Abstract: According to prevailing international practice, maritime accident investigation reports should not be used as evidence in subsequent judicial proceedings, and the corresponding investigative conclusions do not affect the civil rights of involved parties. The classification of a maritime accident investigation report as a specific type of administrative act does not determine whether its conclusions are justiciable. The new version of the Maritime Traffic Safety Law of the People's Republic of China treats investigative conclusions as evidence in the resolution of accident-related disputes, thereby negating any assertion that such conclusions are without administrative justiciability. In Chinese judicial practice, investigation reports issued by government agencies are often granted considerable evidentiary weight, which in turn prevents parties from challenging the public-law illegality of these conclusions during civil proceedings. It is therefore essential to afford parties the right to raise such challenges under public law. Although including these conclusions within the scope of administrative litigation may lead to issues such as inconsistent standards of review, potential delays in civil dispute resolution, and questions about how to handle withdrawn investigative conclusions, these concerns can be addressed through legal interpretation, regulatory reform, and a shift in judicial perspective. Keywords: Waterborne accident investigation; Justiciable administrative acts; Maritime Traffic Safety Law I. Introduction Investigating waterborne traffic accidents, identifying their causes, and determining the types and degrees of liability involved—these are all essential functions of maritime administrative authorities in the lawful performance of their duties. These authorities are responsible for managing maritime traffic and ensuring the safety of vessels, facilities, and life and property at sea. With duties come powers, and in exercising these powers, maritime administrative authorities inevitably influence the allocation of rights and obligations among the parties to an accident. They may even alter the legal interests and positions of these parties through administrative powers. Since powers and obligations are inherently interrelated, the potential for abuse of power and procedural violations by maritime administrative bodies must also be acknowledged. Thus, it is both reasonable and necessary to subject the liability determinations made by such authorities to judicial regulation. In nature, the investigative conclusions of waterborne traffic accidents are not substantively different from those of road traffic accidents. However, the latter are explicitly excluded from judicial review. Under the current judicial policy framework, a departure from past practice has emerged: the conclusions of waterborne traffic accident investigations are now deemed justiciable within the scope of administrative litigation. In handling such cases, maritime courts should adhere to the principle of legality in reviewing administrative actions, while also taking into account considerations of reasonableness, thereby showing appropriate deference to the expertise of administrative agencies within their specialized fields. Terms such as "Waterborne Traffic Accident Investigation Report," "Waterborne Traffic Accident Investigation Conclusion," and "Document of Waterborne Accident Liability Determination" often appear in various contexts, but they are essentially equivalent in substance.[1] The maritime administrative authority's determination of liability is typically embodied in documents such as the waterborne traffic accident investigation report or its variant, the investigation conclusion (hereinafter collectively referred to as the "investigation report").[2] Among these, the investigation report covers the widest range of content, while the document of liability determination contains the most limited scope. Regardless of format, the final result is a determination of the degree of liability for each party involved. The primary difference lies in the investigation report's additional emphasis on broader safety management, rule-making, and accident prevention. The new version of the Maritime Traffic Safety Law of the People's Republic of China (hereinafter referred to as the "New Maritime Safety Law") stipulates that investigation reports are prepared by accident investigation teams organized by maritime authorities, while the document of accident liability determination must be issued by those authorities within fifteen working days of receiving the investigation report. The New Maritime Safety Law thus clearly distinguishes between the two. However, from the perspective of determining liability for involved parties, this distinction is largely formal rather than substantive. In terms of administrative justiciability, because the determination of liability is primarily based on the investigation report, any administrative litigation concerning the former necessarily entails judicial review of the latter. For the sake of consistency, this paper adopts the term "investigation report" throughout the discussion. II. The Role of Investigation Reports in Judicial Proceedings in Various Jurisdictions and China's Approach In the United Kingdom, the Marine Accident Investigation Branch (MAIB) is responsible for investigating maritime accidents occurring within UK waters and is authorized under the Merchant Shipping Act 1995 to issue relevant investigation reports. The UK Commercial Court ruled that reports issued by the MAIB are inadmissible as evidence as to liability in judicial proceedings.[3] This ruling was based on amendments introduced by the Merchant Shipping Act 2005, which explicitly states that accident reports shall be inadmissible as evidence when liability is being determined in judicial proceedings. The presiding judge in that case further explained that the reason such reports are inadmissible is because the MAIB's primary function is to enhance maritime safety, not to assign blame. If such reports were admissible in court, parties involved in future incidents would be less likely to cooperate with the maritime investigation authority and provide truthful information during investigations. In the United States, the Coast Guard and the National Transportation Safety Board (NTSB) are authorized under different statutes to investigate waterborne traffic accidents and issue corresponding reports. U.S. law similarly holds that factual findings, opinions, and conclusions in such reports are inadmissible as evidence in both civil and administrative proceedings. However, certain exceptions are provided—documents, photographs, and other attachments included in the report may be admitted as evidence, as long as they are not conclusive statements.[4] According to Federal Rule of Evidence 801(c), government agency reports fall under hearsay and are generally inadmissible to prove the truth of the matter asserted.[5] The treatment of waterborne accident investigation reports in the aforementioned countries aligns with prevailing international norms. For instance, Rule 25.4 of the International Maritime Organization's Code for the Investigation of Marine Casualties and Incidents stipulates: "Where it is permitted by the national laws of the State preparing the marine safety investigation report, the draft and final report should be prevented from being admissible in evidence in proceedings related to the marine casualty or marine incident that may lead to disciplinary measures, criminal conviction or the determination of civil liability." The European Union has adopted similar provisions.[6] As international conventions or domestic laws explicitly exclude liability determinations in investigation reports from being directly admitted as evidence in judicial proceedings, such reports have little substantive impact on the legal rights of the parties. The actual impact on parties' rights typically occurs in subsequent administrative or judicial processes. China has largely followed this international approach. Both the 1983 and the 2016 versions of the Maritime Traffic Safety Law of the People's Republic of China did not provide for the use of administrative investigation findings as judicial evidence. However, in judicial practice, the Civil Tribunal IV of the Supreme People's Court and the Maritime Safety Administration of China jointly issued the Guiding Opinions on Regulating Maritime Accident Investigations and the Adjudication of Maritime Cases in 2006. This document expressly stated that "maritime accident investigation reports and their conclusions may be used as evidence in maritime court proceedings, unless there is sufficient factual evidence and legal reasoning to rebut them." As a result, maritime courts generally accept liability determinations in investigation reports as a rule, with exceptions being rare. In civil judgments issued by maritime courts, the reasoning sections often treat the reports as official documents produced by administrative authorities in the exercise of their statutory powers, and therefore grant them high probative value. Unless parties present strong rebuttal evidence, courts typically adopt the conclusions of the investigation reports.[7] Even in cases where courts do not directly admit such reports as evidence, they often rely on them as key factual sources, using their content to reconstruct the course of events, analyze causes, and ultimately determine liability.[8] These reports are presumed to have substantive evidentiary weight and to reflect the truth; if a party disputes their content, they must present contrary evidence to overcome the presumption of authenticity.[9] In practice, civil litigants face significant difficulties in overturning the findings in such reports, and successful challenges are exceedingly rare.[10] In the authors' view, in order to resolve the predicament where litigants harbor doubts about the contents of an investigation report but have no effective procedural avenue to contest it—while their rights and obligations are still determined based on the report—it is necessary to provide them with a lawful and reasonable remedy. III. Normative and Empirical Analysis of the Justiciability of Investigation Reports All entities engaged in production and business operations bear the obligation to prevent and reduce work safety incidents. According to the Law of the People's Republic of China on Work Safety, in addition to general safety obligations under the law, specific laws and administrative regulations provide targeted rules for areas such as fire safety, road traffic safety, waterborne traffic safety, civil aviation safety, nuclear and radiation safety, and the safety of special equipment. The investigation and handling of accidents by administrative authorities in these domains invariably have a substantive impact on the rights and obligations of involved parties, and thus fall within the scope of administrative litigation. However, in practice, the justiciability of such accident investigation conclusions is inconsistently addressed.  (i) Theoretical Basis: Nature of the Act Should Not Bar Administrative Justiciability Administrative litigation may be initiated in people's courts against administrative acts that infringe upon a party's lawful rights and interests, unless otherwise stipulated by law.[11] Whether an investigation report constitutes an administrative act, and if so, what type of administrative act it is, and whether it infringes upon the legal rights and interests of a party, directly determines whether it falls within the scope of justiciable administrative cases as defined in Article 12 of the Administrative Procedure Law of the People's Republic of China. Scholars hold varying views on the nature of investigation reports, categorizing them as administrative confirmatory acts, technical appraisals, quasi-administrative acts, or administrative factual acts.[12] Each viewpoint has its own merit but also clear limitations. Despite the differences, most scholars acknowledge that an investigation report constitutes a form of administrative act. In practice, investigation reports meet the defining elements of an administrative act, that is, they are actions taken by an administrative body in the exercise of its administrative authority during the course of administrative management.[13] The investigation of waterborne traffic accidents is a form of administrative management and enforcement, which must be grounded in legal authority and executed in accordance with law.[14] Some scholars argue that investigation reports are merely technical appraisals conducted by maritime authorities and do not directly affect the rights and obligations of parties. Nonetheless, such reports often serve as important grounds for administrative penalties, civil liability, or even criminal prosecution against involved parties.[15] Others classify them as quasi-administrative acts or intermediate acts, characterizing them as procedurally incomplete or provisional.[16] Except for the view that treats technical appraisals as non-justiciable, the mainstream consensus holds that quasi-administrative or factual administrative acts become justiciable when they materially affect a party's rights.[17] It is also worth noting that certain perspectives on administrative technical appraisals argue that whether an administrative act carries direct and concrete legal effect depends on legislation, legal interpretation, and judicial practice.[18] Therefore, regardless of how waterborne accident investigation acts are categorized, whether as confirmatory, technical, or quasi-administrative, they retain the potential to be subject to administrative litigation. (ii) Legal Basis: The Evidentiary Nature of a Document Does Not Preclude Justiciability The question of whether determinations of liability in road traffic accidents fall within the scope of administrative litigation was answered in the negative by the Legislative Affairs Commission of the Standing Committee of the National People's Congress in reply [Fa Gong Ban Fu Zi (2005)]. The rationale was that Article 73 of the Road Traffic Safety Law of the People's Republic of China stipulates that such determinations serve as evidence in the handling of traffic accident cases, and therefore should not be subject to litigation. This raises the key issue: why does the transformation of an administrative act into "evidence" render it non-justiciable in administrative litigation? The argument is that since a liability determination in a traffic accident is used as evidence—and evidence, before being admitted, does not have a direct impact on the rights and obligations of parties—it lacks the immediate legal effect necessary for justiciability.[19] Investigation reports are often characterized as preparatory, intermediate, or preliminary administrative acts. These acts may indirectly affect the parties' rights and obligations,[20] primarily by serving as supporting material in follow-up administrative penalties, criminal prosecutions, or civil compensation claims. In such proceedings, the parties' legal status is ultimately determined. Although this line of reasoning appears logical, it does not withstand deeper scrutiny. First, specific administrative acts can serve dual functions, as the object of administrative litigation and as evidence in civil, criminal, or other administrative proceedings.[21] The use of administrative acts as evidence in litigation is a common legal phenomenon. Administrative penalties or confirmations often support one party's claims. Second, while an investigation report may be rebuttable as evidence, civil litigation offers no effective remedy for addressing serious flaws in administrative procedures. Therefore, granting parties the right to challenge such administrative acts under public law is both necessary and reasonable. Finally, whether road traffic accident determinations are subject to administrative litigation is a matter of judicial policy. The Supreme People's Court has issued policy guidance that administrative cases regarding traffic accident liability determination should not be accepted for now. However, the Supreme People's Court has not issued any binding judicial interpretation or theoretical explanation on this matter.[22] In contrast, the Civil Tribunal IV of the Supreme People's Court, in its 2019 Reply to the Request from the Maritime Safety Administration of the Ministry of Transport Regarding the Justiciability of Maritime Investigation Conclusions [Min Si (2019) No. 15], stated that maritime investigation conclusions both confirm facts and allocate rights and obligations among parties, thereby substantively affecting the legal interests of administrative counterparts. As such, these conclusions should not be barred from being challenged in administrative litigation. This response implicitly acknowledges that maritime investigation conclusions do impact the rights of involved parties. Article 85 of the New Maritime Traffic Safety Law explicitly designates the document of accident liability determination as evidence for handling maritime traffic accidents. The intent for amending the Maritime Traffic Safety Law was to align with the Road Traffic Safety Law, thus further codifying the evidentiary status of such documents. Once this standard is applied, maritime accident determinations would once again be excluded from administrative litigation—reverting to earlier judicial practice.