A Preliminary Study on the Procedure for Realizing Security Interests of Maritime Liens —Conflict and Connection Between Ship Arrest, Auction, and the Procedure for Realizing Security Interests Abstract: A maritime lien is the right of a creditor to take priority in compensation with regard to a ship. It is among the most important rights in maritime law. Maritime lien aims to protect the interests of lien holders, and its realization procedure constitutes a significant part of the Special Maritime Procedure Law of the People's Republic of China (the "Special Maritime Procedure Law"). There are no legal obstacles to the introduction of special procedure for realizing security interests in maritime law. Considering this, this article explores the application of special procedure for realizing security interests and examines its connection with existing procedures, with a view to offering new insights for the revision of the Special Maritime Procedure Law. Keywords: Procedure for Realizing Security Interests, Maritime Lien, Substantive Dispute A special procedure for realizing security interests was introduced in the Civil Procedure Law of the People's Republic of China revised in 2012 (the "Civil Procedure Law"), to address the complex and lengthy procedure for realizing security interests through litigation and more effectively safeguard the legitimate rights and interests of creditors. Specifically, under this procedure, those entitled to request the realization of such interests are not required to initiate substantive litigation first. Instead, they may directly apply to the court for the auction or sale of the secured property. When this procedure was first introduced, there were differing views within the academic community regarding its applicability to ship security interests in maritime law. Later, the Interpretations of the Supreme People's Court on the Applicability of the Civil Procedure Law of the People's Republic of China (the "Interpretations to the Civil Procedure Law") clarified that the procedure for realizing security interests applies to ship security interests. [1] However, many issues remain unresolved, particularly concerning the application of this procedure to maritime liens, a unique concept under the Maritime Code of the People's Republic of China (the "Maritime Code"). I. Methods for Realizing Maritime Liens Maritime lien is a long-established legal concept, adopted or recognized by the laws of many maritime nations. The Maritime Code gives a clear definition of "maritime lien," stating in the section on maritime liens that "A maritime lien is the right of the claimant, subject to the provisions of Article 22 of this Code, to take priority in compensation against shipowners, bareboat charterers or ship operators with respect to the ship which gave rise to the said claim." Article 22 further specifies that only five types of maritime claimants shall be entitled to enjoy priority in compensation with respect to the ship which gave rise to the said claim. In maritime judicial practice, a maritime lien is typically enforced through a litigation process that leads to an enforceable judgment. This judgment serves as the basis for requesting the court to auction the ship in order to satisfy the lien. Additionally, due to legal provisions and the unique characteristics of ships—such as their mobility and high value—maritime lien holders often apply for ship arrest before or during the litigation process. This ensures that the ship can later be sold at a judicial auction to satisfy the claim. Hence, in judicial practice, there are primarily two procedures for realizing maritime liens. The first one involves confirming the maritime lien through court litigation, followed by a judicial auction to realize the claim. In this procedure, current judicial practice does not require maritime lien holders to apply for ship arrest. However, if they do so before litigation, they must file a lawsuit with the competent court within 30 days. After obtaining an effective judgment, they may then apply to the court for auction of the ship. Following the statutory processes of debt registration and rights confirmation lawsuit, the lien holders can receive the proceeds from the auction according to the legal compensation procedures. The second procedure involves debt registration and confirmation litigation after a judicial auction of the ship, followed by compensation. This procedure applies when the ship has already been judicially auctioned by the court. Maritime lien holders then register their claims, initiate confirmation litigation, and ultimately participate in the distribution of the auction proceeds. If maritime lien holders have already filed a lawsuit or obtained an effective ruling before the court's compulsory auction, they may directly participate in the distribution of the auction proceeds after debt registration without undergoing confirmation litigation. Clearly, these two procedures for realizing maritime liens are essentially the same, both involving a lawsuit, auction, debt registration, confirmation litigation, and distribution to ultimately realize the lien holders' priority in compensation. Since ship auctions must undergo a legal process of rights elimination, which is undeniably time-consuming, efficiently disposing of auctioned ships has long been a key issue in maritime enforcement practice, as it directly affects how quickly creditors can recover their funds. The second (or final) stage of substantive litigation inevitably leads to a lengthy, high-cost process for realizing maritime liens, which is not conducive to safeguarding creditors' interests. The amendment of the Civil Procedure Law introduced the procedure for realizing security interests in its chapter on special procedure. Articles 196 and 197 of the law stipulate that the holder of security interests, along with other parties with the enforcement rights, may file an application with the basic people's court where the secured property is located or where the secured real rights are registered, in accordance with the Property Law and other laws. If the application meets the legal requirements upon examination, the court may issue a ruling for the auction or sale of the secured property, and the parties may request enforcement pursuant to the ruling. This indicates that the Civil Procedure Law specifies the applicability of non-litigation procedures for realizing security interests. Furthermore, the Civil Procedure Law's provision on special procedure requires that cases involving the realization of security interests must be concluded within 30 days from the date of filing, following a final judgment after the first-instance trial. This reflects the efficiency and convenience of the procedure, while balancing both efficiency and fairness. The Interpretations to the Civil Procedure Law also clarify that maritime courts have exclusive jurisdiction over cases involving the realization of security interests. With this, a legal basis is established for applying the special procedure for realizing security interests to maritime liens. Although the realization of the ship's real rights is still influenced by debt registration and confirmation litigation in ship auctions, this procedure minimizes both litigation and time costs for the parties. However, whether this procedure can be applied to maritime liens in maritime law has not yet been definitively settled. In the interpretation and application of the Interpretations to the Civil Procedure Law, a view on the priority of construction project payment, similar to maritime lien, holds that [2]: "The provisions of the Contract Law on the priority of construction project payment can be seen as a breakthrough in the realization of claims. However, whether the priority of construction payment claims constitutes a statutory mortgage remains controversial in both theory and practice. Some scholars argue that it is a statutory mortgage, while others consider it a statutory lien. For this reason, the judicial interpretations do not explicitly allow the priority of construction payment claims to apply to this procedure." This seems to leave no room for the application of the priority of construction project payment. The legal provisions on the procedure for realizing security interests do not appear to exclude maritime liens. The authors believe that the special procedure for realizing security interests under the Civil Procedure Law may apply to maritime liens. II. Theoretical Analysis of the Application of the Procedure for Realizing Security Interests to Maritime Liens The Maritime Code provides a complete system for the realization of maritime liens. To integrate the procedure for realizing security interests into this theoretical system, it is essential to ensure that the application of this procedure does not undermine the existing framework. Therefore, the legal basis and institutional design of maritime liens will determine whether the procedure for realizing security interests can be specifically applied. (i) The Nature of Maritime Liens The nature of maritime liens—whether they are substantive or procedural rights— has been a subject of debate both domestically and internationally. Some domestic viewpoints consider maritime liens to be procedural rights, while others view them as substantive rights, specifically as security interests within the scope of real rights or special creditor's rights. This debate remained unresolved when the Maritime Code was finalized, so the Maritime Code adopted a neutral stance to avoid controversy to avoid controversy. However, as the research on maritime liens has advanced, a consensus has emerged. Today, maritime liens are primarily regarded as substantive rights, specifically real rights over ships, i.e., a type of ship security interest. [3] This view holds that the purpose of maritime liens is to ensure the satisfaction of the debts they secure. Maritime liens align with the characteristics of security interests: they are established on specific ships, possess statutory, dependent, in rem, and tracing effects; they arise, transfer, and extinguish with the debts they secure, reflecting the subordinate nature of security interests; and they exhibit the priority