of the Defendant Gao Hua Co. Zhang Zhaohui and Chen Leiming attended the court hearings. Trial of this case has now been finalized.


The Plaintiffs Zhao Yangsheng and Liang Hongfang complained that on February 21 and June 25, 1998 respectively they entered into a Contract for Construction of 56-Seat High Speed Reinforced Glass Passenger Ship and a Supplementary Agreement thereof with the Defendant, appointing the Defendant to construct two high speed passenger ships for the Plaintiffs and to deliver the ships to the latter within 100 working days as of the date of signing of the Contract. On January 22, 1999, the Defendant delivered the ships. The Plaintiffs named the two ships ?°Fei Shun?± and ?°Fei Li?± and put them into operation. The average daily revenue of each ship from operation amounted to RMB 5,000. On September 19, 2000, in order to recover the outstanding building costs for the ships, the Defendant detained privately ?°Fei Shun?± and diesel oil valuing RMB 1,400, the electric drills valuing more than RMB 500, as well as three sets of HF walkie talkie valuing RMB 6,000 onboard the said ship. For purpose of retrieving the aforesaid properties, the Plaintiffs incurred traveling expenses in amount of RMB 15,000. Furthermore, the Defendant??s unauthorized detainment of the ship had also inflicted the following losses upon the Plaintiffs: RMB 7,500 resulting from idleness in work, RMB 613/month of navigation management fee, RMB 2,100 of berthage, RMB 1,000 of tax and passengers?? harbor dues, RMB 5,000/day of operating costs, and RMB 7,500 of wages for the crewmembers. The Plaintiffs requested the court to order the Defendant to: (1) immediately return the passenger ship ?°Fei Shun?± or to make a compensation for the cost of the ship at RMB 880,000; (2) return 372 kilograms of diesel oil, 3 sets of HF walkie talkie, 2 sets of maintenance and repairing tools, etc.; (3) indemnify direct operational losses in amount of RMB 150,000, traveling expenses at RMB 15,000, losses due to idleness in work at RMB 7,500, navigation management fees at RMB 613, berthage at RMB 2,100, and expenses of tax and passengers?? harbor dues at RMB 1,000.


Within the time limit for adducing evidences, the Plaintiffs submitted the following evidences: (1) Contract for Construction of 56-Seat High Speed Reinforced Glass Passenger Ship and the Supplementary Agreement thereof; (2) Certificate for Delivering and Taking Delivery of Ships; (3) Certificate on Survey of Ship; (4) Certificate on Nationality of Ship; (5) Certificate for Transportation Operations of Ship; (6) receipts of building costs for the ships; (7) written notes of answers to inquiries by the local police station of Shalan Town, Taishan City dated September 19, 2000; (8) receipts of passengers?? harbor dues and berthage of ?°Fei Shun?± and ?°Fei Li?± from May to July, 2000; (9) Bill of Dispatch of Diesel Oil issued by Guangdong Provincial Petroleum Enterprises Group, (Zhenjiang) Jinda Development Co. to Hong Da Co.; (10) payroll of ?°Fei Shun?± from January to September, 2000; (11) Statement of Income and Expenditure of ?°Fei Shun?± from January 1 to September 15, 2000; (12) receipts of navigation management fees of ?°Fei Shun?± and ?°Fei Li?± for December 1999; (13) invoices for wharf hires of ?°Fei Shun?± and ?°Fei Li?± from October 1999 to February 2000; (14) Invoice dated July 30, 1999 of air-conditioners purchased; (15) 6 receipts of maintenance and repairing fees incurred by ?°Fei Shun?± and ?°Fei Li?± from March to October 1999; (16) receipts of harbor dues of ?°Fei Shun?± for August and December 1999; (17) evidence of sales of oil issued by Xia Hai Gas Station to Naozhou fleet; (18) 24 pieces of invoice for traveling fees; (19) 30 pieces of invoice for costs of accommodation and meals.