[23] However, there is no essential difference in the factual and legal elements underlying liability determinations in road traffic accidents versus waterborne traffic accidents. Nevertheless, the issue of justiciability need not be treated identically. Firstly, in quantitative terms, road traffic accidents vastly outnumber waterborne accidents. Allowing mass administrative litigation over road accident determinations would significantly increase judicial workload and could undermine the efficient resolution of civil cases. Secondly, waterborne traffic accidents often involve foreign elements. When investigation reports affect parties' rights, the need for judicial review aligns with international norms, especially since administrative litigation emphasizes legality review, which ensures that investigative procedures are subject to fair adjudication. Thirdly, waterborne accident determinations are highly specialized and encompass a broad range of accident types. This technical complexity further justifies the need for judicial oversight of investigative procedures. Lastly, whether liability findings in road traffic accidents can be litigated is ultimately a matter of current judicial policies and societal considerations. Future reforms may expand the scope of review to better protect parties' rights comprehensively. (iii) Practical Grounds: Real Impact on the Rights of Administrative Counterparts According to the "ripeness doctrine," administrative law establishes a boundary for when an administrative counterpart may seek judicial review, namely, when the administrative act has actually infringed upon the party's rights or is about to cause such infringement (i.e., the matter is ripe for adjudication).[24] During the course of accident investigations, various legal violations often come to light. Once the causes and liabilities are identified, administrative penalties may be imposed depending on the severity of the negligence that led to the maritime accident.[25] The affected parties may then initiate administrative litigation against the final administrative disposition, at which point the investigation report is absorbed into a ripe and conclusive administrative decision and thus deemed procedural or intermediate in nature, lacking independent external legal effect. The mere act of attributing liability or determining the cause of an accident does not, by itself, trigger the ripeness needed for the administrative counterpart's rights to be considered legally infringed under administrative law. In judicial practice, courts often conduct a comprehensive review of the legality of preliminary administrative acts during the review of final decisions. The prevailing "absorption theory" in legal scholarship supports this approach: preliminary and subsequent administrative acts can be consolidated into a single legal action and reviewed together by the court.[26] In addition to providing a basis for administrative penalties, investigation reports also serve to confirm the occurrence of accidents and assess liability. From the standpoint of the administrative counterpart, although the administrative penalty may not immediately infringe upon their rights, the determination of liability may directly influence their subsequent civil rights and obligations. Some argue that in civil cases, courts independently assess the admissibility and probative value of all evidence in accordance with the rules of evidence, choosing to adopt, reference, or dismiss elements of the investigation report accordingly. Only a final, enforceable civil judgment determines the parties' legal rights and obligations. However, the authors contend that, even setting aside the fact that most jurisdictions do not recognize investigation reports as admissible evidence in court, while civil courts may reject the contents of such reports based on evidentiary rules, this rejection occurs only within the civil adjudication process, not through an administrative proceeding that formally examines the legality of the administrative act itself. Litigants who wish to challenge investigation reports in civil litigation bear the primary burden of proof and are often constrained by limited access to material evidence, relying heavily on oral testimony or personal statements. In contrast, in administrative litigation, the burden of proof lies with the administrative agency, which must fully demonstrate the legality and rationality of the evidence presented during the investigative process. Judicial review of investigation reports via administrative litigation ensures that the investigative process is objective and fair, and prevents civil courts from blindly accepting the conclusions of such reports simply because the claimant lacks sufficient evidence to refute them. Moreover, if the administrative body has committed serious legal violations, granting parties the right to bring administrative lawsuits is essential to upholding citizens' constitutional rights to petition and lodge complaints. (iv) Requirements of Foreign Relations Although China has not opened its coastal and inland shipping routes to foreign access, foreign-owned or operated vessels may enter Chinese territorial waters and designated ports through international cargo transport. When foreign vessels are involved in maritime accidents within Chinese waters, China's maritime administrative authorities have the sovereign right to investigate such incidents. In addition, Article 94(7) of the United Nations Convention on the Law of the Sea (UNCLOS) provides that the flag State and the other State shall cooperate in the conduct of any inquiry held by that other State into any such marine casualty or incident of navigation. Maritime transport is classified by the WTO Statistics and Information Services Division as a sector within international trade in services. According to items 1 and 2 of Article 2(D) headed "Judicial Review" of the Protocol on the Accession of the People's Republic of China to the World Trade Organization, China shall establish, or designate, and maintain tribunals, contact points and procedures for the prompt review of all administrative actions relating to the implementation of laws, regulations, judicial decisions and administrative rulings of general application referred to in Article X:1 of the GATT 1994. Review procedures shall include the opportunity for appeal, without penalty, by individuals or enterprises affected by any administrative action subject to review. If the initial right of appeal is to an administrative body, there shall in all cases be the opportunity to choose to appeal the decision to a judicial body. As previously discussed, investigation reports constitute administrative acts that affect the rights and interests of parties. Therefore, they should, in accordance with WTO requirements, be subject to judicial review. IV. Challenges and Response Strategies Regarding the Justiciability of Investigation Reports Bringing investigation reports within the scope of administrative litigation will inevitably break through the traditional boundaries of adjudication and create a certain degree of disruption to maritime judicial proceedings. The only effective response is to proactively adapt and shift entrenched perspectives in order to harmonize administrative lawsuits concerning investigation reports with subsequent maritime litigation procedures. (i) Divergent Standards of Review Judicial intervention in administrative acts varies in both scope and intensity depending on the context. One of the foundational principles of modern rule of law is the doctrine of limited judicial review over administrative decisions. This principle limits court review, particularly in cases involving administrative discretion or technically specialized matters, as not all administrative actions are subject to judicial scrutiny. As ordinary court judges may lack the deep specialized expertise of administrative authorities, it is not always the case that judicial decisions will be more reasonable than those made by administrative professionals.[27] Maritime court judges, however, generally possess greater expertise in maritime law than their counterparts in ordinary courts. This specialization may afford them a comparative advantage when reviewing maritime administrative acts. Judicial review in such cases could follow two main approaches: one perspective holds that maritime courts, leveraging their expertise, should conduct comprehensive reviews of investigation reports; another suggests that judgments within the report, especially factual determinations, fall within the discretionary powers of administrative authorities, and that judicial review should be limited to whether lawful procedures were followed by administrative authorities. This latter approach mirrors the practice in road traffic accident determinations, where assessments by public security authorities regarding proportional fault between pedestrians and vehicles are treated as factual findings and generally not subject to judicial review.[28] The authors argue that judicial review of maritime accident investigation reports should be conducted under the same principles that apply to administrative acts in general, as established by the Administrative Procedure Law. That is, courts should assess both the legality and reasonableness of the act. Legality and reasonableness exist on the same spectrum. Reasonableness is in itself an aspect of legality. When unreasonable conduct exceeds the boundaries of what legality can tolerate, it effectively becomes unlawful. Specifically, from the perspective of legality, courts should examine whether the administrative authority collected, assessed, and adopted evidence concerning the incident in accordance with legal procedures. They should determine whether on-site inspections, interviews, and investigative steps were thorough or contained material omissions. From the perspective of reasonableness, in addition to reviewing the above factors for obvious unreasonableness, emphasis should be placed on evaluating the analysis of the accident's cause, whether the assessment of causal force and degree of fault is clearly biased, and whether the proportional attributions of liability deviate from common-sense expectations. Throughout the review process, courts should adopt a deferential stance toward technical determinations made by administrative authorities. These include judgments based on specialized instruments such as voyage data recorders (VDRs), VHF communication logs, and professional interpretation of collision evidence like paint traces or structural damage, as well as analyses of the characteristics of fleeing vessels. Such determinations fall within the administrative authority's technical domain and should not be excessively second-guessed by judicial bodies. (ii) Suspension of Civil Proceedings May Delay Timely Remedies for Parties One frequently cited reason against allowing maritime accident investigation reports to be subject to administrative litigation is the concern that compensation for personal injury or property damage caused by maritime accidents, often based on the report's apportionment of liability, may be delayed. If an investigation report is potentially subject to revocation through administrative litigation, civil proceedings may be suspended, leaving the parties' rights and obligations unresolved for an extended period. The authors contend that this view is not entirely accurate. Civil proceedings do not necessarily fall within the scope of Article 150 of the Civil Procedure Law, which requires the outcome of an administrative case to serve as the basis for civil adjudication. Civil litigation is based on the investigation report as it stands, not on the outcome of administrative litigation. As previously noted, an investigation report is an administrative act. Once issued, an administrative act is binding and has a legal effect on both the administrative authority and the administrative counterpart. Upon its formation (except in cases of nullity), the administrative act has formal binding force; however, it only acquires substantive binding force once it survives judicial review or confirmation once the timeframe for administrative reconsideration or litigation has lapsed. From a judicial perspective, administrative acts with merely formal binding force should not serve as the direct basis for judicial judgments. Only those with substantive binding force may be relied upon for judicial decisions. In civil litigation, administrative acts with merely formal effect are generally inadmissible as direct grounds for judicial judgments. Only under specific circumstances may such formally effective administrative acts serve as the foundation for civil judgments. For example, pursuant to Articles 9, 10, and 11 of the Several Provisions of the Supreme People's Court on the Application of Law in the Trial of Patent Dispute Cases (Fa Shi [2001] No. 21), a patent grant, despite being at the stage of formal rather than substantive effectiveness, may be relied upon in civil adjudication. In such cases, recognizing the binding effect of an administrative act at the formal stage serves as a pragmatic measure to prevent undue delay in civil proceedings and to safeguard the legitimate rights and interests of civil plaintiffs.[29] By the same reasoning, allowing maritime accident investigation reports with formal binding force to serve as the basis for civil judgments can effectively avoid delays that would otherwise result from awaiting their acquisition of substantive binding force. If an investigation report is later overturned in administrative litigation, this does not necessarily affect an already effective civil judgment. Only where the report contains significant flaws in its key factual findings or conclusions on liability, and the maritime administrative authority subsequently issues a revised report that alters the original allocation of rights and responsibilities, will a corresponding adjustment in the civil case be warranted. Regardless of how many investigation reports may ultimately be subject to negative judicial review in administrative proceedings, even if a small number require revision, the people's courts are fully empowered under Article 198 of the Civil Procedure Law to reopen civil cases if the original judgment is found to be erroneous. Additionally, under Article 200 of the same law, a party may apply for retrial if the basic facts on which the original judgment was based lack evidentiary support. In such cases, the need for retrial arises not from judicial error or misconduct, but from the administrative authority's re-evaluation of a key piece of evidence. The original ruling cannot be classified as a wrongful judgment; rather, the retrial ensures the realization of substantive justice. Moreover, the parallel adjudication of civil and administrative cases—or the rendering of a civil judgment prior to the conclusion of the administrative case—can, in turn, help promote the fair resolution of the administrative proceeding. This is because, in civil litigation, parties may present evidence to challenge the contents of the investigation report, and the civil judge's assessment of such evidence may influence, to some extent, the administrative judge's evaluation and conviction regarding the same facts. On the other hand, if a civil case concludes through mediation, even a later annulment of the investigation report through administrative litigation would not permit a party to request retrial of the mediated settlement. Under Article 201 of the Civil Procedure Law, retrial is only permissible if the mediation process violated the principle of voluntariness or if the agreement's content is unlawful. The parties who agree to concede their rights in a mediation agreement do so based on their comprehensive assessment of factors such as the cause of the accident, the contents of the investigation report, and the potential costs of litigation. In general, such agreements do not involve the protection of illegal interests, infringement of third-party rights, or violations of the law. Therefore, even if the investigation report's conclusions on liability are subsequently revised, this does not invalidate the legal effect of a mediation agreement entered into voluntarily by the parties. (iii) Handling of Administrative Acts After Revocation Depending on the nature of the act and the type of judgment rendered in administrative litigation, the outcomes of administrative litigation concerning investigation reports generally fall into three categories: full dismissal of the plaintiff's claims, revocation of the administrative act, or a judicial declaration that the act was unlawful or void. According to Article 74 of the Administrative Procedure Law, the administrative act must be declared unlawful when a petty violation of the statutory procedures occurs during an accident investigation that does not substantially affect the parties' rights, or when the revocation will cause any significant damage to the national interest or public interest. Such a