characteristic of security interests, seeking priority in compensation without requiring the transfer of possession of the secured property. Given their inherent nature, essential characteristics, statutory foundation, and priority in compensation, maritime liens can be regarded as a type of security interest, making the application of the procedure for realizing security interests a natural conclusion. (ii) The Extent of Maritime Liens The Maritime Code defines a maritime lien as a right of the claimant to take priority in compensation against the ship that is the subject of the maritime claim. To realize this priority in compensation, Articles 24, 25, and 28 of the Maritime Code stipulate that the prerequisite for exercising maritime liens is the court's arrest of the ship in question, followed by the conversion of the ship from a physical asset to a monetary form through a judicial auction. The chapters on "Arrest and Auction of Ships" and "Procedure for Registration and Repayment of Debt" in the Special Maritime Procedure Law, along with the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Arrest and Auction of Ships, define the realization of maritime liens as involving four main parts: ship arrest, ship auction, rights registration, and proceeds distribution. These statutory steps must be followed to realize maritime liens. Thus, the realization of a maritime lien requires the arrest and auction of the ship in question, which aligns with the special procedure for realizing security interests. Moreover, the statutory grounds for the extinction of maritime liens also demonstrate consistency with the special procedure for realizing security interests. Article 29 of the Maritime Code clearly states that a maritime lien can be extinguished either if the claimant fails to enforce it or if the ship is lost or sold through a court-ordered forced sale. In maritime judicial practice, the most common scenario for extinguishing a maritime lien is the court's forced auction of the ship. However, a maritime lien cannot be extinguished by a commercial auction or a general ship sale. Due to the dependent nature of maritime liens, they do not automatically terminate with the transfer of the ship’s ownership. Only a judicial auction by the court, following the statutory "cleaning" process, can terminate all claims attached to the ship, resulting in a "clean ship". This coincides with the "ruling to auction or sell the secured property" in the procedure for realizing security interests. Therefore, the ship auction process outlined in the Maritime Code for realizing maritime liens is consistent with the special procedure for realizing security interests, and there are no procedural obstacles to their application. III. Regulation and Connection of the Procedure for Realizing Maritime Liens In maritime judicial practice, the confirmation and realization of maritime liens follow a well-established theoretical framework. The confirmation of a maritime lien generally involves the court arresting the ship before or during litigation and confirming the lien through a judgment. The realization of a maritime lien then involves the lien holder applying to the court for the auction of the ship to achieve priority in compensation. In the non-litigation procedure for realizing security interests, the realization of ship mortgages and other ship security interests has been practiced for many years. Although legal provisions in this area remain somewhat rudimentary—such as the lack of detailed regulations on service of public announcement or jurisdictional issues—a theoretical system has gradually taken shape, awaiting unified legal provisions. As such, general issues can be addressed by referring to the special procedure for realizing maritime security interests. However, maritime liens have unique characteristics compared to other security interests. Therefore, the procedure for realizing the security interests of maritime liens must consider how it connects and transforms with the existing procedures for realizing maritime liens, based on the current non-litigation procedures for maritime security interests. (i) Connection with Ship Arrest and Auction The procedures most closely related to the realization of maritime liens are ship arrest and auction. Below, we explore the connection between these two procedures and the application of the special procedure for realizing security interests, along with regulations for situations where the realization of security interests procedure may not be suitable for ship arrest and auction. 1. Ship arrest procedure. Ship arrest includes arrest for preservation and arrest for enforcement. In China's legal system, the arrest for enforcement, which is an essential prerequisite for ship auction, aligns with the current civil enforcement system. Both are essential steps in property realization will not be discussed in further detail here. On the other hand, the arrest for preservation, as a property preservation measure, is also a necessary condition for exercising maritime liens. Although the current maritime judicial practice in China does not always require creditors to apply for ship arrest when asserting a maritime lien, arrest must occur before a ship can be auctioned, thereby guaranteeing the realization of the lien. Moreover, maritime liens have a statutory time limit for enforcement. If the time limit expires during the confirmation of a maritime lien, a ship arrest must be applied for to prevent the maritime lien from being extinguished. Therefore, ship arrest is a necessary and essential procedure for the realization of maritime liens. Can preservation measures be applied in the procedure for realizing security interests? Ship arrest for preservation comprises pre-litigation preservation and during-litigation preservation. For pre-litigation preservation, applying to the court for ship arrest before litigation requires filing a lawsuit within the statutory period. Otherwise, the court will discharge the preservation, as set forth in the Special Maritime Procedure Law. "Filing a lawsuit" in this context does not exclude lawsuits for realizing security interests. Therefore, as long as the procedure for realizing security interests of maritime liens is initiated within the 30-day statutory period for pre-litigation ship arrest, this is permissible. In case of preservation during litigation, it is realistic to consider that the debtor or property possessor may maliciously transfer assets. If preservation measures are not allowed during the procedure for realizing security interests, dishonest debtors could transfer assets during the case review period, making it difficult for claimants to realize their rights and undermining the implementation of the procedure. Allowing preservation, especially for easily transferable or concealable assets, ensures the enforceability of the secured property and the validity of the ruling permitting auction or sale. Thus, the Interpretations to the Civil Procedure Law allows property preservation in cases involving the realization of security interests. [4] Accordingly, in the procedure for realizing security interest of maritime liens, lien holders may apply for ship arrest in accordance with the Civil Procedure Law and the Special Maritime Procedure Law. 2. Ship auction procedure. Under the general provisions of the procedure for realizing security interests, if the court finds the application compliant with legal requirements, it will issue a ruling permitting the sale or auction of the secured property. The main text of the ruling should be "permission to auction the property", and it will be enforceable. The security interest holder may then apply to the court for enforcement and auction. This is the basic effect of the ruling permitting the auction of the secured property and the purpose of the rights holder initiating the procedure. The Special Maritime Procedure Law provides for two forms of ship auction: auction during litigation and auction during enforcement. The auction during enforcement is a natural follow-up to the procedure for realizing security interests and a necessary path for realizing maritime liens. It does not conflict with the procedure for realizing security interests, so we will not discuss it further here. Regarding the auction of ships during maritime litigation proceedings, Article 29 of the Special Maritime Procedure Law [5] provides detailed provisions. This is a derivative procedure following the arrest of the ship for preservation. The authors believe that the procedure for realizing security interests is a special procedure designed to quickly resolve controversies over security interests, where no substantive issues are in dispute between the parties, and promptly realize the legitimate rights and interests of security interest holders. It emphasizes efficiency, convenience, and cost-saving, while balancing fairness. Ship auction during litigation considers the unique characteristics of ships and protects the legitimate rights and interests of the claimants. When it is no longer inappropriate to continue the arrest and the respondent does not provide a guarantee, the ship can be liquidated in advance to save judicial auction costs. However, ship auctions have strict statutory procedures, and due to debt registration announcement period, the process and duration of liquidating ships can often be lengthy. The special procedure for realizing security interests aims for quick resolution through final judgment at first-instance trial, with a trial period of only 30 days. It is designed to quickly confirm the existence of legal facts and whether the claimant is entitled to exercise a specific right. In contrast to general litigation, the special procedure for realizing security interests has a much shorter trial period and process. Even when it is no longer appropriate to continue the arrest, liquidation can still occur during enforcement. Moreover, the time required for ship liquidation often exceeds 90 days, far exceeding the 30-day trial period of the special procedure. Allowing ship auctions within the special procedure would compromise the efficiency and simplicity of the process, contradicting its legislative intent. Therefore, the special