Guangzhou Maritime Court Report on Trials 2011
Foreword
The year 2011 marked the beginning of China’s implementation of the 12th Five-Year Plan for Economic and Social Development, and was a milestone year for the development of the marine economy in Guangdong Province. On 5th 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 1st Jan. 2011, aquaculture permits should be provided, where it was issued before 31st 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.
[1] “three districts” means the Marine Economic Optimization Development District around Pearl River Delta, Key District for Marine Economic Development of eastern part of Guangdong province and Key District for Marine Economic Development of western part of Guangdong province; “three zones” means the Marine Economic Cooperation Zone among Guangdong, Hong Kong and Macau, Marine Economic Cooperation Zone between Guangdong and Fujian and Marine Economic Cooperation Zone among Guangdong, Guangxi and Hainan; “three areas” means the littoral area, offshore sea area (including island area) and blue water area.
粤公网安备44010502002715