finding does not substantively alter the conclusions of the investigation report. However, if the court either revokes the administrative act or declares it void, the maritime administrative authority must issue a new investigation report. In practice, this presents challenges: the accident scene may no longer exist, and witnesses may be unable to accurately recall events. These factors complicate the re-investigation process. The authors believe such concerns are largely unwarranted. When a court revokes an investigation report, it is usually for one of two reasons: (1) the existing evidence clearly indicates that the liability determination was manifestly inappropriate; or (2) the key facts are unclear due to insufficient evidence. In cases involving procedural violations, abuse of authority, or misapplication of laws or regulations, revocation of the administrative act may occur, but the substantive conclusions of the investigation report may remain unaffected. In the first scenario, the administrative authority can reissue the report based on the existing evidence. Since investigation reports possess quasi-judicial characteristics and serve to attribute degrees of liability among parties, even if an investigation report is revoked due to insufficient evidence, the administrative body must, using available evidence and its professional expertise and discretion, issue a revised report. Therefore, revoking an investigation report does not—and should not—impede the normal execution of administrative duties. V. Conclusion The administrative justiciability of investigation reports is not negated merely because the law designates such reports as admissible evidence in waterborne accident proceedings. Rather, their evidentiary weight increases, and they are frequently used as the primary basis for the attribution of civil liability. With the New Maritime Traffic Safety Law explicitly confirming the evidentiary role of investigation reports, this trend becomes even more pronounced. Thus, it is essential to grant parties the right to challenge these administrative acts under the framework of administrative litigation. Unless China reforms its judicial practice to follow the example of other jurisdictions—prohibiting the use of investigation reports as civil evidence and instead relying entirely on parties' own presentation and cross-examination of evidence in court—the current system must ensure adequate public law remedies. Moreover, allowing investigation reports to fall within the scope of administrative litigation does not hinder civil proceedings. On the contrary, it enhances the protection of parties' legal rights in a more comprehensive and balanced manner. VI. Authors Shen Han, Luo Zheng, Guangzhou Maritime Court VII. References [1] Wang Jun, Research on the Administrative Justiciability of Liability Determinations in Waterborne Traffic Accidents, Master's Thesis, Law Degree, Dalian Maritime University, 2020. [2] Guo Feng, "On the Concept of Liability in Waterborne Traffic Accidents: Definition and Application," Journal of Shanghai Maritime University, March 2019. [3] Ocean Prefect Shipping Limited v. Dampskibsselskabet Norden AS (Ocean Prefect) [2019] EWHC 3368. [4] Alan M. Weigel, "Using Accident Reports in Casualty Litigation," available at: https://www.mondaq.com/unitedstates/marine-shipping/159518/using-accident-reports-in-casualty-litigation. [5] John D. Winter & Adam P. Blumenkrantz, "The Admission of Government Agency Reports under Federal Rule of Evidence 803(8)(c)," available at: https://www.pbwt.com/content/uploads/2015/07/Admission-of-Government-Agency-Reports. [6] EU Directive 2009/18/EC. [7] Civil Judgments: (2018) Lu 72 Min Chu No. 1071; (2018) Yue 72 Min Chu No. 702. [8] Civil Judgment: (2018) Zhe 72 Min Chu No. 850. [9] Interpretation of Article 114, Interpretation of the Civil Procedure Law. [10] Civil Judgment: (2011) Wu Hai Fa Shi Zi No. 15 – the court declined to recognize the "second collision" determination made by the Changshu Maritime Office. [11] Jiang Bixin (Ed.), Understanding and Applying the Provisions of the Administrative Procedure Law of the People's Republic of China and Its Judicial Interpretations, People's Court Press, 2015, p. 83. [12] Zeng Yujie, Legal Issues in China's Maritime Accident Investigation Conclusions, Master's Thesis, Dalian Maritime University, 2020. [13] See note [11], interpretation of Article 12 of the Administrative Procedure Law, which holds that an act qualifies as an administrative act if it meets four key elements: it is performed by an administrative authority; it occurs in the course of administrative management; it includes both lawful and unlawful acts; and both acts of commission and omission by the administrative authority. [14] Maritime Safety Administration of China, Introduction to Waterborne Traffic Accidents, Dalian Maritime University Press, 2003, p. 40. [15] Song Mingxiang, "On the Justiciability of Waterborne Accident Liability Determinations," Water Transport Management, January 2006. [16] Pei Ertai & Wang Yan, "Research on Quasi-Administrative Acts," Administrative Law Review, Issue 1, 2004. [17] Xu Chenghua & Li Xingxing, "Quasi-Administrative Acts Are Justiciable," People's Court Daily, April 12, 2017, p. 6. [18] Jiang Ming'an (Ed.), Administrative Law and Administrative Procedure Law (6th ed.), Peking University Press & Higher Education Press, p. 189. [19] Guo Feng, "On the Concept of Liability in Waterborne Traffic Accidents: Definition and Application," Journal of Shanghai Maritime University, March 2019. [20] Liu Dequan (Chief Editor), Compilation of Judicial Views of the Supreme People's Court (Volume on Administrative and State Compensation Cases), Vol. I, China Legal Publishing House, 2017, p. 192. [21] Qiao Wenjin, "A Legal Analysis of Administrative Acts as Evidence," available at https://www.chinacourt.org. [22] Cai Xiaoxue, Practical Guidelines on Administrative Adjudication and Enforcement, People's Court Press, 2009, pp. 454-456. [23] Committee Member Xia Xianpeng, "Proposal to Treat Documents of Maritime Accident Liability Determination as Evidence," reported by NetEase News. [24] Jiang Ming'an (Ed.), Administrative Law and Administrative Procedure Law (6th ed.), Peking University Press & Higher Education Press, 2015, p. 10. [25] Maritime Safety Administration of China, Introduction to Waterborne Traffic Accidents, Dalian Maritime University Press, 2003, p. 36. [26] Huang Wenkai & Wang Shujuan, "Can Subsequent Administrative Acts Absorb Preliminary Acts?", Cross-Strait Legal Science, June 2018. [27] Zhang Jiansheng, Basic Theories of Modern Administrative Law, Law Press, 2008, p. 516. [28] Liu Dequan (Chief Editor), Compilation of Judicial Views of the Supreme People's Court (Volume on Administrative and State Compensation Cases), Vol. I, China Legal Publishing House, 2017, p. 192. [29] Ma Sheng'an, "On the Binding Force of Administrative Acts in Judicial Adjudication: A Dual Perspective of Normative and Empirical Analysis," Judicial Reform Review, 2019, Vol. 2.

Abstract: Disputes over the right to use sea areas fall within the exclusive jurisdiction of maritime courts. The Civil Code adopts the provisions on the right to use sea areas previously established under the Property Law, defining such right as a type of usufructuary right. Lawfully obtained rights to use sea areas are protected by law. However, issues such as the subjects, objects, effectiveness, characteristics, transferability of the right to use sea areas, and its conflicts and coordination with other usufructuary rights are not explicitly stipulated. In judicial practice, there are divergent views on the jurisdiction and application of law in cases involving disputes over the right to use sea areas. This article, using the characteristics of the right to use sea areas as the point of departure and with reference to actual cases, provides a systematic analysis of jurisdictional issues, legal attributes, applicable law, and adjudication approaches, with the aim of offering a comprehensive framework for the adjudication of such cases. Keywords: Exclusive jurisdiction; Usufructuary right; Certificate of the right to use sea areas; Real right claim I. Legal Characteristics of Disputes over the Right to Use Sea Areas (i) Definition and Legal Nature of the Right to Use Sea Areas   The right to use sea areas refers to the exclusive right, obtained in accordance with the law, by entities or individuals to control specific state-owned sea areas. The subject of this right may be an entity or an individual; its object is a specific sea area regarded as immovable property; and its content is the exclusive control of that specific sea area for a defined purpose [1]. The sea area that forms the object of such right includes the interior waters, the surface, body, seabed and bottom soil of the territorial seas of the People's Republic of China. As a maritime power, China has jurisdiction over nearly three million square kilometers of sea area, equivalent to one-third of its land territory. It has more than 18,000 kilometers of mainland coastline and over 14,000 kilometers of island coastline, containing rich resources such as biological, mineral, shipping, and tourism resources. The state has the responsibility to manage these abundant resources, and the legal basis for such management is the state's ownership of sea areas. There is scholarly debate regarding whether the right to use sea areas is of a public or private law nature. However, both the former Property Law of the People's Republic of China (the "Property Law")and the current Civil Code of the People's Republic of China (the "Civil Code") reference the right to use sea areas under the general provisions on usufructuary rights. Though no separate chapter is dedicated to it, the right to use sea areas has been affirmed by higher-level legislation as an increasingly important category of usufructuary right. Detailed provisions can be found in the Sea Areas Administration Law of the People's Republic of China (the "Sea Areas Administration Law") and relevant administrative regulations. The academic community is reaching increasing consensus that the right to use sea areas possesses both public and private law attributes. There is also general agreement on the scope of rights included under the right to use sea areas, as follows: (1) Exclusive use. Paragraph 3 of Article 2 of the Sea Areas Administration Law stipulates that "This Law shall be applicable to any exclusive continuous use of the seas within specific sea areas of the interior waters or territorial seas for three months or longer." Paragraph 1 of Article 23 provides that "The right of holder of the right to lawfully use sea areas and obtain proceeds shall be protected by law, and may not be infringed upon by any entity or individual." Article 44 further states that "If any one violates the provisions... by hampering or disturbing the right holder to use sea areas, the right holder may plead the maritime administrative authority to remove the hindrance, or institute a suit at the people's court. If nay losses have resulted, he may also plead for damages." These provisions clearly establish that the right to use sea areas entails an exclusive right of use. (2) Restrictive use. The use of sea areas is subject to both spatial and temporal restrictions, as well as limitations on the exclusivity of rights. The right pertains to specific sea areas approved through examination and review, thus having spatial constraints. Article 25 of the Sea Areas Administration Law stipulates the maximum term for using sea areas based on different purposes, indicating time-based restrictions. Furthermore, Paragraph 2 of Article 23 of the same law states that "The holder of the right to use sea areas may not hinder the non-exclusive use of the sea so that it does not hamper its use of the sea areas," which shows that even the exclusivity of rights is not absolute. (3) Transferability. Article 27 of the Sea Areas Administration Law explicitly provides for the transfer of the right to use sea areas through equity participation, assignment, and inheritance. Many scholars further argue that, as a type of usufructuary right, the right to use sea areas can also be mortgaged. Accordingly, unlike many natural resource rights that are often underutilized in practice, the right to use sea areas carries real property attributes, with each element of the right consistent with the essential characteristics of property rights. (ii) Definition and Attributes of Disputes over the Right to Use Sea Areas According to the Provisions on Causes of Action in Civil Cases issued by the Supreme People's Court, disputes over the right to use sea areas fall under the category of disputes over usufructuary rights, which are a subset of property right disputes. As a usufructuary right explicitly provided for in the Civil Code, the right to use sea areas possesses all the characteristics of a property right. Therefore, any civil dispute involving this right may be classified under this cause of action. Disputes over the right to use sea areas mainly include cases involving transfer, inheritance, profit from use, donation, pledge, and maritime torts. However, if the dispute concerns administrative approval of the right to use sea areas, it constitutes an administrative dispute and the party concerned shall file an administrative lawsuit accordingly. II. Difficulties and Challenges in the Adjudication of Disputes over the Right to Use Sea Areas (i) Current Status of Adjudication of Disputes over the Right to Use Sea Areas In early July 2021, the authors conducted a search using the China Judgments Online database with "disputes over the right to use sea areas" as a civil cause of action. A total of 900 case documents were found. Geographically, the cases were mainly concentrated in Liaoning, Shandong, Zhejiang, and Shanghai. By refining the search with the keywords "disputes over the right to use sea areas" and "concluded by judgment," 257 civil judgments dated from 2010 to 2021 were located. Among these, Liaoning Province published 136 cases, Shandong 40, Zhejiang 18, Fujian and Shanghai 14 each, while Hainan, Jiangsu, Guangdong, Hebei, Tianjin, and Guangxi Zhuang Autonomous Region each published fewer than 10 judgments of this type. In terms of court hierarchy, 59 second-instance judgments were rendered by high people's courts, 160 by intermediate people's courts, and 31 by primary people's courts. To date, there are no guiding cases or exemplary model judgments. Although the Supreme People's Court has accepted applications for retrial and issued rulings on jurisdiction concerning such cases, it has yet to render a substantive civil judgment in this area. Judging from the number of published cases, disputes over the right to use sea areas remain a relatively niche category. However, the number of such cases has steadily increased since 2014 and has grown significantly since 2017. In the past three years, these cases have accounted for over 70% of all cases accepted in the past decade. These statistics indicate that, with the development of the marine economy and the standardization of the registration and administration of the right to use sea areas, public awareness of and emphasis on this right have grown substantially. Consequently, a range of practical legal issues, such as jurisdiction and applicable law, require urgent resolution. (ii) Conflicts in Jurisdictional Provisions for Disputes over the Right to Use Sea Areas According to the Guidelines of the Supreme People's Court on the Application of Causes of Action and the Right to Claim in Civil Cases (hereinafter the "Guidelines"), disputes over the right to use sea areas arise from interests in immovable property and thus fall under the exclusive jurisdiction of the people's court in the location of the immovable property. Where disputes arise from the transfer, mortgage, inheritance, or lease of the right to use sea areas, jurisdiction should be determined according to the relevant provisions of the Civil Procedure Law of the People's Republic of China (the "Civil Procedure Law") based on the underlying legal relationship relevant to the disputes. However, in accordance with the Provisions of the Supreme People's Court on the Scope of Cases Accepted by Maritime Courts (Fa Shi [2016] No. 4, hereinafter the "Provisions 2016 No.4"), maritime courts have jurisdiction over civil cases involving the right to use sea areas. These are divided into two categories: first, disputes over the right to use sea areas (including contractual disputes over contracting, transfer, and mortgage, as well as related tort disputes), excluding disputes over confirmation of rights arising from applications for the right to use sea areas; and second, disputes over intermediary or agency contracts related to such rights. Therefore, pursuant to the Provisions 2016 No.4, disputes over the right to use sea areas fall under the exclusive jurisdiction of maritime courts and not the jurisdiction of courts in the location of the immovable property as stipulated in the Guidelines. In judicial practice, the legal community also holds differing views on the jurisdiction over cases involving disputes over the right to use sea areas. Taking Guangdong Province as an