The Defendant Gao Hua Co. defended and counter-claimed that it was reasonable and legitimate for it to take back one of the two ships in accordance with the provisions of Paragraph 2 of Article 7 of the Supplementary Agreement, because the two Plaintiffs had delayed payments of the construction expenses of the two ships for a long time. Therefore, the Plaintiffs are not entitled to demand return of the ship. Besides, the names of owners of the ?°Fei Shun?± appearing in different certificates are not consistent, varying from ZhaoYangsheng, Liang Hongfang to Hong Rongliang and so on. Hence, the Plaintiffs?? right of action is not certain. As for losses in operations, which could only be incurred upon operators of ships, that is, passenger transport companies, the Plaintiffs, alleged to be the shipowners, are not entitled to claim for compensation. Moreover, the evidences and materials produced by the Plaintiffs are not directly related to this case. Therefore, the Defendant requested to dismiss the claims of these two Plaintiffs.


The Defendant, acting in conformity with the above-mentioned construction Contract and the Supplementary Agreement thereof, constructed and delivered two passenger ships to the Plaintiffs. The Plaintiffs, however, failed to pay, as had been agreed upon, the ship constructing sums progressively as scheduled. On January 23, 1999, the two parties sat to calculate the accounts for constructing the ships, ascertaining that the Plaintiffs still owed the Defendant RMB 510,000, and mutually agreeing that the Plaintiffs shall pay RMB 150,000 to the Defendant by the end of March 1999 while the remaining sum shall be paid up as provided for in the Contract. However, by May 10, 2000, the Plaintiffs paid only RMB 190,000 to the Defendant, with the remaining RMB 320,000 not being paid up to the present. The Defendant requested the court to order the Plaintiffs: (1) To pay the cost of construction of ships in amount of RMB 320,000 overdue; (2) To pay the penalties in amount of RMB 80,000 for overdue payment (by calculating on basis of 0.03% per day from March 30,1999 up to the date of actual payment); (3) To compensate the Defendant for his losses in amount of RMB 20,000 resulting from this litigation.


The Defendant Gao Hua Co. submitted the following evidences and materials within the time limit for adducing evidences: (1) Contract for Construction of 56-Seat High Speed Reinforced Glass Passenger Ship and the Supplementary Agreement thereof; (2) Certificate for Delivering and Taking Delivery of Ship; (3) the IOU issued by the Plaintiffs on January 23, 1999.


Responding to the counterclaim of the Defendant, the Plaintiffs Zhao Yangsheng and Liang Hongfang argued that the Defendant failed to deliver the ships as scheduled with delay for 100 working days, nor did it issue invoices for the payment of the ship building costs as contracted. And less than one year after delivery of the two ships, the air-conditioning systems and the stern shafts of the two ships broke down and the Defendant failed to bring them back to normal operations. As a consequence, the Plaintiffs had to pay RMB 29,199 for the repairs thereof. Considering that the Defendant had seriously violated the contract and agreement, the Plaintiffs was therefore entitled to suspend paying for the rest of the costs for ship construction and to offset the repairing costs. The provisions of Paragraph 2 of Article 7 of the Supplementary Agreement are in violation of the relevant provisions of law and the principle of fairness and, therefore, should be regarded as an invalid clause. In view of that, it was illegal for the Defendant to detain the ship based on that clause. And the request for compensation of penalties and losses resulting from the litigation as claimed by the Defendant are groundless in law and in facts.


While being cross-examined in the court hearings, neither parties contested the evidential documents such as the Contract for Construction of 56-Seat High Speed Reinforced Glass Passenger Ship and the Supplementary Agreement thereof, the Certificate for Delivering and Taking Delivery of Ship, the receipts of payments for costs of ship construction, the IOU, the various certificates of the ?°Fei Shun?± and the written notes of answers to inquiries by the local police station of Shalan Town, Taishan City, etc. Therefore, the collegial bench confirmed the foregoing documents.