procedure for realizing security interests of maritime liens should not include procedural measures such as ship liquidation and is not suitable for ship auction procedures during litigation. As for issues derived from ship auctions, such as debt registration and confirmation litigation during the auction announcement period, the Special Maritime Procedure Law clearly provides that maritime liens or security interests must undergo confirmation litigation if the debt registration occurs during the announcement period following the ship auction. According to the Special Maritime Procedure Law, the provisions of the Civil Procedure Law apply only in cases not covered by the Special Maritime Procedure Law. In the authors' opinion, since the Special Maritime Procedure Law has clear provisions on debt registration and confirmation litigation, applying confirmation litigation after ship auctions would be inappropriate in the procedure for realizing security interests. (ii) The Issue of Qualified Claimants in the Procedure for Realizing Maritime Liens The scope of claimants in the procedure for realizing security interests directly determines the eligibility of the parties involved. For the general procedure for realizing security interests, Article 196 of the Civil Procedure Law stipulates that the claimants are "security interest holders and other parties entitled to request for the realization of security interests". The Interpretations to the Civil Procedure Law further specifies "mortgagees, pledgees, and lien holders" as security interest holders, while "mortgagors, pledgors, debtors whose properties are pledged, and owners of property" as other parties entitled to request for the realization of security interests. When applying this procedure to maritime law, particularly maritime liens, how should the claimants in the procedure for realizing security interest of maritime liens be defined? According to the authors, in line with the legislative intent of the procedure for realizing security interests, claimants in the procedure for realizing security interests of maritime liens can be broadly divided into two categories. The first category includes maritime lien holders. Article 22 of the Maritime Code specifies five types of maritime lien holders, all of whom may assert priority in compensation from the auction of ships through the special procedure for realizing security interests. This aligns with both legal theory and practice. The second category includes shipowners, who are specifically referred to by maritime liens. As stipulated in the Maritime Code, the claims of maritime lien holders are not always asserted against shipowners but may also be directed against bareboat charterers or ship operators. However, due to the in rem nature of maritime liens, the claimant can take priority in compensation with respect to the ship which gives rise to the said claim. In simple terms, the ship—owned by a third party—is used to "secure performance" by the bareboat charterer or ship operator, who incurs the debt. This situation is similar to third-party security in ordinary civil disputes, where the law allows the third party to initiate the procedure for realizing security interests. Thus, when maritime lien holders fail to exercise their rights, potentially leading to a decline in the ship's value or even damage or loss, the shipowner should be allowed to initiate the procedure for realizing security interests and be recognized as a qualified claimant. (iii) Transformation with Litigation Procedures—Substantive Disputes in the Adjudication of Cases Involving the Realization of Security Interests Given the simplicity and economic efficiency requirements of non-contentious procedures, the Civil Procedure Law stipulates that the procedure for realizing security interests should be subject to a final judgment after the first-instance trial. Similarly, the application of maritime liens should adhere to the single-instance final judgment with a 30-day trial period. Although the law does not allow appeals against the procedure for realizing security interests, it gives claimants alternative remedies. If the court determines that there is a substantive dispute among the parties regarding the realization of security interests, it will rule to dismiss the application and inform the claimant to file a lawsuit with the court. This provides a simple way to connect the special procedure with litigation. In cases involving substantive disputes, the transformation between the procedure for realizing security interests and the litigation procedure can be manifested in several forms. The Interpretations to the Civil Procedure Law provides a clear definition of what constitutes a substantive dispute. The emergence of substantive disputes aims to balance procedural fairness and curb fraud litigation. Specifically, in the context of maritime liens, this article examines two prominent types of disputes that may qualify as substantive disputes. First, a common dispute arises when the ship is not owned by the debtor but by a different actual owner. This kind of dispute is often encountered in cases involving the realization of security interests, particularly in enforcing ship mortgages. The prevalent practice of registering ships under nominal owners in the shipping industry leads to conflicts between registered owners and actual owners. This issue is especially evident in mortgage cases. If the court rules to permit the auction or sale of the ship, whether this constitutes "infringement of the lawful rights and interests of others" in substantive disputes is debatable. However, in cases involving maritime liens, the attachment and specificity of maritime liens ensure that the liens are not extinguished upon the transfer of the ship. Regardless of the ship transfer process or any change in the actual owner change, the specific maritime claim still enjoys priority in compensation against the designated ship. Hence, such a defense does not constitute a substantive dispute in the procedure for realizing security interests of maritime liens. In this scenario, if the court determines that the objection raised by the actual owner is unfounded and permits the sale or auction of the ship, how can the actual owner seek relief for their rights? The law does not provide clear guidance. Some argue that the actual owner should file an objection during the enforcement procedure, but since the actual owner has already participated in the litigation regarding the realization of security interests, they cannot file an objection to the enforcement subject as a third party under Article 227 of the Civil Procedure Law. Can they initiate a retrial? The authors are of the opinion that this is also not possible, as the special procedure for realizing security interests is based on undisputed facts. The review process will not change the substantive rights and obligations, meaning the ruling lacks res judicata effect, thus making a retrial untenable. In this situation, the actual owner has the right to file a separate lawsuit regarding the substantive rights and obligations involved in the ruling on the realization of security interests and initiate an ordinary civil lawsuit. Second, a dispute may arise when a maritime lien holder with higher priority in the order of compensation raises an objection. This kind of dispute is particularly detrimental to the general concept of security interests, as they must ensure that higher-priority creditors are compensated first, with any remaining funds distributed to lower-priority creditors Therefore, when a higher-priority creditor raises an objection, it should be considered a substantive dispute that harms the legitimate rights and interests of others. However, in the context of maritime liens, the auction of a ship must undergo debt registration and confirmation litigation procedures. After these procedures, the enforcement agency can distribute the auction proceeds according to the statutory order of compensation. Thus, objections regarding priority claims against the ship should not be considered substantive disputes. IV. Conclusions The Civil Procedure Law (2012), based on comprehensive consideration of judicial practice, established the procedure for realizing security interests as a separate section under special procedure, clarifying this system from a legal perspective. However, due to its highly generalized provisions—consisting of only two articles—the practical application of this procedure has encountered numerous challenges. Subsequently, the Interpretations to the Civil Procedure Law addressed some of these obstacles in judicial practice. Nevertheless, when this system is applied to maritime law, the unique characteristics of ships as special movable property and the special nature of ship security interests and maritime liens make the procedure for realizing security interests in maritime law particularly difficult, with very limited applicability. A search of the China Judgments Online database using the keyword "application for realizing security interests" reveals only a few relevant cases from maritime courts nationwide. The original intent behind establishing the procedure for realizing security interests was to ensure the efficient and prompt realization of rights, thereby more fully protecting the legitimate rights and interests of various civil subjects. Ships, as iconic assets in maritime law, are frequently involved in cases concerning mortgages, liens, and priority rights. However, effectively "localizing" the procedure for realizing security interests in the maritime judicial practice requires further exploration and experimentation. This article represents the authors' preliminary investigation into relevant issues encountered in maritime judicial practice, as well as further research and discussion on whether and how this procedure can be applied, and how it can be connected with existing procedures in judicial practice. Given the particularities of ship security interests and maritime liens, it is recommended that the Supreme People's Court amend the Special Maritime Procedure Law or make specific provisions to address these issues. Authors: Chang Weiping & Lin Xiaobin, Guangzhou Maritime Court Notes: Omitted