example, the authors searched the China Judgments Online database and found that as of July 1, 2021, a total of 10 civil cases with "disputes over the right to use sea areas" as the cause of action had been published in Guangdong. These included decisions by other primary people's courts on jurisdictional issues, decisions by the court granting permission to withdraw lawsuits or rendering judgments, and decisions and judgments by the Guangdong High People's Court. Overall, there is basic consensus that disputes over the right to use sea areas fall under the jurisdiction of maritime courts. However, in one particular case involving the validity of an agreement for the transfer of the right to use sea areas, where the sea area involved was located in Longgang District, Shenzhen, the case was tried in the first instance by the Longgang District People's Court and adjudicated in the second instance by the Shenzhen Intermediate People's Court on July 26, 2018. Based on published judgments on the China Judgments Online database, a total of 23 first-instance civil judgments related to disputes over the right to use sea areas have been issued by primary courts nationwide. Such cases are clearly inconsistent with the provisions that designate maritime courts as having exclusive jurisdiction over disputes involving the right to use sea areas. Therefore, further clarification is still needed in judicial practice. Disputes over the right to use sea areas are often intertwined with other disputes, such as construction contract disputes, land contract disputes, and fishery contract disputes. When accepting such cases, the court must first ascertain whether the disputed parcel of land is a sea area or a land area. If it is confirmed to be a sea area, the court must then determine whether it is a dispute over the right to use sea areas and subsequently confirm jurisdiction. According to the Supreme People's Court Civil Ruling (Min Xia No. 62 [2020]) published on the China Judgments Online database, the Court reiterated through a ruling that such cases fall under the exclusive jurisdiction of the maritime court in the location of the sea area in question. The case involved a dispute over the right to use sea areas between plaintiffs Qi Benlin and Qi Yuhong and defendant Fan Longyan. The Binhai County People's Court of Jiangsu Province accepted and adjudicated the case in 2018. After the plaintiffs appealed, the Yancheng Intermediate People's Court ruled that the case involved a lease contract dispute over the right to use sea areas and therefore fell within the exclusive jurisdiction of maritime courts. The court revoked the original first-instance judgment and transferred the case to the Shanghai Maritime Court. The Shanghai Maritime Court, however, found that the disputed area—990 mu of fishponds on the western side of the southern section of Biandangang in Binhai County—lacked a valid certificate of the right to use sea areas in the materials provided and therefore could not be identified as a lease dispute over the right to use sea areas under the exclusive jurisdiction of maritime courts. Accordingly, the case was returned to the Yancheng Intermediate People's Court, which then transferred the case to the newly established Nanjing Maritime Court. The Nanjing Maritime Court sought instructions from the Jiangsu High People's Court regarding the designation of jurisdiction. The Jiangsu High People's Court, citing multiple transfers and procedural irregularities, upheld the validity of the Yancheng court's decision to transfer the case to the Shanghai Maritime Court and submitted the case to the Supreme People's Court for designation of jurisdiction. The Supreme People's Court held that Article 36 of the Civil Procedure Law of the provides: "If a people's court discovers that a case it has accepted is not within its jurisdiction, it shall refer the case to the people's court with jurisdiction, which shall accept the case. If a people's court to which a case is referred considers that the case does not come under its jurisdiction in accordance with regulations, it shall report to the superior people's court for designation of jurisdiction and shall not further refer the case at its own discretion." In this case, the Shanghai Maritime Court, as the court to which the case was referred, directly returned the case to the Yancheng Intermediate People's Court, which then transferred it to the Nanjing Maritime Court—this procedure violated the aforementioned provisions. Pursuant to Article 63 of the Provisions 2016 No.4, disputes over the right to use sea areas (including contractual disputes over contracting, transfer, and mortgage, as well as related tort disputes) fall within the exclusive jurisdiction of maritime courts. Based on findings submitted by the reporting courts, the area in question in this case was confirmed to be a sea area, and the dispute between the parties indeed pertained to the right to use sea areas. Accordingly, the case should fall under the exclusive jurisdiction of a maritime court. Since the sea area involved came under the jurisdiction of the Nanjing Maritime Court after December 2019, it was appropriate for that court to hear the case. This case illustrates that, to improve judicial efficiency, adjudicators—when handling cases involving usufructuary rights, especially land contract disputes, disputes over the right to use sea areas, and fishery contract disputes—must first determine whether the immovable property involved pertains to the right to use sea areas. If it does, the court must then ascertain whether it has jurisdiction. If it does not, the case must be transferred in accordance with the relevant laws and regulations. Regarding the issue of jurisdiction over the right to use sea areas, it is also important to distinguish whether a case is of a civil or administrative nature. Article 63 of Part I of the Provisions 2016 No.4, which came into effect on March 1, 2016, only provides a general description of the types of cases involving disputes over the right to use sea areas, without detailing or clarifying which specific types of such disputes fall within the jurisdiction of maritime courts. Specifically, the phrase "including contractual disputes over contracting, transfer, and mortgage, as well as related tort disputes" affirms that civil and commercial disputes between equal parties arising from the right to use sea areas fall within the scope of acceptance by maritime courts. However, the regulation does not provide explicit guidance on disputes involving administrative authorities or their affiliated enterprises in relation to the right to use sea areas. On March 1, 2016, the Provisions of the Supreme People's Court on Jurisdiction over Maritime Litigation (Fa Shi [2016] No. 2) (the "Provisions 2016 No.2") officially came into effect. Paragraph 1 of Article 2 of the regulation clearly stipulates that maritime courts have jurisdiction over maritime administrative cases. The Provisions 2016 No.4, which took effect simultaneously, also defines the scope of maritime administrative cases. On February 8, 2018, the Interpretation of the Supreme People's Court on the Application of the Administrative Procedure Law of the People's Republic of China (Fa Shi [2018] No. 1) came into operation. Paragraph 2 of Article 3 of the Interpretation provides that specialized people's courts and people's tribunals shall not hear administrative cases, nor shall they review or enforce cases where administrative organs apply for enforcement of their administrative actions. However, for specialized people's courts such as railway transport courts that do hear administrative cases, the provisions of Paragraph 2 of Article 18 of the Administrative Procedure Law shall apply. As a result, some administrative authorities and parties have raised doubts as to whether maritime courts may exercise jurisdiction over maritime administrative cases. On March 9, 2018, the Supreme People's Court issued the Notice on Further Strengthening the Adjudication of Maritime Administrative Cases (Fa [2018] No. 63), which reaffirmed that maritime courts shall exercise their adjudicative functions and try maritime administrative cases in accordance with the provision "maritime courts shall hear first-instance maritime administrative cases" as stipulated in the Provisions 2016 No.2. Therefore, administrative cases involving the right to use sea areas should also fall under the jurisdiction of maritime courts. In supplementary cases concerning the right to use sea areas, particular attention must be paid to determining whether the case is civil or administrative in nature. In the authors' view, because the right to use sea areas is a privileged right of administrative licensing, and its acquisition, transfer, and administration involve strong administrative management characteristics, cases involving this right may fall under either civil and commercial or administrative categories. If the dispute pertains to the approval of the right to use sea areas, it constitutes an administrative dispute. Disputes over compensation for expropriation of the right to use sea areas may involve both administrative approval and relationships between equal civil subjects. The term "expropriation compensation for the right to use sea areas" refers to compensation provided to the holder of the right to use sea areas when the government exercises its authority to reclaim the right in advance. Article 30 of the Sea Areas Administration Law stipulates: "For the purpose of public interest or the security of the state, the people's government shall made the approval may lawfully take back the right to use sea areas. If the right to use sea areas is withdrawn pursuant to the provisions of the preceding paragraph prior to the expiration of the term of use, appropriate compensations shall be made to the right holder." With respect to expropriation compensation for the right to use sea areas, the administrative expropriation component constitutes a unilateral administrative act, meaning that the expropriation is a decision made solely by an administrative authority and falls within the category of specific administrative acts. However, the administrative compensation component is realized through consultation and the signing of a compensation agreement between the administrative authority and the administrative counterparty, and therefore falls under the category of administrative contracts. The method and amount of compensation must be determined by mutual agreement through consultation. If no administrative compensation contract is concluded, and the government has not issued a specific administrative act during the consultation process, no concrete impact has yet been imposed on the parties' rights, and thus the matter is not actionable. Unlike the unilateral nature of a specific administrative act, the signing of a compensation agreement requires consensus between the administrative authority and the counterparty. In local practice, such compensation agreements are often signed between enterprises affiliated with the expropriating authority and the holders of the certificates of the right to use sea areas. In our view, the nature of such agreements is that of compensation for the occupation of the right to use sea areas, and does not constitute an administrative contract. In an administrative contract, one party must be an administrative body engaged in administrative functions, while the other party is in a subordinate or passive position. By contrast, both parties to these compensation contracts are equal civil subjects, and the agreement is reached through mutual consultation. Maritime courts have jurisdiction over such cases. In other words, maritime courts exercise exclusive jurisdiction over marine contract disputes, maritime tort disputes, and administrative disputes related to the right to use sea areas, with the exception of disputes over confirmation of rights arising from applications for the right to use sea areas. (iii) Practical Difficulties in the Judicial Protection of the Right to Use Sea Areas   1. Insufficient Legal Provisions for the Substantive Trial of Disputes over the Right to Use Sea Areas The Property Law only includes a single provision on the right to use sea areas in a principled manner. It does not cover matters such as registration, transfer, lease, mortgage, or capital contribution involving the right to use sea areas. The Sea Areas Administration Law only provides for two forms of secondary circulation of the right to use sea areas: transfer and inheritance. The Interim Regulation on Immovable Property Registration, effective from March 1, 2015, and its Implementing Rules, which came into force on January 1, 2016, incorporated the registration of the right to use sea areas into the unified immovable property registration system. However, other related matters await future revision of the Sea Areas Administration Law. The Civil Code, effective January 1, 2021, inherits the provision from the Property Law but still does not set forth detailed regulations on the right to use sea areas. In practice, particularly in coastal provinces and cities, dynamic circulation of the right to use sea areas is quite common, inevitably leading to disputes in the process. To resolve these disputes, a sound legal system is indispensable. Since the acquisition and exercise of the right to use sea areas are aimed at obtaining economic benefits, such economic value represents the core of the private-law nature of the right. Although sea use activities can be lawfully restricted or regulated based on the public nature of sea areas, the economic interests of the holder of the right to use sea areas must be sufficiently protected. This necessitates respect for the real right effect of the right to use sea areas—respecting the independence of the exercise of such rights, which must not be interfered with unless for public interest; and respecting the exclusivity of the right—once a sea area is designated, no other exclusive sea-use activity or obstructive non-exclusive activity may take place within it. Meanwhile, if public interest requires restrictions or even revocation of the right, full economic compensation must be granted to the right holder. As this article focuses on analyzing and resolving issues surrounding the protection of the right to use sea areas in judicial practice, it addresses the matter not from the perspective of environmental protection but from the viewpoint of safeguarding the interests of the right holder. 2. Challenges in Legal Characterization and Burden of Proof for the Right to Use Sea Areas Disputes over the right to use sea areas encompass both tort claims and breach of contract actions. The rule of "he who asserts must prove" applies to both types of actions. Entities and individuals who hold the right to use sea areas and act as plaintiffs must first prove their lawful ownership of the right, and then demonstrate that such right has been infringed or that they have suffered losses due to the defendant's actions. The certificate of the right to use sea areas serves as legal proof of lawful sea use. Only entities and individuals who have obtained such certificates are deemed holders of the right to use sea areas. These certificates define the scope of the sea area and include maps delineating the boundaries. However, due to the vastness of sea areas, the lack of fixed coordinates, the high cost of determining sea area boundaries, and the difficulty in assessing the economic value of damage, right holders often face evidentiary challenges when trying to prove infringement. Among the 257 published judgments reviewed by the authors, 42 cases saw the plaintiffs' claims dismissed. III. Analytical Framework for the Adjudication of Disputes over the Right to Use Sea Areas (i) Nature and Scope of the Right to Use Sea Areas 1. The right to use sea areas is a usufructuary right and constitutes a special type of immovable property. In tort litigation, the right must be registered to establish a valid real right claim. The nature of the right to use sea areas has long been debated in both academia and judicial practice. While current laws and regulations designate it as a usufructuary right with a defined purpose and term, its basis differs from that of typical usufructuary rights. Normally, such rights arise from a contract between equal civil parties. In contrast, the establishment of the right to use sea areas is an administrative act by the state, represented by the government, as the owner of sea area resources. Therefore, the acquisition of this right carries strong administrative characteristics. Unlike the typical "contract plus public notice" model used for establishing other usufructuary rights, the establishment of the right to use sea areas requires not only the consent of the competent authority but also compliance with legally prescribed formalities [2]. In terms of acquisition procedures, it must follow a strict process of application, approval, registration, certificate issuance, and public notice, in accordance with laws, administrative regulations, and departmental rules related to administrative licensing. That is, the right is granted only after an administrative license has been approved and registered in accordance