The following facts have been ascertained with the help of the above confirmed evidences:


On February 21, 1998, the two Plaintiffs, as Party A, and the Defendant, as Party B, entered into the Contract for Construction of 56-Seat High Speed Reinforced Glass Passenger Ship. On June 25, the two parties to the Contract further concluded a Supplementary Agreement. According to the Contract and Agreement, Party B shall construct two high speed passenger ships at the cost of RMB 880,000 each for Party A and shall deliver them to Party A within 100 working days as of the date of signing the Contract. Should Party A fail to effect the payments of constructing costs progressively as scheduled in the Contract, he shall have to pay a fine for delaying payment at 0.05% per day of the sum payable in the corresponding period. The place of delivery of the ships was the wharf of Party B. Party B guaranteed a one-year free maintenance for the ship structure as of the date of going out of the dockyard of the ship and a two-year free maintenance for serious problems with respect to the ship structure. Subparagraphs 2 & 3 of Article 4 (II) of the Supplementary Agreement provide that upon delivery of the ships, Party A shall pay to Party B RMB 1,000,000 and the remaining sum shall be paid off within 6 months as of the date of going into operation of the ships by Party A. Paragraph 2 of Article 7 of the Supplementary Agreement further stipulates that should Party A fail to pay off the remaining sum as agreed on in the Contract 6 months after the commencement of operations, and should such failure remain for another 6 months, Party A shall unconditionally return one of the ships to Party B.


On January 22, 1999, the representatives for the Plaintiffs and the Defendant delivered and took delivery of the ships at the wharf of the Defendant, and concluded a Certificate for Delivering and Taking Delivery of Ship, which stated that the Plaintiffs had checked and accepted the high speed passenger ships constructed by the Defendant. On the 23rd, the two parties sat to calculate the accounts in relation to the costs of construction of ship. Based on the result of such settlement, the Plaintiffs issued an IOU, stating that they still owed RMB 510,000 as cost of construction of ships to the Defendant and promising to effect the payment in amount of RMB 150,000 by the end of March 1999 and to pay the rest as provided for in the Contract. Thereafter, the Plaintiffs named the two ships ?°Fei Shun?± and ?°Fei Li?± respectively and went through formalities for obtaining various certificates for the ships. The Certificate for Registry of Ship Ownership of the ?°Fei Shun?± states that the owners are Zhao Yangsheng, Liang Hongfang and Hong Rongliang. The Certificate for Transportation Operations of Ship states that the operator of the ship is Zhanjiang Naozhou Passenger Transportation Co. and the date of issuance is February 8, 1999. But in fact, Zhanjiang Naozhou Passenger Transportation Co. is merely the nominal operator of the ?°Fei Shun?±. The actual operators of the ship are the Plaintiffs, who pay management fees to the said company. 


The Plaintiffs paid RMB 10,000 on April 5, 1999, RMB 20,000 on April 14, RMB 20,000 on May 13, RMB 100,000 on June 10, RMB 30,000 on June 18 and RMB 10,000 on May 10, 2000, totaling RMB 190,000, to the Defendant. In order to recover the remaining sum, the Defendant detained the ?°Fei Shun?± at Shanzui Wharf Shalan Town, Taishan City on September 19. Responding to such detainment, Mr. Qiu Zhanwei, Chairman of the Defendant, and the Plaintiff Zhao Yangsheng respectively went to the police station of Shalan Town to report the case, requesting the local police station to handle it. The police station considered the Defendant??s detaining the ship in reliance upon the provisions of their Agreement, namely, Party B is entitled to take back one ship should Party A fail to effect payment of ship constructing costs in due course, to be a civil dispute. Also taking into account that Zhao Yangsheng hoped to settle the dispute by himself and the Defendant, the police station dismissed the case. Thereafter, the Defendant steered the ?°Fei Shun?± back to his wharf and kept it under custody afloat there.


With respect to the disputes between the two parties over the facts of this case, the collegial bench ascertains the following:


I.	Whether there were any diesel oil, electric drills and walkie talkies onboard


The Plaintiffs furnished the Diesel Oil Dispatch Bill issued by Guangdong Provincial Petroleum Enterprises Group, (Zhenjiang) Jinda Development Co. to Hong Da Co. and the evidence for sales of oil issued by Xia Hai Gas Station to Naozhou fleet on August 1, 2000 to evidence the existence of diesel oil, electric drills and walkie talkies onboard. The Defendant contended that there was no sign whatsoever on the Diesel Oil Dispatch Bill or the evidence for sales of oil indicating that they were relevant to this case. The collegial bench adopted the Defendant??s argument and held those evidences having no connection with this case and thus having no effect of proving for this case, and refused adoption of those evidences.