Abstract: The limitation of liability for maritime claims (LLMC) system is a fundamental component of the Maritime Code, developed alongside the expansion of the maritime industry to safeguard the legitimate rights and interests of shipowners and other maritime stakeholders. As economic and societal conditions continue to evolve, emerging maritime actors, including voyage charterers, ship managers, non-vessel-operating common carriers (NVOCCs), port operators, and pilots' associations, have been involved in maritime-related operations. The question of whether these emerging entities qualify as LLMC subjects has sparked extensive academic discussion. While some entities have gradually gained recognition under international conventions, others remain in a state of ambiguity. Clarifying whether these entities fall within the scope of LLMC subjects is of critical significance for guiding practical applications. This article attempts to address two key issues: first, whether there is a theoretical foundation for the expansion of the scope of LLMC subjects; second, how legislation should define the applicable range of LLMC subjects. Keywords: Subjects of the Limitation of Liability for Maritime Claims, Ship Managers, Ship Operators I. Concept and Value (i) The Unique Characteristics of LLMC The emergence of the limitation of liability for maritime claims (LLMC) system is an inevitable outcome. Navigation is inherently a hazardous activity due to the unpredictable nature of maritime weather conditions. This risk was further exacerbated in earlier times by the relatively primitive shipbuilding techniques and communication methods available. As a result, the risks associated with carriage by sea have historically been far greater than those encountered in land transport. Additionally, maritime accidents often lead to significant losses. Under such perilous conditions, if the general principles of civil law were applied to require captains, crew members, and other liable parties to bear full liability for damages, it would undoubtedly hinder the development of the shipping industry. In this context, the necessity of limiting the liability for maritime claims becomes evident. LLMC represents a significant departure from the traditional tort law, in terms of both the limits on compensation amounts and the scope of the principle of full and complete indemnity, so that the liable parties are not forced into financial ruin due to excessive liability claims. Over the years, however, the LLMC system has continued to evolve. Its scope of application has expanded from the initial purpose of protecting the shipping industry to, as specified under Article 207 of the Maritime Code of the People's Republic of China (the "Maritime Code"), encompassing subjects of tort liability. Consequently, the scope of LLMC subjects must also evolve continuously to optimize the system's configuration and enable it to achieve its maximum effectiveness. (ii) The Development of LLMC Subjects LLMC subjects refer to individuals or entities that bear liability for maritime claims and are legally entitled to limit liability. Initially, the LLMC system applied only to shipowners. However, with the growth of the shipping industry and the ongoing evolution and refinement of the system, its scope of application has steadily expanded. The 1924 International Convention for the Unification of Certain Rules Relating to the Limitation of the Liability of Owners of Seagoing Vessels (the "1924 Convention") first extended the right to limit liability to "person who operates the vessel without owning it" or "the principal charterer". However, the 1924 Convention did not include employees of shipowners as subjects entitled to limit liability, which led to situations where certain creditors pursued claims against these employees. Consequently, such individuals were excluded from entitlement to limit liability.  To address this deficiency, the 1957 International Convention Relating to the Limitation of Liability of Owners of Sea-Going Ships (the "1957 Convention"), building on the 1924 Convention, broadened the scope of subjects entitled to limit liability to include "charterer, manager and operator of the ship, and to the master, members of the crew and other servants of the owner, charterer, manager or operator acting in the course of their employment". Later, the 1976 Convention on Limitation of Liability for Maritime Claims (the "1976 Convention") further expanded this scope by adding "salvors" and "insurer of liability for claims subject to limitation" as subjects entitled to limit liability. China's Maritime Code closely aligns with the 1976 Convention in its provisions concerning LLMC subjects. II. Foundation and Practice (i) Case Analysis of LLMC Subjects Currently, courts determine whether a liable party is entitled to LLMC based on Articles 204 to 206 of the Maritime Code. However, in practice, issues frequently arise during judicial proceedings due to the restrictive definition of LLMC subjects. The following analysis demonstrates the necessity of expanding the scope of LLMC subjects by presenting cases involving contentious entities. 1. Maintenance Entities The maintenance and repair of ships are essential to the sustainable development of the shipping industry. In this regard, repair yards play a pivotal role in ensuring the operational readiness of vessels. However, repair yards are not currently included as subjects entitled to LLMC, posing challenges in judicial practice. Case: A vessel operated by the Nansha Navigation Channel Center underwent repairs at a repair yard in Zhongshan. During the repairs, the vessel's engine had been removed, rendering it a non-propelled ship. Prior to the arrival of a typhoon, the repair yard notified the operator to implement typhoon-prevention measures. However, the operator's failure to take appropriate measures resulted in the breaking of the ship's mooring ropes, causing the vessel to drift and collide with a wharf, thereby incurring damages exceeding RMB 8 million. The wharf operator filed a lawsuit. The court judgment determined that both the Nansha Navigation Channel Center and the repair yard shall bear liability. Since the vessel was non-propelled and under the control of the repair yard, the latter was deemed as the principal liable party. However, under Articles 204 and 205 of the Maritime Code, repair yards do not qualify as LLMC subjects. Imposing principal liability on the repair yard would result in a significant imbalance of interests. For this reason, the final judgment limited the repair yard's liability to 10%. This resolution, however, conflicts with the provisions of the Tort Liability Law of the People's Republic of China, highlighting a significant gap in the current legal framework. ( (2018) Yue 72 Min Chu No. 853; (2019) Yue Min Zhong No. 3208.) 2. Voyage Charterers Regarding whether "charterer of a ship", as stipulated in Paragraph 2, Article 204 of the Maritime Code, includes voyage charterer, the relevant laws provide no explicit clarification, leading to differing interpretations among courts and scholars. Case: A Tangshan-based company acted as the voyage charterer under a charter party for the vessel JIN HANG 18 and arranged for the carriage of a full shipment of goods from Caofeidian Port to Guangzhou Minmetals Wharf. During the voyage, the vessel was involved in a collision, resulting in cargo damage. When the insurer filed a subrogation claim, the Tangshan company asserted its entitlement to limit liability for maritime claims. The court ruled that the "charter party" referred to in Chapter VI of the Maritime Code does not encompass voyage charter party. Instead, a voyage charter party falls within the scope of transportation contract, and thus voyage charterer is not entitled to limit liability for maritime claims. ((2014) Guang Hai Fa Chu Zi No. 118.) Nevertheless, Professor Si Yuzhuo, a maritime law scholar, holds a different view, arguing that the court's interpretation lacks a solid legal foundation. He contends that distinguishing between charterers "engaged in the operation of transport" and those "engaged in the operation of ship" is conceptually vague and lacks scientific rigor. While voyage charterers differ from time charterers and bareboat charterers in terms of the degree of control over the vessel, they share the essential characteristics of using the vessel, benefiting from it, and assuming corresponding risks and liabilities. As such, international conventions and the Maritime Code do not draw distinctions between voyage charterers and other charterers. Whether a charterer is engaged in "the operation of ship" or "the operation of transport" is inherently difficult to define, as the two concepts substantially overlap. Drawing a rigid distinction between them could result in shipowners or charterers being denied LLMC protection, thereby undermining the LLMC system's intended purpose. 