with the law. Relevant laws, regulations, and normative documents on the registration of the right to use sea areas indicate that the system in China follows the principle of "registration as a constitutive requirement." Without registration, the right cannot be validly established. Even if approval is granted by a competent administrative authority, failure to register invalidates the right to use sea areas. Whether or not the right is registered determines its legal establishment or modification. Once the registration is approved, the holder of the certificate formally acquires the right to use sea areas from the date of issuance. In cases involving disputes over the right to use sea areas heard by maritime courts, tort disputes concerning such rights involve real right claims based on the right to use sea areas. A real right claim in this context refers to the right of the holder of the right to use sea areas to request the other party to perform or refrain from performing certain acts in order to remove or prevent hindrance when the complete status of the right is infringed or is in imminent danger of being infringed. These claims include the following: (1) Claim for return of sea area based on the right to use. This is the right of the holder of the right to use sea areas to request the return of the sea area from a party who unlawfully possesses or appropriates the sea area. This type of claim is the most fundamental among the real right claims derived from the right to use sea areas. It stems from the state's ownership of the sea and is granted to the holder concurrently with the establishment of the right to use. The elements of such a claim include the unlawful possession of the specific sea area by the other party, and the consequence of exercising the claim is that the unlawful possessor must return the sea area. The content of this claim involves not only the return of the original object but also compensation for damage if the object cannot be returned, and whether expenses can be reimbursed. (2) Claim for removal of hindrance. This refers to the right of the holder of the right to use sea areas to remove acts that hinder the exercise of the right. It differs from a claim for damages: the right holder cannot demand restoration to the original state but may only request the removal of the hindrance, as hindrance is distinct from damage. Damage refers to the adverse consequences caused by acts of hindrance and falls under the scope of tort liability, governed by the Tort Liability Law. Where the holder of the right is obliged to tolerate certain acts, such as in cases involving neighboring land use, the alleged hindering party may invoke a defense that the conduct does not constitute hindrance. (3) Claim for prevention of hindrance. This refers to the right of the holder of the right to use sea areas to request the prevention of potential hindrance by a third party. The purpose of such a claim is to prevent anticipated hindrance, based on the existence of an unlawful risk to the holder's ability to exercise control over the sea area. The party responsible for the potential hindrance (risk) bears the obligation to eliminate the danger and must bear the resulting costs [3]. The right to request prevention of hindrance is particularly important. With the advancement of modern industry, marine pollution has become increasingly serious. It is common, especially in coastal regions, for untreated industrial wastewater to be discharged directly into the sea, causing damage to aquaculture operations conducted by sea area right holders. In such cases, where the holder has sufficient evidence to prove that the right is at risk of being infringed, they may lawfully file a preventive hindrance claim without waiting for actual damage to occur. In judicial practice, attention should be paid to the following: on the one hand, if the sea area involved is registered under the name of a third party, and although a lease relationship exists between the lessee (the party claiming infringement) and the registered right holder, the lease is not registered with the competent government authority. As a result, the lessee cannot prove that the leased right has been lawfully recognized under applicable laws and regulations, and thus cannot enjoy real right claims over the disputed sea area pursuant to the Civil Code and the Sea Areas Administration Law. Accordingly, the lessee may not request the infringer to remove the hindrance. On the other hand, even where the plaintiff does possess a real right claim, the court may not uphold a claim for cessation of infringement and restoration to the original state if doing so would result in a significant loss or waste of public assets. For example, in the case of Guangxi Qinzhou Gengbo Energy Co., Ltd. v. SDIC Qinzhou Port Co., Ltd., the first-instance judgment was rendered by the Beihai Maritime Court and upheld on appeal by the Guangxi Zhuang Autonomous Region High People's Court. In this case, the defendant invested RMB 1.4 billion to construct a terminal after the plaintiff had obtained the right to use the sea area. With construction nearing completion, the plaintiff requested cessation of the infringement, restoration to the original state, and return of the sea area—explicitly waiving any claim for economic damages. The Beihai Maritime Court found that the defendant's conduct constituted infringement, and that the plaintiff could have claimed compensation. However, as the plaintiff insisted on cessation of construction and restoration rather than seeking monetary damages, and because granting such relief would have resulted in significant waste of public resources and property, the court declined to support the plaintiff's claim [4]. It should be noted that a party without a legally registered right does not enjoy real right claims, but this does not preclude them from seeking economic compensation. Where the lawful holder of the right to use a sea area suffers harm, appropriate compensation should still be granted based on the specific circumstances of the case [5]. 2. The scope of the right to use sea areas is limited to sea areas, as specified in the certificate of use right, and does not include the shoreline; the holder is subject to a duty of tolerance. The right to use sea areas possesses a partially exclusive character of control. In other words, conflicting rights to use the same sea area cannot coexist. Once the right is established, the holder may exercise control and use over the designated area at their discretion. However, acquiring the right to use sea areas does not confer absolute exclusivity; the holder is under a duty of tolerance and may not obstruct the lawful use of the sea by others so long as such use does not hinder their own legal sea-use activities. In judicial practice, disputes often arise over whether the immovable property involved in a case pertains to a sea area or to land. For example, in Case No. 62 (2007) Xia Hai Fa Shi Chu Zi, heard by the Xiamen Maritime Court, the dispute concerned tort liability for maritime infringement arising from the use of a terminal. The key issues were the validity of the certificate of the right to use sea areas and the nature of the right itself [6]. In its civil judgment, the court determined that the right to use sea areas covers only sea areas and does not extend to adjacent land areas. This case was included in the China Case Trial Highlights, where it was clearly stated that the approval authority of maritime administrative authorities is limited to sea areas. Once a civil subject lawfully acquires the right to use a sea area, their legal status as the right holder is confirmed, entitling them to possess, use, and derive benefits from the designated sea area. Such rights are exclusive in nature. However, holders of the right to use sea areas must also fulfill their duty of tolerance. Paragraph 2 of Article 23 of the Sea Areas Administration Law stipulates: "The holder of the right to use sea areas may not hinder the non-exclusive use of the sea so that it does not hamper its use of the sea areas." Moreover, the land adjacent to the sea area and the shoreline do not fall within the scope of the right to use sea areas. The approval authority over land (e.g., storage yards) lies with the natural resources administration authority, and approval over the shoreline lies with the port authority. Therefore, the area listed in the certificate of the right to use seas areas issued by the maritime administrative authority refers solely to the sea area and does not include adjacent land or shoreline. If another party sets up a crane or stores oyster shells on the terminal, such conduct constitutes use of the land area and does not infringe upon the right to use sea areas. 3. The right to use sea areas has a specific purpose and term; upon expiration, the right is extinguished. According to Article 25 of the Sea Areas Administration Law, the maximum term for using sea areas are defined for six purposes as follows: 15 years for aquatic breeding; 20 years for ship dismantle; 25 years for tourism and entertainment; 30 years for salt production and mineral exploitation; 40 years for public interests; 50 years for construction projects including ports, shipbuilding factories, etc. Article 29 of the Sea Areas Administration Law stipulates that where the right to use sea areas expires and no application for renewal is made or the application for renewal is not approved, the right to use sea areas shall be terminated. These provisions indicate that governments that approve sea-use applications may reclaim the right to use sea areas in two ways: (1) by revoking it prior to expiration, or (2) by denying renewal upon expiration. While related laws and regulations generally favor approving renewal applications submitted by right holders, Article 26 of the Sea Areas Administration Law expressly states that renewal may be denied when necessary for public interest or national security. To qualify for expropriation compensation, the right holder must still lawfully possess the right at the time of expropriation—that is, the certificate of the right to use sea areas must still be valid. Even if the certificate is close to expiring, compensation should still be provided if expropriation occurs before expiration [7]. If the holder fails to apply for renewal two months before expiration and the approval authority has not revoked the right, the question of whether legal remedies are available and what those remedies might be falls within the scope of administrative authority. Civil courts should refrain from making direct negative determinations in such matters. 4. Balancing interests when the right to use sea areas conflicts with other usufructuary rights such as the right to aquaculture or the right to fish. Conflicts may arise between the right to use sea areas and lawfully acquired rights to fish or engage in aquaculture, and there has long been debate over how to apply the law in such cases. Both the former Property Law and the current Civil explicitly provide for these rights, and all of them are categorized as usufructuary rights. Moreover, the Sea Areas Administration Law, which governs the right to use sea areas, and the Fisheries Law, which governs the right to fish and the right to aquaculture, are of the same legal rank. Some scholars argue that, in principle, the right to fish and the right to aquaculture—being directly related to livelihood and essential to the basic survival of the rights holders—should be prioritized over the right to use sea areas, which carries strong administrative attributes and was designed to facilitate national management of maritime resources. From a legal perspective, they contend that livelihood-related rights should be given greater protection. Conversely, some judges, considering the institutional design and practical sea use, believe that when the establishment or exercise of the right to use sea areas infringes on existing fisheries rights, appropriate compensation should be provided to the fisheries rights holders. The volume Interpretation and Judicial Application of the Book on Real Rights in the Civil Code, compiled by the Civil Adjudication Theory Committee of the China Trial Theory Research Association, advocates a comprehensive approach to determining applicable law. If evidence clearly establishes the chronological priority of the rights, the later-created right that infringes upon the earlier one should yield to the prior right. If the chronological order cannot be determined from the evidence, the conflict should be resolved based on legal principles. This underscores that conflicts between the right to use sea areas and rights to fish or aquaculture remain a difficult issue in judicial practice and must be addressed on a case-by-case basis. Another common type of case involving the right to use sea areas is maritime property damage liability. For example, in Case No. 117 (2011) Jin Hai Fa Shi Chu Zi, heard by the Tianjin Maritime Court, the plaintiffs (eight individuals including Li Shuqiang) filed a lawsuit against the Islamic Republic of Iran Shipping Line for compensation over marine aquaculture damage. The court held that individuals or entities engaged in aquaculture activities within sea areas must obtain both a certificate of the right to use sea areas and an aquaculture license in accordance with the law. If the parties fail to provide valid and lawful certificates before the close of court debate, such activities constitute unlicensed aquaculture. Where aquaculture is conducted without the necessary permits, the responsible party is not liable for compensating lost aquaculture income, but is only liable for compensating the cost of aquaculture. These costs may be calculated using authoritative industry reports. Any aquaculture expenses saved as a result of the damaging event should be deducted from the damages awarded. Moreover, the parties must apply to the maritime authority to issue navigational warnings and notices for their claimed aquaculture areas, and must establish visible safety measures such as warning signs within such areas. In summary, the following points should be emphasized when adjudicating infringement cases involving the right to use sea areas: First, the legal basis for the claim asserted by the parties must be examined. The party may assert various claims, such as a real right claim, a claim for damages, or other types of relief. In cases of overlapping rights, the party's choice should be respected, whether they pursue a single legal basis or combine multiple claims in accordance with law. Second, the legal status of the claimed rights must be reviewed, particularly their legitimacy. For sea area users, the certificate of the right to use sea areas must be verified. If the use involves aquatic breeding, an aquaculture license must be reviewed. If it involves fishing activities, a fishing license must be examined. If the party cannot provide the necessary documentation, the court may consult relevant administrative authorities in the fields of maritime affairs or fisheries to ascertain the actual legal status. For traditional fishermen who contract collectively owned or collectively used sea areas or tidal flats, their contract or contracting certificate should be verified, as it also serves as documentary evidence of real rights. Third, courts must properly exercise their duty of clarification. While maintaining neutrality and impartiality during adjudication, courts should guide vulnerable parties in navigating the litigation process [8]. 