II.	With regard to losses in operations and in charges and dues


For purpose of proving that the detainment of the ?°Fei Shun?± had incurred losses in operations and in charges and dues totaling RMB 161,213, the Plaintiffs produced the following evidences and documents: receipts of passengers?? harbor dues and berthage of the ?°Fei Shun?± and ?°Fei Li?± from May to July 2000; payroll of the ?°Fei Shun?± from January to September, 2000; Statement of Income and Expenditure of the ?°Fei Shun?± from January 1 to September 15, 2000; receipts of navigation management fees of the ?°Fei Shun?± and the ?°Fei Li?± in December 1999; invoices for wharf dues of the ?°Fei Shun?± and the ?°Fei Li?± from October 1999 to February 2000; and receipts of harbor dues of the ?°Fei Shun?± in August and December 1999. The Defendant held that as the payroll and the Statement of Income and Expenditure were made by the Plaintiffs themselves, without being authenticated by relevant legal authorities, they could not reflect the real situation and were thus without any evidencing force. Moreover, none of the passengers?? harbor dues, berthage of the ship, navigation management fees, wharf dues and harbor charges and so on as shown on the receipts and evidences occurred during the period when the ?°Fei Shun?± was taken back and, therefore, they all had no connection with this case. The collegial bench adopted the view of the Defendant and held that the evidences produced by the Plaintiffs were not directly connected with this case. Hence, the collegial bench shall not adopt those evidences of the Plaintiffs.


III.	Regarding the cost of the air-conditioners and the charges for repairs thereof


The Plaintiffs submitted the Invoice for purchase of air-conditioners dated July 30, 1999 and 6 receipts of repair charges of the ?°Fei Shun?± and ?°Fei Li?± on slipway incurred during March-October 1999 to support their claim that the relevant expenses in amount of RMB 29,199 should be deducted from the ship-construction costs. The Defendant refuted that the cost for air-conditioners and the charges of repairs of the ships do not fall within the agreed scope of guaranteed free maintenance of the ship??s structure, and therefore should be borne by the Plaintiffs themselves. The collegial bench held that although the Defendant??s name and address were written on the invoice for purchase of air-conditioners, which seemingly indicated that this sum was paid for and on behalf of the Defendant, yet, the Plaintiffs failed to adduce evidence to prove that the Defendant approved of or appointed them to purchase the air-conditioners on his behalf. Even though the air-conditioners in question were actually used by the ?°Fei Shun?± or the ?°Fei Li?±, they were beyond the range of free maintenance of the ship??s structure as mutually agreed. The Items of Charge on the receipts of on-slipway repairs respectively noted ?°Individual repairs charges?± or ?°on-slipway repairs charges?± for the ?°Fei Shun?± or the ?°Fei Li?±, which was not sufficient to prove that the items of repairs fell within the scope of guaranteed free maintenance in respect of  ship??s structure as previously agreed. Therefore, the Defendant??s confutation was tenable and the collegial bench shall not accept the relevant evidencing documents produced by the Plaintiffs. 


IV.	About the transportation expenses and the accommodation costs


The Plaintiffs submitted 24 invoices of transportation expenses and 30 invoices of costs of accommodation and meals to prove that they had incurred expenses for transportation, accommodation and meals amounting to RMB 15,000 in their attempts to get back their ship under detainment. The Defendant held that there were no records on the above receipts showing the time and purposes for which the charges were actually incurred, so the said receipts were irrelevant to this case. The collegial bench supports the Defendant??s point of view and does not adopt those untenable evidences submitted by the Plaintiffs.


Mr. Hong Rongliang has declared to waive his substantive rights and declined to attend the court hearings of this case. Therefore, the collegial bench shall not summon him to the hearing.


In summary, the collegial bench unanimously holds that:


This case is categorized as a case of dispute over the contracts for construction of ships. Although the Plaintiffs initiated this litigation on the ground of dispute over damages resulting from the detainment of ship, yet the essential nature of this dispute over ship detainment is that over effectiveness of the clause regarding the terms of payment of ship-construction costs in the Contract of construction, which belongs to dispute over contract rather than controversy over act of tort. Mr. Hong Rongliang, though registered to be one of the owners of the ships in question, was not a party to the Contract of construction or the Supplementary Agreement. In addition, he has declined to attend the hearings of this case, and has also declared to waive his substantive rights with respect to this case. Hence, his absence in the court hearings does not affect the rights and obligations of the parties to this case and the normal handling of this case.