3. Non-Vessel-Operating Common Carriers (NVOCCs) Under the current legal framework, NVOCCs are not recognized as LLMC subjects. The Fourth Civil Division of the Supreme People's Court has clarified that NVOCCs are characterized by their lack of ownership of vessels and their primary engagement in the operation of transport, rather than the operation of ship. As a result, they have no direct interest in the vessel itself. Thus, NVOCC operators are not classified as ship operators and cannot qualify as LLMC subjects. Case: Shanghai Trading Company entered into a sales contract with a third party for hot-rolled products and subsequently engaged Benxi Company to carry the goods from Dalian to Shanghai. After accepting this engagement, Benxi Company further engaged Dalian Shipping Agency for the transportation. Dalian Shipping Agency, in turn, engaged Jiangsu Company to carry out the transport using its own vessel. Jiangsu Company issued a domestic waterway cargo bill of lading, which set out Benxi Company as the shipper. During the voyage, the vessel sank, resulting in a total loss of the cargo. Jiangsu Company then applied to establish a fund for LLMC. Based on the current legal provisions and the aforementioned interpretation, Benxi Company was classified as an NVOCC. Accordingly, it is not entitled to LLMC. Upon receiving notice from the court, Benxi Company is obligated to either register the claims of the cargo owners on their behalf or notify the cargo owners to register their claims with the court to seek compensation. 4. Port Operators The Guangzhou Maritime Court (GZMC) has determined that port operators are not among LLMC subjects as defined under Article 204 of the Maritime Code. Therefore, claims by port operators seeking limit liability are not supported by the court. ((2017) Yue 72 Min Chu No. 425.) Case: Huizhou Company purchased a batch of goods from an American company under FOB terms. The goods were transported from the United States to Yantian Port, Shenzhen and showed no visible issues upon arrival. Yet container damage was subsequently discovered at the port. The insurer for Huizhou Company, Mitsui Sumitomo Guangzhou Branch, compensated the insured party and obtained subrogation rights. The insurer then initiated legal proceedings against both the carrier and the port operator, claiming compensation for the cargo damage. In defense, the port operator argued that it had accepted the containers as entrusted by the carrier and that if compensation was required, it should be entitled to LLMC. Nevertheless, GZMC strictly adhered to the provisions of the Maritime Code regarding eligible LLMC subjects and ruled that port operators do not qualify for such protection. (ii) Conservatism in Expanding the Scope of LLMC Subjects during the Amendment of the Maritime Code As illustrated in the aforementioned cases, GZMC strictly relies on Articles 204 to 206 of the Maritime Code to determine whether a party qualifies as a LLMC subject. Historically, the LLMC system applied only to shipowners. However, with the growth of the shipping industry and the ongoing evolution and refinement of the system, its scope of application has steadily expanded. China's Maritime Code closely aligns with the 1976 Convention in its provisions concerning LLMC subjects. The ongoing amendment of the Maritime Code has triggered robust scholarly debate. Some scholars propose expanding the scope of LLMC subjects under Article 204 to include "ship managers". This suggestion is grounded in an expansive interpretation of "shipowners". At the inception of the system, the right to limit liability was confined to shipowners. However, with the diversification of ship operations, parties such as charterers, operators, and managers have assumed roles in ship operations, often inheriting or substituting the responsibilities of shipowners. Accordingly, these parties should be granted the right to limit liability. The draft amendment to the Maritime Code does not propose changes to Articles 205 and 206, as these provisions are deemed sufficiently clear and rarely contested in practice. It is therefore recommended that they be retained. Beyond this, the draft does not include additional subjects, reflecting a conservative approach among Chinese maritime law scholars regarding the expansion of LLMC subjects. Nevertheless, this conservatism raises a crucial question: In cases where multiple parties are simultaneously entitled to limit liability, should the base for determining the limit be reduced accordingly? For example, in the cases cited earlier—(2018) Yue 72 Min Chu No. 853 and (2019) Yue Min Zhong No. 3208—the second-instance court identified both the ship operator and the maintenance entity as liable parties. If the maintenance entity were also eligible to limit liability, how should compensation be determined? Specifically, should the base of liability of one party be reduced if the other party has already compensated the claimant? The second-instance court concluded that no such reduction should be made. Since both parties had already benefited from the limitation, further reduction would disproportionately harm the claimant and disrupt the balance of interests. III. Construction and Reference (i) Balancing Interests Among Subjects As discussed earlier, LLMC represents a significant departure from the principle of full and complete indemnity under tort law, in terms of both the limits on compensation amounts and the scope of the principle of full and complete indemnity, that is, allowing liable parties to limit their liability. While this limitation provides financial protection for liable parties, it has sparked controversy. With rapid technological advancement, ships now possess significantly enhanced capabilities to withstand maritime risks. Therefore, LLMC is often criticized for disproportionately favoring shipowners, thereby creating inequities for injured parties. Shipowner, leveraging modern communication technologies, can now effectively monitor and control vessels during navigation. Under such circumstances, continuing to justify the limitation of liability based on the argument that shipowners cannot effectively oversee their vessels no longer aligns with contemporary shipping realities. Furthermore, the robust insurance industry has significantly mitigated the risks borne by LLMC subjects. These factors contribute to an imbalance of interests within the current system. To improve the LLMC system, it is essential to consider the interests of all stakeholders. Achieving a balance among these interests forms a necessary foundation for further legislative efforts to expand the scope of LLMC subjects. (ii) Expanding to Include Ship Managers The proposal to include ship managers, particularly extending eligibility to maintenance entities, has sparked extensive debate within the maritime community. Certain judges argue that, given the distinct nature of the Maritime Code, adjudication in this area should not be approached through traditional civil and commercial frameworks. In the draft amendment to the Maritime Code, ship managers are defined as individuals or entities engaged by shipowners or bareboat charterers to provide crew, ensure the safety of the vessel, and manage its equipment, maintenance, inspections, and other technical support. Ship management is defined as a technical activity integral to the operation of ships. Like ship operators, ship managers may also bear liability for maritime claims, thereby potentially qualifying as LLMC subjects. Granting ship managers the right to LLMC is both a practical necessity and an effort to align domestic legislation with international conventions. (iii) Broadening the Definition of Ship Operator Professor Si Yuzhuo has argued that distinctions between ship operators, ship managers, and bareboat charterers should not be overly emphasized. Essentially, their operational activities revolve around the control, utilization, and profitability of ships. Paragraph 4, Article 2 of the 1986 United Nations Convention on Conditions for Registration of Ships defines a ship operator as a person "to whom the responsibilities of the owner or bareboat charterer has been formally assigned". This definition demonstrates that there are no clear or rigid boundaries among these three roles. Overemphasizing such distinctions risks creating inconsistent treatment of different parties, potentially hindering the development of the maritime industry. (iv) Including Pilots' Associations National laws globally establish clear provisions regarding compulsory pilotage zones and mandatory pilotage for foreign vessels entering domestic ports. In situations where a pilot causes damage to a vessel during the pilotage process, the question arises as to whether the pilot or their associated pilots' association should bear the corresponding liability or be entitled to limit liability. However, China's maritime laws lack explicit provisions regarding the legal status of pilots, and international conventions similarly do not address whether pilots are entitled to limit liability. Provisions concerning the limitation of liability for pilots can only be found in some national laws. For example, the Regulations on Pilotage in Sea Ports of the Ministry of Transport of the People's Republic of China stipulate that a pilot may be entitled to limit liability only if the occurrence of a marine accident is attributable to pilot negligence. Given that pilots or their associated pilots' associations may be entitled to limit liability, it is necessary to explicitly incorporate such provisions into relevant maritime laws. Doing so would standardize judicial decisions and ensure consistency in court rulings. Author: Quan Xiao, Guangzhou Maritime Court