5. The right to use sea areas is a usufructuary right transferable by law, with exchangeable property value and circulation permissible, subject to mandatory provisions of validity. To ensure the rational development and utilization of sea area resources and the environment, and to promote the optimal effectiveness of sea areas, implementing a multi-tiered, functional zoning system is the most effective means for achieving comprehensive and sustainable development of the right to use sea areas. In practice, particularly in coastal provinces and cities, dynamic circulation of the right to use sea areas is quite common, However, it must be noted that the purpose of the sea area may not be altered without authorization during the process of such circulation. Article 28 of the Sea Areas Administration Law stipulates: "The holder of the right to use the sea areas shall not change the approved uses of the sea areas without authorization. Where it is necessary to change, the change shall be in conformity with the functional divisions of the sea and approval of the people's government that made the approval shall be obtained." If the sea-use purpose is altered without approval and to the detriment of public interest, any contract related to the transfer of the right to use sea areas may be deemed invalid for violating mandatory provisions of law. Whether this provision constitutes a mandatory provision affecting the validity of a contract has been a subject of debate. In a dispute over the right to use sea areas heard by the Wenzhou Intermediate People's Court, the court held that: (1) although Article 28 does not explicitly state that a violation renders the contract invalid, in the case at hand, the tidal flat in question was used for industrial construction, clearly infringing upon public interest; (2) the provision addresses the content of the act, namely, the change of sea-use purpose, and such change requires a strict approval process, reflecting the state's strict public law control over the re-zoning of sea areas. Therefore, the contract signed between the parties, which altered the purpose of the sea area without obtaining approval from the original approving government, violated a mandatory legal provision and should be deemed invalid. With respect to the circulation of the right to use sea areas, such circulation includes forms like leasing and mortgage, covering not only the transfer of current interests but also of expected interests. The leasing and transfer of this right must meet certain qualification standards to ensure maximum sustainability in the use of marine resources [9]. For example, a contractor may obtain the right to operate a sea area based on a valid and lawful contract and derive corresponding benefits. In addition to contractual operation, the right to use sea areas may also be subject to mortgage. With increasing emphasis on the monetization of property rights, there is growing demand to utilize the exchange value of the right to use sea areas as a financing tool. Although Article 395 of the Civil Code allows for the mortgage of property not explicitly prohibited by law or administrative regulations, and although the Interim Regulation on Real Property Registration and its implementation rules provide for the registration of mortgages over the right to use sea areas, some registration authorities still reject such applications on the grounds that the law lacks explicit authorization. As a result, legal uncertainties remain regarding the establishment, validity, scope of security, and realization of mortgage rights over the right to use sea areas. The right to use sea areas should be recognized as a type of immovable property that is eligible for mortgage registration. Even if the holder fails to apply for renewal two months prior to the expiration of the term, and the approval authority has not yet revoked the right, the right to use sea areas and any mortgage right attached thereto does not automatically lose their legal effect. In such cases, courts may rule that the mortgagee retains the mortgage right over the sea area within the timeframe permitted by the administrative authority for approval or renewal. It is important to emphasize, however, that the leasing or transfer of the right to use sea areas must not endanger or harm national territory or national security. In conclusion, although disputes over the right to use sea areas represent a relatively small proportion of maritime cases, this does not mean that research on such disputes should be overlooked. With the continuous development of the marine economy, maritime courts are likely to handle more such cases in the future. The legal issues and adjudication approaches surrounding them merit further study and exploration. Authors: Yan Hui, and Liu Yufei, Guangzhou Maritime Court Cited Documents: [1] See Guidelines of the Supreme People's Court on the Application of Causes of Action and the Right to Claim in Civil Cases, compiled by People's Publishing House, p. 135. [2] Quoted from Faxin case database: The certificate of the right to use sea areas is the documentary evidence of lawful sea use by the parties. [3] Excerpted from a case heard by the Shanghai Maritime Court: Nantong Pengsheng Aquaculture Co., Ltd. v. Liu Shankang (dispute over the right to use sea areas). Case name: Unregistered Sea Area Users Are Not Entitled to Real Right Claims – A Fisheries Company v. Liu (Sea Area Use Dispute). Case authors and source not shown in Faxin. [4] Detailed analysis can be found in the following judgments: (2015) Hai Shang Chu Zi No. 49 issued by the Beihai Maritime Court and (2016) Gui Min Si Zhong Zi No. 190 issued by the Guangxi High People's Court. Quoted from Faxin: Where a Plaintiff Requests the Infringer to Cease Infringement and Restore the Original State, But This Would Cause Serious Waste of Public Resources, the Court May Deny the Claim – Guangxi Qinzhou Gengbo Energy Co., Ltd. v. SDIC Qinzhou Port Co., Ltd. [5] Quoted from Faxin: Occupying Another Party's Sea Area Use Right Entitles the Lawful Right Holder to Appropriate Compensation – A Fisheries Company v. A Tourism Investment Development Company. [6] Quoted from China Case Trial Highlights, commentary by Lin Jing: The Area Indicated in the Certificate of the Right to Use Sea Areas Should Refer Only to the Sea Area, Excluding Land and Shoreline. [7] Quoted from Faxin: Occupying Another Party's Sea Area Use Right Entitles the Lawful Right Holder to Appropriate Compensation – A Fisheries Company v. A Tourism Investment Development Company, tried by the Shanghai Maritime Court. [8] Quoted from Faxin: Where a Lawfully Acquired Sea Area Use Right Conflicts with an Unauthorized Aquaculture Right, the Lawful Right Prevails – Li v. Subdistrict Office and Development Management Committee of the New District (Dispute over the Right to Use Sea Areas), second instance: (2011) Zhe Wen Min Zhong Zi No. 1094. [9] Quoted from Ge Huaqing, A Preliminary Study on the System of the Right to Use Sea Areas in China. References: [1] People's Court Press (Ed.), Guidelines of the Supreme People's Court on the Application of Causes of Action and the Right to Claim in Civil Cases (2nd Edition), People's Court Press. [2] Civil Adjudication Theory Committee of the China Trial Theory Research Association (Ed.), Interpretation and Judicial Application of the Book on Real Rights in the Civil Code, Law Press. [3] Zou Tingqian, On the Adjudication of Disputes over the Right to Use Sea Areas and the Judicial Criteria Thereof, published in Application of Law, Issue 11, 2014.

Abstract: The rule against fruitless auctions primarily originates from Paragraph 1, Article 6 of the Provisions of the Supreme People's Court on the Auction and Sale of Property in Civil Enforcement by the People's Courts (hereinafter the "Auction and Sale Provisions"), which provides special stipulations for determining the reserve price in ship auctions. In judicial practice involving the disposal of seized property, many courts opt not to proceed with auctions of properties that may present a risk of being fruitless. However, this practice reveals a conceptual misunderstanding. A deeper understanding of the true intent of Article 6 of the Auction and Sale Provisions is warranted. In the context of ship auctions, maritime courts should fulfill their duty of review and apply the rule against fruitless auctions prudently and reasonably. Once the applicant for enforcement has been duly informed and reminded, and still insists on proceeding with the auction, the maritime court may approve the application. Keywords: Rule against fruitless auctions; Auction reserve price; Declaration of intent I. Conditions for Applying the Rule Against Fruitless Auctions in Ship Auction Procedures Article 6 of the Provisions of the Supreme People's Court on the Auction and Sale of Property in Civil Enforcement by the People's Courts (Fa Shi [2020] No. 21), newly amended and implemented on January 1, 2021, provides: "After the reserve price has been determined, if, based on the current reserve price, the auction proceeds are unlikely to yield any remaining amount after satisfying the priority claims and enforcement costs, the people's court shall notify the applicant for enforcement before proceeding with the auction. If the applicant for enforcement applies for the continuation of the auction within five days of receiving the notice, the court shall grant the request, but the reserve price shall be re-determined. The new reserve price must exceed the total amount of the priority claims and enforcement costs. If the auction fails under the preceding provision, the auction costs shall be borne by the applicant for enforcement." This clause constitutes a special provision for auctions in enforcement cases involving priority claims and is also the legal basis for restricting or prohibiting fruitless auctions. Although ship auction procedures are subject to special regulations such as the Special Maritime Procedure Law of the People's Republic of China, they still fundamentally follow the general rules provided in the Civil Procedure Law of the People's Republic of China. As such, fruitless auctions may also occur in ship auction cases. Accordingly, the following conditions govern the application of the rule against fruitless auctions in ship auction procedures: (i) The Auctioned Ship Is Encumbered with Priority Claims Priority claims on a vessel mainly refer to maritime claims that give rise to maritime liens on the ship, or secured claims such as those backed by mortgages, pledges, or possessory liens attached to the vessel. The existence of such priority claims on the ship is a prerequisite for the potential occurrence of a fruitless auction. When general claims compete with priority claims and must yield to the latter, it becomes possible that the applicant for enforcement may ultimately receive no proceeds from the auction. It is important to note that even a creditor who has obtained a prior seizure order may not be entitled to proceeds from the auction if the auction is deemed fruitless. [1] If all applicants for enforcement are general creditors, they may recover their claims either based on the order of seizure or through participation in distribution or bankruptcy proceedings, depending on the overall financial status of the judgment debtor. Regardless of the method, the creditor who first applies for the seizure and auction of the vessel will still benefit from the auction, and the issue of a fruitless auction will not arise. (ii) Based on the Determined Reserve Price, the Auction Proceeds Are Unlikely to Yield Any Remaining Amount After Satisfying the Priority Claims and Enforcement Costs The reserve price refers to the minimum transaction price that must be met for the auction item to be successfully sold. [2] In ship auctions, the reserve price is generally determined with reference to both the appraised value and the market value. The appraised value objectively reflects the ship's worth and provides a scientific and reliable reference for setting the reserve price. [3] The market value serves as a benchmark to ensure that the reserve price aligns with prevailing transaction conditions. The legal framework for determining the reserve price is as follows. Article 10 of the Provisions of the Supreme People's Court on Several Issues Concerning Online Judicial Auctions by the People's Courts (hereinafter the "Online Auction Provisions") stipulates that the reserve price for an online auction is the starting bid. [4] Meanwhile, Article 6 of the Auction and Sale Provisions specifies that if, based on the initial reserve price, the auction proceeds are unlikely to yield any remaining amount after satisfying the priority claims and enforcement costs, a new reserve price must be set that exceeds the total amount of such priority claims and enforcement costs. It should be understood that "reserve price" in this context refers not only to the price set for the first auction but to the reserve price applicable to each round of auction. If the initial reserve price exceeds the total amount of the priority claims and enforcement costs, but the reduced reserve price in a subsequent auction falls below that threshold, the rule against fruitless auctions should still apply. In other words, if there is a risk of a fruitless auction, the reserve price in each round of auction must be greater than the total amount of the priority claims and enforcement costs. [5] This requirement applies even to second and third auctions, and if all three auctions fail, the reserve price must still not fall below the amount needed to cover the priority claims and the court's enforcement costs. This approach better aligns with legislative intent and helps to safeguard the lawful rights and interests of the judgment debtor and other stakeholders. [6] (iii) The Applicant for Enforcement Cannot Be Deemed to Benefit from the Court's Auction of the Ship When a creditor holding a priority claim applies to the court to seize or detain the judgment debtor's property and subsequently requests an auction, the court's auction conduct will ultimately benefit the applicant due to the priority nature of the claim. Therefore, such cases do not fall under the category of fruitless auctions. However, if multiple priority claims exist on the vessel, a question arises as to whether a lower-ranked priority creditor's request to auction the ship should be subject to the rule against fruitless auctions. Some scholars argue that regardless of whether the applicant is a general creditor or a lower-ranked priority creditor, if the applicant is unlikely to benefit from the court auction, the rule against fruitless auctions should apply. [7] This is because the essence of the rule is to regulate auctions that pose a risk of being fruitless, rather than to regulate the nature or identity of the creditor. II. Common Misunderstandings in the Practical Application of the Rule Against Fruitless Auctions (i) The Court Proceeds with the Auction Without Verifying the Encumbrances on the Auctioned Property Compared to the applicant for enforcement, the court is in a better position to conduct a comprehensive investigation into the judgment debtor's property. It is the court's responsibility during the enforcement stage to verify the financial and legal status of the judgment debtor's property involved. If the encumbrances on a ship are not carefully verified during the sale process, the legitimate rights and interests of the parties may be compromised. In a resumed enforcement case handled by the Mianyang Intermediate People's Court of Sichuan Province [8], the court failed to accurately verify the encumbrances on the auctioned property. As a result, the reserve price set was lower than the total amount of the priority claims and enforcement costs, leading to no remaining funds available for general creditors after the auction. The court acknowledged that this procedural defect, caused by its failure to perform due diligence, impaired the lawful rights of the applicant for enforcement and the holder of security interests. Therefore, it ruled that the auction should be annulled. Nevertheless, since judicial enforcement procedures carry the authority of the state, conducting an auction without verifying the encumbrances and then subsequently annulling the auction not only wastes judicial resources but also undermines the authority of the judiciary. This highlights that verifying the encumbrances on the auctioned property is a critical step in the auction process. (ii) The Reserve Price Set by the Court Is Lower Than the Total Amount of Priority Claims and Enforcement Costs Setting the reserve price higher than the total amount of priority claims and enforcement costs is intended to protect the interests of general creditors and to avoid situations where no proceeds remain for distribution upon the auction. However, in practice, some courts have set reserve prices significantly below this threshold for auction, which not only deprives the general creditors as applicants for enforcement of protection but also fails to satisfy the priority claims in full. For example, the People's Court of Huanghua City, Hebei Province, held that the property exchange center, when determining the reserve price, failed to adequately consider the total amount of priority claims and related costs. Consequently, the auctioned property was sold for an amount obviously below the amount of the priority claims attached to the property. The court found that this practice harmed the interests of the relevant parties and therefore annulled the auction. [9] In other cases, courts have also ruled that auctions with reserve prices set below the value of priority claims of the bank as a creditor constitute typical instances of fruitless auctions and should be annulled accordingly. [10] The People's Court of Lianyun District, Lianyungang City, for example, ruled that in auctions involving real estate, the reserve price must exceed the total amount of the priority claims and enforcement costs. [11] In that case, the reserve price set was not only significantly below the value of the priority claims but also failed to account for the enforcement costs. The court found that this violated legal provisions, seriously disrupted auction procedures, and infringed upon the rights of the objecting party. Likewise, in a similar case adjudicated by the Second Intermediate People's Court of Hainan Province, the court determined that the original reserve price set by the Ledong County People's Court did not fully consider the total amount of priority claims and associated costs. The property was auctioned at a price markedly below the value of the priority claims, leaving the applicant for enforcement unable to recover any amount. This constituted a fruitless auction, violating Paragraph 1, Article 6 of the Auction and Sale Provisions, and harming the rights of the parties. The court therefore annulled both the auction and the original enforcement