The parties to the ship-construction Contract and its Supplementary Agreement are eligible and their contents are in accordance with law. They should be deemed to have reflected the true intents of the parties to them, and is thus ascertained as effective. The provision of paragraph 2 of Article 7 of the Supplementary Agreement, to the effect that should the Plaintiffs fail to pay off the ship-construction costs within the time limit, they should unconditionally return one of the ships to the Defendant, is a clause in respect of liabilities for breach of contract. The wording of such clause is definite and specified and is binding upon both parties to the Contract. The Plaintiffs?? allegation that such clause is in violation of the provisions of law and is invalid shall not be tenable. 


In the course of performance of the Contract, the Plaintiffs took delivery of the ships, obtained various certificates for the ships, and have legally obtained the ownership of the ships. However, this does not affect the Defendant??s contractual right to take back one of the ships to compensate for the remaining and outstanding sum of ship-construction costs and the overdue fine under the circumstance that the Plaintiffs fail to effect payment for the rest of construction costs in time in accordance with the provision of paragraph 2 of Article 7 of the Supplementary Agreement. Thereafter, the Plaintiffs refused to pay the remaining sum of the construction costs on the ground that the Defendant failed to issue invoice for their payments. Such allegation of the Plaintiffs was not well grounded, and the Plaintiffs?? act had constituted a violation of the Contract. In view of the Plaintiffs?? failure to pay off the construction costs, the Defendant detained the ?°Fei Shun?± and kept it in his dockyard without plaintiff??s permission. Such action of the Defendant was not appropriate. However, this does not affect the Defendant??s substantive rights on the detained ship. Therefore, the Defendant is entitled to keep the ?°Fei Shun?± in custody as compensation for the yet-to-be-paid construction costs and the overdue fine thereof. The Plaintiffs have no right to demand the Defendant to release the detained ship or to compensate for their losses resulting from the detainment. Meanwhile, the Plaintiffs?? obligation to pay the rest of the costs and the overdue fine to the Defendant should be deemed to have been performed. All of the corresponding requests of the Plaintiffs and the corresponding counterclaims of the Defendant are not tenable and shall all be dismissed.


The Defendant should have assumed certain liabilities for compensation for his inappropriate and unauthorized detainment of the ship. However, as the Plaintiffs failed to convincingly prove any losses in operations and expenditure they have sustained as a consequence of the Defendant??s detaining the ship, the Plaintiffs?? corresponding request should be dismissed.


With regard to the Plaintiffs?? requests of the Defendant to return the diesel oil, walkie talkies and the maintenance tools onboard, as well as to offset the costs of purchasing air-conditioners and the charges for repairing ships from the remaining sum of the ship-construction costs payable by the Plaintiffs, they should be dismissed as not well-supported by evidences.


The Defendant??s request to order the Plaintiffs to compensate for his losses resulting from this litigation in amount of RMB 20,000 lacks factual and legal basis, and is thus dismissed.


Summing up the above and in accordance with the provisions of Article 111 of the General Principles of Civil Law of the PRC, the judgment is hereby given, as follows:


I.	The litigation requests of the Plaintiffs Zhao Yangsheng and Liang Hongfang are dismissed;


II.	The counterclaims of the Defendant Guagnzhou Gao Hua Yachts Manufacturing Co., Ltd. are dismissed.


The fee for acceptance of the case amounting to RMB 19,268 shall be borne by the Plaintiffs, while that for acceptance of the counterclaim totaling RMB 11,030 shall be assumed by the Defendant.


Should there be any dissatisfaction to this Judgment, a statement of appeal with copies in the number of the opposite party may be submitted to this court within 15 days upon service of this Award. The court of appeal shall be Guangdong Higher People??s Court.



Presiding Judge: Xiong Shaohui

Judge: Xiang Minghua

  Acting Judge: Li Yichuan



(chop of Guangzhou Maritime Court)

Date: January 10, 2001


Certified True Copy


Clerk: Mo Fei