General Secretary Xi Jinping's concepts of coordinating domestic and foreign-related rule of law, promoting domestic and global governance, and building a community with a shared future for mankind are of great significance to advancing foreign-related maritime trials. Being committed to significant national strategies, including marine power enhancement, Belt and Road Initiative, and Guangdong-Hong Kong-Macao Greater Bay Area (GBA), the Guangzhou Maritime Court (GZMC) supports the efforts to build Shenzhen into the Pilot Demonstration Area of Socialism with Chinese Characteristics and Hengqin and Qianhai Cooperation Zones. GZMC has been implementing Xi Jinping Thought on the Rule of Law in foreign-related maritime trials in an effort to enhance its judicial influence and provide maritime judicial protection for a higher level of opening-up. I. Safeguard Judicial Sovereignty As General Secretary Xi Jinping pointed out, "China must be good at exerting the rule of law while opening up and engaging in international affairs as a responsible big power. In the face of international conflicts, we must use laws as a weapon, claim the legal high ground, and dare to oppose saboteurs and disruptors." Maritime jurisdiction is a matter of national judicial sovereignty, which tolerates no ambiguity. Moreover, foreign-related maritime trial is a matter of national judicial authority and dignity, which must be defended with resolution and approached with no concessions. Always keeping in mind the big picture as well as national interests and judicial sovereignty, GZMC faithfully performs its constitutional duties and actively and properly exercises jurisdiction over maritime judicial affairs. For example, it has defined the personal injury compensation case regarding South China Sea Coral Island Area as a domestic case, putting an end to all the hype and bringing it to trial under domestic laws. This served to demonstrate national sovereignty and indicated that China could effectively exercise jurisdiction over all cases in the area. In the trial of the "Cassos" cargo damage dispute, GZMC defended China's jurisdiction and the legitimate interests of Chinese enterprises with an anti-anti-suit injunction. II. Promote Reforms of International Maritime Judicial Rules General Secretary Xi stressed that "during the critical period of global governance system transformation, we have to actively participate in international rule-making and be a participant, promoter and leader of global governance changes." Taking advantage of its location in the GBA, GZMC devotes extra efforts to the trial of selected typical cases that may involve the interpretation, modification and improvement of international maritime judicial rules, to express China's stance, make China's voice heard and create new international rules for maritime trials. For example, in the trial of the "Archangelos Gabriel" salvage case, GZMC interpreted the purposes and relevant provisions of International Convention on Salvage 1989 and determined applicable laws of commissioned salvage and the criteria for salvage remuneration. This practice was an innovation, improving relevant international maritime rules. In the trial of the YangMing Hope case of delivery of cargo without production of original bills of lading, GZMC established carriers' obligation of reasonably and prudently reviewing order B/L at the delivery of goods, and regulated the international practice of delivering goods upon the receipt of B/L advocated by carriers. This has offered a reference for similar international maritime cases and guaranteed control over exports of shippers, especially foreign trade firms in developing countries. III. Equally Protect Chinese and Foreign Parties As General Secretary Xi pointed out, "the essence of law lies in its implementation, and it is the responsibility of all countries to uphold the international rule of law, exercise their rights in accordance with law and fulfill their obligations in good faith. The essence of law also lies in fairness and justice, and national and international judicial institutions should ensure the equal and uniform application of international laws, with no double standards, no deliberate choice of favorable provisions, and no biases." Judicial authorities should adhere to their obligations under the international treaties they signed, fully respect the customs and practices of international transactions, protect the legitimate rights and interests of Chinese and foreign parties in accordance with law, and create a market-oriented, law-based, and internationalized business environment. In judicial trials, GZMC sticks to the idea of equal protection, complies with international maritime rules, selects expert jurors from Hong Kong SAR and Macao SAR on a pilot basis and lets them participate in the trial of major complex cases involving Hong Kong SAR, Macao SAR, and Taiwan Province, as well as some foreign-related cases. For instance, in the trial of the "Voyager" vessel mortgage dispute, GZMC was widely praised by the international shipping community for accurately applying the law of the flag state, i.e. the Bahamas Merchant Shipping Act, setting out standards of evidence and ensuring a fair judgment. In the trial of the "Zhenhe" vessel collision dispute, GZMC won an international reputation for finding that the Chinese vessel, which had started the main engine but was drifting awaiting berth, was not a "vessel not under command" or a "vessel restricted in her ability to maneuver" in the International Regulations for Preventing Collisions at Sea 1972, and that both parties were at fault and shall assume their respective responsibilities. IV. Provide China's Judicial Protection for a Marine Community with a Shared Future As required by General Secretary Xi, "we should take good care of sea as we take good care of our own lives", "attach great importance to building marine ecological civilization", and "leave a blue sea and blue sky for future generations". China has rich marine resources, so does Guangdong Province, where the eco-environmental security of Pearl River Estuary and South China Sea has profound implications for national marine development strategy, people's health and lives, and the sustainability of marine economy, which receives widespread international attention. As a court specializing in trying cases where marine environmental damage is involved, GZMC hears every such case in a strict and fair manner, providing strong judicial support for marine environmental protection. In the trial of the "Minghui 8" collision case, GZMC ordered the shipowner to compensate for the cost of compulsory cargo oil removal in response to the shipowner's failure to remove oil in time to prevent pollution as instructed by the Maritime Safety Administration. This serves as an example for other shipping enterprises to protect the marine eco-environment. As for the "Athena" marine eco-environment damage case, the sister ship of "Athena" was seized to save money and time for vessel salvage and prevent severe pollution at sea. In the trial of the "Xiachang" ship fuel leak cases, GZMC guided hundreds of fishers in suing for damages, helped the victims of marine environment pollution to defend their rights by preserving evidence and sorting out the key points through court sessions, and pushed for a package of solutions that safeguarded people's core interests. In addition, GZMC has been hearing pro bono cases on marine ecosystem and environment in which the People's Procuratorate serves as the supporting prosecutor, and exploring the establishment of a punitive compensation system for such cases. This provides useful reference for enriching and improving the judicial protection mechanism for marine environment. V. Share China's Maritime Judicial Stories General Secretary Xi emphasized that "international communications need to be improved by innovating the publicity philosophy and mechanism and gathering more resources." In consistence with his instructions, GZMC has been strengthening international maritime communications, and using innovative ways to globally communicate the rule of law, such as creating websites and holding forums on maritime rule of law, to make China's voice and stories in this field heard by the international community in a practical, accessible and convincing way. In 1998, GZMC took the lead in setting up its web portal, becoming the first court in China with a professional website for trials; in 2012, it launched its English website and began to offer live streams of hearings of typical and influential foreign-related maritime cases in both Chinese and English; in 2021, it took charge of building the Chinese and English websites of "China Maritime Trial" under the direction of the Supreme People's Court and High People's Court of Guangdong Province. Since the launch of "The Voice of Judge" program in 2015, GZMC has recorded its young judges explaining classic maritime cases in English every quarter and won the excellent event award entitled "Who Shall Enforce the Law, Who Shall Popularize Knowledge of the Law" in 2019 for national organs of Guangdong Province. Its Guangzhou Maritime Court Report on Trials 2019 in Chinese, English and Portuguese and public video courses in English enabled it to gain the award of "Top Ten Typical Cases of International Communication of China's Rule of Law" in 2020. In 2018, GZMC and the Law School of Dalian Maritime University co-organized the 11th East Asia Maritime Law Forum between China, Japan and South Korea to enhance the communication of China's international maritime rule of law; from 2018 to 2021, the Guangzhou Maritime Law Forum has been held for four years and become the highest-level academic event in South China with a national reputation and international influence. VI. Implement the Idea of Building a Community with a Shared Future for Mankind General Secretary Xi proposed that "we should uphold the belief of building a community with a shared future for mankind", "resolutely safeguard the lives and health of the Chinese people and peoples of other countries, and devote ourselves to protecting global public health security." Under this belief, China has provided assistance as best it can to many nations around the world while effectively controlling COVID-19, a pandemic unseen in a century. GZMC has also implemented this belief in hearing maritime cases with respect to the protection of the legitimate rights and interests of foreign crew members during the pandemic. In the Greek ship "Angel Power" auction case, for example, 15 Greek and Filipino crew members on board were abandoned and did not get paid by the shipowner, and thus they were trapped at sea for a long time due to the pandemic – after ship management was given up, supplies were depleted and the generator failed. In response to this humanitarian crisis, GZMC offered third-party safety trusteeship services while guiding the foreign crew members to file lawsuits. It also provided cross-border litigation services with online video witnessing, and helped urge the flag state government to fulfill its fundamental responsibility of repatriating sailors under the Maritime Labor Convention 2006. After more than four months' efforts of GZMC, the 15 trapped foreign crew members were eventually sent home. At the 108th session of the International Maritime Organization Legal Committee in 2021, the Greek delegation expressed their gratitude for GZMC's impartial handling of cases amid the pandemic and Chinese government's protection over the legitimate rights and interests of abandoned crew members through a linkage mechanism. VII. Build a Professional Foreign-related Maritime Trial Team General Secretary Xi pointed out that "law-based governance in all respects is a systemic project, of which legal talent cultivation is an essential part", and that "legal talent cultivation and the continuous emergence of legal talents are the prerequisites for improving law-based governance in all respects." The high-quality development of foreign-related maritime trials is built on competent judicial personnel specialized in this area. Foreign-related maritime cases are international, highly professional, complex in legal relations, difficult to handle, and have wide implications for society, which requires judges to have a strong sense of political responsibility, deep expertise in policies and foreign-related laws, and rich trial experience. GZMC highly values the cultivation of professionals in foreign-related maritime trials. By leveraging the two academic exchange platforms, i.e., the International Maritime Justice (Guangzhou) Base of No.4 Civil Division of the Supreme People's Court and Guangzhou International Shipping Judicial Research Center, GZMC has been engaging in active interactions and exchanges in the frontiers of international maritime justice and training legal teams in various forms. For example, GZMC has invited the Dean of the Southampton Law School to share knowledge about international maritime justice in an academic exchange, and sent young and middle-aged judges abroad to attend academic seminars, develop their international perspective, and enhance their foreign-related judicial capability. It has created a legal English study group dedicated to legal case explanation in English, aiming to train legal staff in legal English, trial skills, maritime practice, international trade rules, etc. It also encourages legal staff to publish papers introducing China's maritime judicial work in English legal journals to improve their English literacy of maritime justice. Through a variety of measures, GZMC is building a cross-disciplinary, application-oriented and internationalized foreign-related maritime trial team, with a firm political stance, international vision, and expertise in international maritime law and shipping practices. (Authored by the 4th National Trial Expert, President and Secretary of the Party Secretary of GZMC)