ruling. [12] Nonetheless, when courts set reserve prices lower than the total amount of priority claims and enforcement costs, resulting in the subsequent annulment of the auction, such actions can damage judicial credibility. (iii) Suspending or Revoking a Fruitless Auction Without Consulting the Applicant for Enforcement In practice, some courts have suspended or revoked auctions deemed potentially fruitless without first consulting the general creditors who applied for enforcement. For instance, in a resumed enforcement case, [13] the Beijing First Intermediate People's Court suspended an auction on the grounds that the auctioned property, after covering the limited claims and enforcement costs, was unlikely to yield any remaining proceeds. To prevent a fruitless auction, the court decided to suspend the proceedings without first soliciting the applicant's opinion. In another case, the judgment debtor argued that auctioning the property would constitute a fruitless auction, as the proceeds would not be sufficient to satisfy the bank's priority claim, and therefore requested the auction be revoked in order to protect their property from being sold. The Shenzhen Intermediate People's Court of Guangdong Province took the view that if the appraised value of the subject property is significantly lower than the amount of the secured claim, a forced auction would likely yield proceeds insufficient to cover the secured debt and enforcement costs, thus constituting a fruitless auction. As a result, the court decided not to enforce the auction. [14] If the applicant still insisted on proceeding with the auction, a new reserve price exceeding the total amount of the secured claims and enforcement costs would have to be set. However, this would also increase the risk of auction failure or of the auction ending in a high-priced debt offset, or even a refusal of debt offset followed by the lifting of the seizure order. In consideration of these risks, the court terminated the enforcement proceedings and lifted the execution measures on the involved property. The practice of courts directly suspending or revoking auctions solely based on the reserve price calculation and the perceived risk of a fruitless auction—without consulting the applicant—is problematic. According to Article 6 of the Auction and Sale Provisions, the court is required to notify the applicant for enforcement of the potential fruitless nature of the auction. Yet in practice, many courts fail to fulfill this obligation of notification and reminder. This not only violates the applicant's right to be informed, but also effectively transfers the decision-making power—originally granted by law to the applicant—to the court itself, thereby severely impairing the rights of the applicant. Meanwhile, by refraining from conducting the auction, the court also provides the judgment debtor with an opportunity to transfer or conceal assets. III. The Application of the Rule Against Fruitless Auctions in Ship Auctions  (i) From the Legal Perspective: Article 6 of the Auction and Sale Provisions Vests Decision-Making Power in the Applicant for Enforcement Article 6 of the Auction and Sale Provisions stipulates that where the auction proceeds, based on the current reserve price, are unlikely to yield any remaining amount after satisfying priority claims and enforcement costs, the court shall notify the applicant for enforcement before proceeding with the auction. If the applicant for enforcement applies for the continuation of the auction within five days of receiving the notice, the court shall grant the request, but a new reserve price must be set. This provision shows that the court's duty is merely to notify the applicant for enforcement of the potential risk of receiving no proceeds—a protective measure that serves the parties' rights. The provision thus places the decision-making power regarding whether to proceed with a potentially fruitless auction in the hands of the applicant for enforcement. The applicant is free to decide whether to proceed, based on their own judgment and autonomy of will. The rule is premised on respecting party autonomy. Furthermore, Article 6 also clearly provides that if the applicant for enforcement chooses to proceed with the auction despite the fruitless nature, they will bear the cost of a failed auction. Therefore, the decision and corresponding obligation to set a new reserve price rests solely with the applicant. Neither the judgment debtor nor any other interested party is entitled to invoke this article to request a reset of the reserve price. [15] If the rule had intended to give such discretion to the court, it would have been worded as follows: "If, after determining the reserve price, the auction proceeds are unlikely to yield a remaining amount after satisfying the priority claims and enforcement costs, the court shall notify the applicant for enforcement and rule to suspend or revoke the auction." Hence, from a legal standpoint, if the applicant insists on proceeding with the auction, the court is still required to carry out the auction process. (ii) From the Perspective of Reason: Premium Auction Results Occur Frequently In ship auction procedures, the court engages a qualified ship appraisal agency to assess the current market value of the vessel involved. The valuation method generally involves subtracting accumulated depreciation due to operational wear and tear from the market price of a new vessel, thereby arriving at the residual value, i.e., the present value. [16] Given the high value and technical complexity of ships, valuation of hull components is primarily based on condition reports following inspection. However, the true market value of a ship can only be determined once it enters the market. There is often a variance between appraised values and actual market prices, and even the reserve price used in auctions may not accurately reflect the final sale value. Whether an auction is fruitful must not only take into account the interests of the applicant in a specific case, but also the potential interests of other applicants across different cases. This consideration involves both efficiency and practical value. [17] The final transaction price of a ship at auction is significantly influenced by fluctuations in the shipping market. Although failed ship auctions are not uncommon, available data show that premium auction outcomes, where ships sell for more than the reserve price, are becoming an increasingly common trend. [18] In light of this, it is questionable to presume, based solely on an appraised reserve price, that the proceeds of a ship auction would be insufficient to satisfy the non-priority claims of applicants for enforcement, thereby disregarding the possibility of a premium auction outcome. Given the high value and technical nature of ships, it is unreasonable to rely solely on appraisal results to determine the ship value. Neither appraisal agencies nor courts can predict the final outcome of an auction. From the standpoint of reason, it is inappropriate to prematurely rule out the potential for a premium auction outcome. (iii) From the Human-centered Perspective: Respecting the Applicant's Genuine Intention and Safeguarding the Exercise of Their Rights Judicial enforcement is one of the most crucial mechanisms within the broader system for resolving disputes, acting as a protective barrier. When a legally effective judgment enters the enforcement phase, it often indicates that the prevailing party's rights have yet to be effectively realized. Applying to the court to enforce property involved in the case is not only a means of legal relief for the party, but also the most powerful judicial guarantee for the realization of their rights. From the perspective of protecting the parties' right to relief, smooth enforcement procedures provide strong protection for their lawful rights and interests, and are closely linked to their substantive claims. Applicants for enforcement actively pursue enforcement for their own interests. For them, the enforcement procedure is the final judicial channel through which their rights can be realized. The court, as the authority responsible for both adjudication and enforcement, plays an indispensable role throughout this process. In ship auction procedures, if the applicant for enforcement holds only a general claim and the auction proceeds are insufficient to satisfy that claim after covering the ship's priority debts, the court, out of consideration for the applicant's rights and interests, may remind or inform them that the auction is likely to be fruitless, thus helping them avoid incurring appraisal and valuation costs with no financial recovery. However, if the applicant, fully aware of the possible fruitless nature of the auction, still insists on proceeding, the court should listen to the party's opinion, respect their genuine intention, and make every effort to safeguard the exercise of their rights. If courts apply a "one-size-fits-all" approach to deny applicants the opportunity to pursue enforcement of their lawful rights, then for these applicants, who have no alternative means of securing compliance with the judgment, this would represent the end of their legal remedies. From a human-centered perspective, the inability to exercise applicants' rights effectively would erode confidence in the judiciary and diminish its credibility. IV. Procedural Requirements for the Application of the Rule Against Fruitless Auctions in Ship Actions (i) The Court Must Investigate and Verify the Encumbrances on the Auctioned Ship When an applicant files a motion to enforce a ship through the court, and provides information about the vessel's condition or leads, the court must, in accordance with its duties, conduct further investigations into the judgment debtor's property. The encumbrances on the vessel include registration of ownership, mortgage registration, bareboat chartering, etc. These details can be obtained from the maritime (or fisheries) authorities that handle ship registration, and known mortgagees can be contacted to clarify the nature and amount of their claims. Additionally, when the ship is detained, the court should record relevant details during the vessel seizure procedure and inquire with the crew regarding maritime liens on the vessel, such as crew wages and other priority maritime claims. Through this series of investigative and verification actions, the court can lay a solid foundation for subsequent auction procedures. This helps to avoid procedural defects arising from an inaccurate understanding of the ship's encumbrances at an early stage and enables the court to manage enforcement efficiently and effectively. (ii) The Court Must Carefully Verify the Reserve Price to Ensure It Exceeds the Amount of Priority Claims Once a ship is seized upon the application of a general creditor, enforcement judges can often contact the mortgagee—usually a financial institution—via the ship's registration information and verify the amount of the mortgage. However, whether the ship is also subject to maritime liens or claims, and the specific amounts thereof, generally requires judicial proceedings for confirmation. These maritime-related special rights are inherently less transparent, making ship auctions more procedurally complex than those involving immovable property. Specific steps are required, such as the issuance of special auction notices, registration of maritime claims, and litigation to confirm those claims. During the period between the seizure and the final auction of the ship, the vessel remains under the management of the shipowner or bareboat charterer. [19] During this time, costs such as crew wages and essential maintenance expenses continue to accrue. These costs are dynamic and increase over time. Although such expenses can be paid in advance from the auction proceeds, they will inevitably reduce the amount available for distribution. In practice, some local courts have failed to strictly scrutinize reserve prices, resulting in starting bids lower than the combined total amount of priority claims and enforcement costs, thereby harming the interests of applicants for enforcement. Considering the unique nature of ship auctions, maritime courts may adopt a narrow interpretation of the requirement that "the reserve price shall exceed the total amount of priority claims and enforcement costs," as follows: 1. At the time of auction, the priority claims may be narrowly defined as including only the mortgage amount, excluding maritime liens. This is because under relevant laws, such as the Special Maritime Procedure Law, a maritime lien must be exercised through a formal application for ship arrest. [20] If the ship has already been arrested due to a maritime lien, the general creditor need only participate in the distribution process and need not file a separate seizure request. Conversely, if the ship was seized based on the general creditor's application, then according to the auction notice, maritime claims must go through registration, litigation, and distribution procedures. If the reserve price had to be determined only after calculating all maritime lien amounts, the process would be lengthy and would increase custody and maintenance costs, thus violating the principle of economic efficiency. 2. Currently, all maritime courts across China are actively promoting online judicial auctions for vessels. In such auctions, enforcement costs primarily involve appraisal, valuation, and publication expenses. When the applicant for enforcement has already paid the appraisal deposit, these costs may be deducted from the starting bid. Given that auctions are a relatively costly enforcement measure, their implementation must balance the interests of the parties involved with social costs and broader public benefits. It must also take into account the interests of other enforcement parties and stakeholders. Most importantly, the enforcement mechanism must ensure that the applicant's adjudicated rights are realized in a timely manner. The rule against fruitless auctions should not become a shield for the judgment debtor to evade enforcement or a barrier discouraging priority creditors from exercising their rights. In ship auctions, maritime courts should use the confirmed amount of priority claims known at the time of auction to set the reserve price, ensuring it exceeds the amount of such claims. (iii) After Fulfilling the Obligation of Notification and Reminder, the Court Should Leave the Decision on Fruitless Auction to the General Creditor Where priority claims exist on the auctioned property, the determination of whether a fruitless auction situation exists should be subject to the court's review. In other words, the court holds both the right and the duty to examine whether the auction would be fruitless. This view is consistent with prevailing judicial opinions in practice. [21] To protect creditors' lawful rights and interests, courts may seize and auction the judgment debtor's property. In practice, some courts guide or encourage applicants for enforcement to protect their rights through lawful means, explain the possible outcomes of a fruitless auction, and respect the applicant's decision to proceed with a potentially fruitless auction. The court then lawfully auctions the judgment debtor's property. [22] For example, the Jiangcheng District People's Court of Yangjiang City, Guangdong Province, when addressing whether a potentially fruitless auction could proceed, [23] held that the court had fulfilled its legal obligation to inform the applicant prior to the auction. Since the applicant still submitted a written request to proceed with the auction, the court acted in accordance with the law, and its decision was upheld by the court of second instance. In ship auction procedures, pursuant to Article 6 of the Auction and Sale Provisions, when a risk of fruitless auction arises, the maritime court must notify the applicant for enforcement before proceeding with the auction. If the applicant still requests to proceed, the court may continue the auction. Since the law grants the decision-making power to the applicant, the maritime court need only fulfill its obligations to inform and remind, that is, inform the applicant of the possible fruitless nature of the auction and remind them of the potential risks—namely, that the auction proceeds may not be sufficient to satisfy their claim and that they may be liable for auction-related costs such as the appraisal deposit. If the applicant still insists on proceeding, the maritime court should continue with the auction in accordance with Article 6 of the Auction and Sale Provisions. This approach both protects the rights of the applicant and aligns with the principles of fairness and efficiency in judicial enforcement. Conclusion In practice, some courts, when handling enforcement cases involving fruitless auctions, have taken the view that fruitless auctions are detrimental not only to the applicant for enforcement and prior-ranking creditors but also waste judicial resources. Since auctions are a relatively costly enforcement measure, their implementation must weigh the interests of enforcement parties, social costs, and public benefits. Some courts thus opt to directly terminate or revoke auctions