----by way of "Consequentialism"

LI Shanchuan  LI Tong

The right of subrogation in marine insurance means after the insurer indemnifies the insured for its loss caused by insured event and within the indemnification scope the insured's right to pursue against a third party for its loss transfers to the insurer. In practice, cases exist that when the insurer obtains the right of subrogation, the time bar for pursuing against the third party has expired. In such case, the insurer usually invokes Article 253 of the Maritime Code of the People's Republic of China (Maritime Code), to deduct insurance indemnity on the ground that insured fails to protect the time bar for its right of subrogation. However, there is a major debate in respect of the insured's obligations for the time bar for insurer's right of subrogation in academic and in practice. Also, there is an inadvertence and scarcity of provisions both in the existing laws and insurance contract.

To cope with the above issue, the authors want to introduce the argumentation of consequentialism to consider this issue in reverse: first, find out the value conflict between the claims involving the disputed issue, weigh the same and make the election of value, select the preferential interest, so as to make a determination in maximizing the benefits of parties concerned. Second, seeking for proper laws interpretations and reasoning to examine the determination to ensure the same in accord with the existing laws and regulations. Third, to balance the values in conflict, to give relief to the party who suffers loss, so as to maximize the integral benefits and minimize the loss.

Step one: weigh the interests. This article focuses on value conflict between insurer and insured, whose interests are of the same level and legal. From the perspective of fairness and good-faith, since it's difficult for the insured to substantively modify the insurance clause provided by the insurer unilaterally, thus the balance of interests shall be under the guidance of regaining equity, i.e. to balance the benefits distribution between both parties by limiting the interest of the insurer who is in the superior position. From the aspect of legislative purpose, the emphasis of insurance interests protection provided by the contemporary insurance law was transferred from the insurer to the insured, thus to place the insured's interests in priority is more in accord with the legislative purpose. From the aspect of social demand, by taking out insurance the insured aims at transferring its own risk to the insurer so as to restore to the situation as it does not suffer loss the soonest possible. Imposing too much obligations upon the insured is not in accord with the common knowledge by the masses on the insurance system, which is also likely to encourage the insurer to exempt itself from responsibility by making use of its advantageous position. Upon balancing, we have the conclusion that in case of value conflict, the insured's interest shall be deemed as preferential interest, i.e. the insured shall bear passive non-damnification obligation and assistance obligation for the time bar for insurer's right of subrogation.

Step two: justification of the conclusion. The authors intend to seek for legal ground for the value orientation illustrated above by means of interpreting and explaining Paragraph 2 of Article 252, Article 253 of the Maritime Code and Article 62 of the Insurance Law. First, semantic interpretation. The terms "endeavor to assist" provided in Paragraph 2 of Article 252 literally mean to provide assistance, which means the provider is passive in providing such assistance subject to the receiver's demand or request. In this paragraph, the terms "endeavor to assist" shall be interpreted as the insured shall merely effectively perform the assistance obligation as per insurer's specific and clear instruction and notification. If the insurer fails to give instruction, the insured shall not bear the liability to take the initiative to lodge an action, commence an arbitration or property preservation. Secondly, systematic interpretation. The first principle of the Insurance Law is the "indemnification principle", it is against the requirement of prompt payment under the indemnification principle for the insurer to claim, under the circumstance that it delays to perform its compensation liability, for deduction the insurance indemnification on the ground that the insured fails to pursue the third party. Thirdly, teleological interpretation. According to Article 1 of the Insurance Law, one of the purpose of enacting this law is to "protect the legitimate rights and interests of the parties involved". Here the "fairness" shall mean substantive fairness, i.e. break the fetter of fairness in form in respect of the legal status of the parties to the insurance contract, and pursue the substantively equal relationship of both parties with regard to the rights and obligations, which in practice was reflected by providing more protection for the insured in the course of legislation and justice. Given the interpretation of law, the aforesaid conclusion could be perfectly proved to be established based on sound legislative ground.

Step three: balance the interests. This article tries to provide some solutions to the disputed issues arising from the insurance practice and suggestions for legislation and judicial adjudication in respect of marine insurance based on the course of contracting and claims settlement of insurance companies. First, in the course of concluding an insurance contract, the insured's interests shall be placed in priority. It's suggested that clause in relation to the time bar under the insurance contract shall be amended as "in case the insurance event is caused due to a third party's fault, the insurer shall have the right to request the insured to take proper measures to protect the insurer's right of recourse, including property preservation measure, legal proceeding or arbitration against the liable third party. The insured has the obligation to exercise its rights of claim as per the insurer's instruction, and the proper and reasonable costs arising therefrom shall be borne by the insurer." This clause has the nature of the clause for exemption of insurer's liability under the Insurance Law, and shall not have legal effect if the insurer fails to point out the same or give clear explanation. Second, at the stage of insurance claim, emphasis shall be placed on proper consideration on the insurer's interests. 1. The insured shall be liable to immediately/promptly notify the insurer after the insurance event. Objective criteria shall be adopted to determine "immediately/promptly", i.e. whether or not the performance of the notification obligation will make it difficult to ascertain the nature, cause and damage extent of the insurance event. 2. Refer to Article 25 of the Insurance Law, it shall be regulated that the insured shall, 60 days prior to the expiry of time bar for claim against the third party at the latest, lodge its insurance claim against the insurer. Third, settlement of insurance claim, both parties' interests shall be balanced and adjusted. 1. Regulate the insurer's duty of care upon the time bar of its right of subrogation. In case the insurance event is caused by a third party's fault or involved a third party, the insured shall, before lodging the insurance claim, bear the duty of care on the time bar, which shall be transferred to the insurer after the insurance claim is brought by the insured, and the insurer shall thereafter bear the obligation to promptly give reasonable instruction to the insured to protect the time bar by lodging a lawsuit or refer to arbitration. If the claim is rejected by the insurer, such obligation will be transferred back to the insured, but the insurer shall, when rejecting the claim, give a reasonable time period for the insured to lodge a lawsuit against the third party. 2. Clarify the legal consequence which shall be borne by the insured, if it fails to fulfill its obligation. In this connection, Article 253 of the Maritime Code shall be interpreted and modified in the following aspects: 1) "negligence" shall be interpreted as "fault", limited to intention and gross negligence. 2) "Corresponding deduction" shall be construed as deduction as per the insurer's discretion after taking into consideration of the specific situation of the case and the insurer's fault, under this circumstance, it shall not be taken into consideration whether the insured's fault is an intention or gross negligence. 3) Distinguish the legal consequences caused by "insured's waiver" and "insured's fault which makes the insurer unable to exercise the right of subrogation". According to the time when the insured waive its right, the legal consequence of such act shall be determined as the insured being exempted from compensation liability or the act of waive is invalid; and the legal consequence of the loss of right of subrogation due to the insured's fault shall be regulated as the insurer may deduct or request the insured to return corresponding indemnity.

                               (By Judges of Tianjin High People's Court)

Hu Yongqing[ Tribunal Director, the Fourth Civil Court of Higher People’s Court of Shanghai]/Dong Min[ Assistant to Chief Judge, the Fourth Civil Court of Higher People’s Court of Shanghai]

[Keywords]  Marine Insurance Dispute; Marine Shipping Dispute; Subrogation; Interruption of Statute of Limitations

I. Issues concerning the insured’s bringing actions on insurance dispute and shipping dispute simultaneously.

The insured is entitled to two independent petitions to claim for compensation where the loss occurred to the insurance object is caused by the fault or negligence of the carrier. When the insured elects to bring actions on insurance dispute and shipping dispute simultaneously, most of the courts usually give priority in the hearing of the marine insurance case and suspend the hearing of the marine shipping case for later time. The phenomenon owns much to the fact that in a marine insurance dispute the contractual relations are clear and well defined and the trial of such case takes shorter period of time. However, in the trial of a marine insurance dispute, the insurer usually finds it hard to give clear accounts for the actual carriage process, conditions of marine accident, or identification of liabilities, which results in the failure in collection evidence to prove the exemption of liabilities that the insurer may probably enjoy. Usually, it is not until the insurer compensates the insured and recourses to the carrier for recovery of the insurance compensation that the insurer may place itself in a favorable position. That is, it is not until the hearing of the shipping dispute between the insurer and the carrier that the court can identify the cause or the liability of the insured accident differently from that of the same insured accident in an insurance dispute.

We therefore suggest the two kinds of disputes be handled by one congenial court. In the preliminary stage of the trial, the court may give priority to the trial of marine insurance dispute and suspend the marine shipping case in the event that the insurer has satisfactory competence to collect evidence in respects including situations of the insured accident, findings of causes of cargo damage and identification of liabilities. Otherwise, a simultaneous trail is suggested so as to facilitate investigations and deliver more unified outcomes. Of course, when hearing the cases simultaneously, the court may conclude the marine insurance case before moving towards the judgment of marine shipping case since it takes time for the insurer to effect payment according to the judgment on insurance compensation and apply to the court to put itself in the position of the plaintiff in the marine shipping case. In this way, it defuses a latent problem that the insured may get doubled compensations in the condition of a simultaneous trial.

II. Issues on the insurer’s participation in actions between the insured and the carrier.

1．When a full insurance compensation has been made to cover all the losses occurred to the insured, the insurer may apply to take the position of the plaintiff and participate in the marine shipping action between the insured and the carrier. In the event that several co-plaintiffs are co-insured, the insurer may apply to directly replace these co-plaintiffs.

2．When the insurance compensation does not cover all the losses occurred to the insured, the insurer may apply to join the insured as co-plaintiff and claim compensation from the third party, namely, the carrier, within the scope of the insurance compensation it has actually paid.

3．When not all the plaintiffs are co-insured, the insurer may apply to take the place of one or more plaintiffs according to the situations of case.
(1) Where the several plaintiffs, though not the co-insured persons, are joint creditors of the carrier, the insurer may apply to replace the insured and become the plaintiff so as to act as co-plaintiff with other joint creditors.
(2) Where the several plaintiffs are not the co-insured persons or the joint creditors of a third party, the insurer may apply to replace the insured and become the co-plaintiff with other plaintiffs so as to claim compensation from the carrier within the scope of the insurance compensation it has actually paid.

4．In a marine shipping dispute, provided that the plaintiff is not a proper subject to raise claims, the court shall not approve the insurer’s application for replacing the plaintiff all at once, regardless of whether the plaintiff is a proper subject or not. The replacement should be in two steps: the plaintiff who is not a proper subject firstly withdraws the lawsuit; then the insurer joints other plaintiffs who are proper subjects in the proceedings. It can be clearly seen that the insurer’s joining the marine shipping action occurred between the insured and the carrier and the improper plaintiff’s withdrawal from the suit are two different litigation processes. They cannot be streamlined or merged into one. When an insurer applies to the court for replacing the insured and other improper plaintiffs in a marine shipping case, the court shall make explanations to the improper plaintiffs, thereby persuading these plaintiffs to withdraw the lawsuit. If the improper plaintiffs reject to withdraw the lawsuit, the court may render an interim judgment to overrule the claims made by the improper plaintiffs and place the insurer in the position of the plaintiff upon the application of the insurer before heading towards the hearing.

III. Issues concerning the statute of limitations for the insurer’s bringing new action on marine shipping dispute.

(1)Discussions over interruption of statute of limitations when insurer raises new lawsuit against the carrier.

Provided that the insurer refuses to assume the subrogation right by participating in the action on marine shipping dispute arising between the insured and the carrier, but elects to bring a new action against the carrier in the name of its own, the insurer shall enjoy the right to call for interruption of statute of limitations according to Article 15 of the Provisions of the Supreme People's Court on Several Issues about the Trial of Cases Concerning Marine Insurance Disputes. But here comes the problem: when will the statute of limitations be resumed? Since there is no legislations to forbidden the insurer to exercise the subrogation right by raising new lawsuit against the carrier, we consider it reasonable to set the date when the insurer effects insurance payment to the insured as the starting point for resumption of the statute of limitations. This starting point, on one hand, ensure the maximum time for the insurer to exercise the right of subrogation by filing new lawsuit against the carrier, and press the insurer to file action against the carrier in a timely manner after it effects insurance payment on the other hand.

(2) Discussions over whether Article 12 of the Interpretations on Statute of Limitation concerning interruption of statute of limitations is applicable to the lawsuit on indemnity insurer’s subrogation rights.

Article 10 through Article 19 of Interpretations of the Supreme People’s Court on Several Issues concerning the Application of Statute of Limitation during the Trial of Civil Cases (hereinafter “Interpretations on Statute of Limitation”) set detailed provisions concerning the interruption of statute of limitations, expounding the three reasons for interruption of statute of limitations set forth in the General Principles Of the Civil Law Of the People's Republic Of China. Of these provisions, Article 12 provides: “Where a party files a bill of compliant to or orally brings a lawsuit in the people’s court, the interruption of statute of limitations shall start from the date of filing a bill of complaint or orally brings a lawsuit.” But is this provision applicable to a lawsuit concerning the indemnity insurer’s subrogation rights?

We consider that it should be subject to the situations of the case. We must keep alert to a circumstance that the party may, by referring to the said Article 12, submit an ineligible statement of claim to the court and extend the marine statute of limitations in disguise.
 
In some cases, when a party files an action to the court, the court may require the party to supplement the necessary materials missing from the required ones before the party can file a bill of complaints. But it may happen that the statute of limitations has expired before the party manages to supplement the materials and files an action. For this circumstance, we consider that Article 12 of the Interpretations on Statute of Limitations is applicable. This is because the party has always been active to stake out its claims by supplementing the materials required by the court. As long as the case is finally received by the court, the interruption of statute of limitations shall start from the date when the party files the action or orally brings a lawsuit for the first time.