they deem fruitless. However, under the Auction and Sale Provisions, the decision as to whether an auction should proceed lies with the applicant, not the court. Considering the specific procedures involved in ship auctions, maritime courts should, after completing their obligations of investigation, verification, notification, and reminder, adopt a narrow interpretation of Article 6 of the Auction and Sale Provisions. They should allow the applicant for enforcement to decide whether to proceed with a potentially fruitless auction and let the market determine the final sale price, thereby improving both the quality and efficiency of ship disposal. Author: Shu Jian, Zheng Jiatong References [1] Tang Hong, Analysis of Relevant Legislation and Practice of Real Estate Auctions in Civil Enforcement, Master's Thesis, Xiangtan University, 2016, p. 22. [2] Lu Zhengmin, Legal Responses to Inaccurate Real Estate Valuation in Compulsory Auctions, Journal of Anhui University (Philosophy and Social Sciences Edition), Issue 2, 2018, p. 124. [3] Luo Sumei, The Nature and Legal Regulation of Judicial Ship Auctions, Master's Thesis, Southwest University of Political Science and Law, 2014, p. 11. [4] Article 10 of the Provisions of the Supreme People's Court on Several Issues Concerning Online Judicial Auctions by the People's Courts: "Online judicial auctions shall set a reserve price, which serves as the starting bid. The starting bid shall be determined by the people's court with reference to the appraised value; if no appraisal has been conducted, the market price shall be used as a reference, with the parties' opinions solicited. The starting bid shall not be lower than 70% of the appraised value or market price." [5] Chen Ming, Application of the Principle of Restricting Fruitless Auctions in Enforcement Procedures, People's Judicature, Issue 11, 2016, p. 105. [6] Liu Wenbiao, Discussion on Reserve Price Determination in Fruitless Auctions Based on a Case Study, http://www.dyzxw.org/html/article/201407/15/177620.shtml. [7] Chen Ming, Application of the Principle of Restricting Fruitless Auctions in Enforcement Procedures, People's Judicature, Issue 11, 2016, p. 105. [8] See Enforcement Ruling (2015) Mian Zhi Hui Zi No. 1-2, Mianyang Intermediate People's Court, Sichuan Province. [9] See Enforcement Ruling (2016) Ji 0983 Zhi Yi No. 34, Huanghua Intermediate People's Court, Hebei Province. [10] See Enforcement Ruling (2020) Hei 10 Zhi Fu No. 24, Mudanjiang Intermediate People's Court, Heilongjiang Province. [11] See Enforcement Ruling (2018) Su 0703 Zhi Yi No. 27, Lianyungang Lianyun District People's Court, Jiangsu Province. [12] See Enforcement Ruling (2019) Qiong 97 Zhi Fu No. 55, Second Intermediate People's Court, Hainan Province. [13] See Civil Judgment (2020) Jing 01 Min Zhong No. 3922, Beijing First Intermediate People's Court. [14] See Enforcement Ruling (2018) Yue 03 Zhi No. 1059-2, Shenzhen Intermediate People's Court, Guangdong Province. [15] Chen Ming, Application of the Principle of Restricting Fruitless Auctions in Enforcement Procedures, People's Judicature, Issue 11, 2016, p. 104. [16] Luo Sumei, An Exploration of Legal Regulation of Judicial Auctions for Ships, World Shipping, Issue 2, 2015, p. 56. [17] Zhu Zicong & He Mingbo, Escaping the Misconceptions of Fruitless Auctions: Establishing the Concept of Auction Efficiency, People's Court Daily, August 8, 2019. [18] According to the Guangzhou Maritime Court, 141 ships were successfully auctioned between 2017 and 2020. While some auctions failed or were resolved via debt offset, the average premium rate remained positive: 93% in 2017, 99% in 2018, 64% in 2019, and 109% in 2020. [19] Paragraph 1, Article 7 of the Provisions of the Supreme People's Court on Several Issues Concerning the Seizure and Auction of Ships: "During the period of ship seizure, the ship shall be managed by the owner or the bareboat charterer." [20] Article 28 of the Maritime Code: "A maritime lien shall be enforced by the court by arresting the ship that gave rise to the said maritime lien." [21] See Enforcement Ruling (2020) Hu 01 Zhi Fu No. 187, Shanghai First Intermediate People's Court. [22] See Enforcement Ruling (2020) E 09 Zhi Fu No. 41, Xiaogan Intermediate People's Court, Hubei Province. [23] See Enforcement Ruling (2020) Yue 17 Zhi Fu No. 30, Yangjiang Intermediate People's Court, Guangdong Province.

Recognition and Satisfaction of Newly Arising Claims During Ship Arrest —On the Amendment of Article 111 of the Special Maritime Procedure Law of the People's Republic of China Abstract: Article 111 of the Special Maritime Procedure Law of the People's Republic of China (the "Special Maritime Procedure Law") stipulates that announcement of the maritime court's order for forced auction of a ship, creditors may participate in the distribution of the proceeds from the judicial sale by registering their claims. It also explicitly prescribes the legal consequences for failing to register within the time limit announced. The claims eligible for registration under this provision must have arisen before the publication of the auction announcement. However, in maritime enforcement proceedings, new claims related to the ship often arise after the ship has been arrested or even during the auction announcement period. The Special Maritime Procedure Law does not provide any specific provisions regarding the recognition and satisfaction of such newly arising claims. This article examines a maritime enforcement case in which an arrested ship went adrift during the auction period, leading to a series of new maritime disputes. Based on this case study, the article proposes feasible approaches to the recognition and satisfaction of claims that arise during the period of ship arrest. Keywords: Ship Auction, Claim Registration, Newly Arising Claims, Maritime Claims, Satisfaction Procedure I. A Typical Case of Newly Arising Claims During Ship Arrest In a series of financial loan contract disputes [1] between Company A, an asset management firm, and Company B, a shipping company, enforcement proceedings were initiated before the Guangzhou Maritime Court (GZMC). Upon the application of Company A, GZMC arrested the vessels DI XIANG and DI JIAN, both owned by Company B, on May 15, 2018, while they were anchored in a sea area of Shandong Province, and the vessels subsequently entered the judicial auction process. During the announcement period, the applicant for enforcement and 137 crew members applied for claim registration (the claims for crew wages registered by the 137 crew members were satisfied from the proceeds of the judicial sale of another vessel, DI KUN, owned by the judgment debtor. As a result, Company A became the sole applicant for enforcement in this case). During the online court auction, the two vessels ran aground at the arrest location due to Typhoon Rumbia, colliding with breakwaters and aquaculture facilities. Less than three hours before the auction was set to conclude, GZMC decisively suspended the judicial auction proceedings for both vessels. The court then convened a meeting with the applicant for enforcement and the judgment debtor at the local maritime administrative organs to coordinate follow-up actions with the maritime regulatory agency. The local salvage bureau carried out pollution cleanup operations following the grounding of the two vessels. As the hulls of both vessels remained undamaged, GZMC resumed the judicial auction process, resulting in the successful sale of DI XIANG. However, after the DI JIAN was successfully auctioned but before delivery, Typhoon Lekima struck, causing the vessel to sink before the transfer of ownership. The successful bidder applied to set aside the judicial sale on the grounds that the actual condition of the vessel was inconsistent with the description in the auction announcement. Following negotiations between the applicant for enforcement and the judgment debtor, both parties and the vendee reached an agreement under which DI JIAN was sold to the vendee in its as-is condition for RMB 1.5 million. Meanwhile, after completing the towing and pollution cleanup operations for the DI XIANG and DI JIAN, the local salvage bureau submitted a claim registration application to GZMC, asserting priority rights over the two vessels in the amount of RMB 8.26 million. Additionally, Company C, an aquaculture enterprise, filed claims for breakwater and aquaculture damages. At that time, DI XIANG and DI JIAN had already been listed for online auction, and the claim registration period had expired. The claims for towing and pollution cleanup costs, breakwater repairs, and aquaculture damages were substantial, and the salvage operation for DI JIAN could not proceed due to legal and financial constraints. As a result, the enforcement proceedings reached an impasse, with legal and financial issues intertwining. Under the coordination of GZMC, and after extensive negotiations among all parties, Company C agreed to accept a lump-sum settlement of RMB 1 million for its claims relating to breakwater and aquaculture damages. Meanwhile, the applicant for enforcement, the judgment debtor, and the local salvage bureau reached a consensus regarding the post-grounding salvage operations of DI XIANG and DI JIAN. With these agreements in place, the enforcement proceedings were successfully concluded. II. Claims Related to Ships As high-value movable property, ships give rise to various claims in the course of their operation [2]. These claims arise from or relate to the ownership, possession, management, operation, construction, sale, salvage, mortgage, pledge, and other maritime disputes involving maritime liens [3]. In maritime law, such claims (or rights to compensation) are also referred to as maritime claims. Some of these claims are secured by ship mortgages and enjoy priority satisfaction, such as claims arising from ship mortgage loans. Some are secured by possessory liens, which are also entitled to priority satisfaction, such as claims for ship repair costs. Some are secured by maritime liens, which take precedence over other claims, including crew wages, tonnage dues, and salvage remuneration. Others do not benefit from priority satisfaction, such as financial loans extended for ship operations that are not secured by a ship mortgage. These claims share a common characteristic: they are all related to the ship itself or its operation, and their satisfaction is governed by specific legal procedures. III. Satisfaction Procedures 1) Arresting a Ship to Obtain Security The Special Maritime Procedure Law prescribes 22 types of maritime claims for which a ship may be arrested. When a creditor holding a claim related to a ship fails to reach an agreement with the debtor, the creditor often requires the debtor to provide security or to perform or refrain from certain acts. In such cases, the creditor may apply to a maritime court for maritime claim preservation by requesting the court to take compulsory measures. Ship arrest is a commonly used method of maritime claim preservation aimed at securing the satisfaction of maritime claims. The purpose of ship arrest is not an end in itself but rather a means to compel the debtor to provide security in exchange for the maritime court lifting the arrest. The security thus provided serves as a guarantee for the creditor's claim satisfaction. The creditor then initiates legal proceedings before the maritime court concerning the maritime dispute, and the final recoverable amount is determined and enforced within the security provided by the debtor. 2) Satisfaction Through Ship Auction In maritime judicial practice, the "arrest-security-release" mechanism of maritime claim preservation often fails when the debtor lacks sufficient creditworthiness to provide security. In such cases, the arrested ship may be subject to judicial sale. According to Article 29 of the Special Maritime Procedure Law, where on the expiry of the time limit for ship arrest, a person against whom a claim is made fails to provide security and it is not appropriate to keep the ship under arrest, the maritime claimant, having brought an action or applied for arbitration, may apply to the maritime court ordering the ship arrest for auction of the ship. If the maritime court orders a compulsory judicial sale, it must publish an auction announcement. During the announcement period, creditors must register their claims related to the ship. The maritime court will review the registered claims and supporting evidence. Once a claim is verified, the maritime court will confirm it by issuing a ruling, or the creditor may initiate a separate action for confirmation of the claim. Finally, the maritime court will convene a creditors' meeting to either negotiate a settlement agreement on the distribution of the auction proceeds or issue a ruling on the distribution plan for the proceeds of the judicial sale. IV. Newly Arising Claims During Ship Arrest 1) Risks During the Period of Ship Arrest From the moment a maritime court arrests a ship and publishes an auction announcement, through the process of creditors registering their claims, initiating actions for confirmation of claims, the judicial sale of the vessel, the distribution of proceeds, and the final transfer of the ship, the entire procedure is wide-ranging in scope, legally complex, and lengthy in duration. Although a custodian is appointed to oversee the vessel during the arrest period, it remains difficult to ensure absolute security. The primary risks faced by an arrested ship arise from natural disasters and unforeseen incidents, such as typhoons or collisions with other vessels. After ordering the arrest of a ship, a maritime court may take preventive measures to mitigate these risks, including relocating the place of arrest or requiring the vessel to be insured. 2) Potential Newly Arising Claims During Ship Arrest If an arrested ship is affected by a typhoon or other natural disasters, new claims may arise, yet there are no clear legal provisions on how such claims should be satisfied. For example, in the previously discussed case, after the vessel was arrested by the maritime court, it encountered a typhoon while moored at the place of arrest, broke loose from its moorings, and collided with aquaculture facilities and breakwaters, also posing a risk of an oil spill. In response, the local maritime authority engaged a pollution cleanup company to extract oil from the vessel, generating new claims, including damage to aquaculture facilities, breakwater repair costs, and oil extraction expenses incurred by the cleanup company. Under such circumstances, two key legal questions arise: How should the original judicial sale process proceed? How should the newly arising claims be satisfied? At present, the Special Maritime Procedure Law does not expressly address the issue of claims arising after the arrest of a ship but before the completion of its judicial sale. The absence of specific legal provisions has resulted in uncertainties in judicial practice regarding the handling of such claims. V. Satisfaction of Newly Arising Claims 1) Compensation by Insurers After a maritime court orders the arrest of a ship, it shall conduct a review. If it is found that the ship is not insured, the court shall require the relevant parties to obtain ship insurance that includes third-party liability coverage. Newly arising claims resulting from natural disasters or unforeseen incidents may then be satisfied through insurance claims, which constitutes a relatively secure and feasible method for the satisfaction of such claims. 2) Allowing Creditors to Seek Recovery from the Vessel Owner or Custodian Outside the Proceeds of the Judicial Sale If the arrested ship is not insured, compensation cannot be obtained from the insurer. Additionally, newly arising claims during the period between the arrest of the ship and the conclusion of its judicial sale have not been registered as claims against the ship, making it difficult for them to be satisfied through the distribution of the proceeds of the judicial sale at a creditors' meeting. Therefore, creditors should be allowed to seek compensation from the vessel owner or the custodian, using assets outside the proceeds of the judicial sale of the ship. 3) Allowing Creditors to Participate in the Distribution of Auction Proceeds In maritime enforcement proceedings, where the judgment debtor's only asset is the vessel being auctioned, allowing creditors to participate in the distribution of the auction proceeds becomes particularly necessary. As this matter concerns the registered creditors, the vendee of the auctioned vessel, and other lawful rights holders, it warrants careful consideration. The satisfaction of newly arising claims during the period between ship arrest and the conclusion of its judicial sale is directly related to the lawful rights and interests of the ship's vendee after the auction is finalized. If these newly arising claims are not taken into account during the auction process, their holders still retain the right to apply for the arrest of the ship, meaning that the judicial sale fails to achieve the intended effect of extinguishing prior rights (purging of encumbrances). In this scenario, the ship vendee is entitled to raise an objection to enforcement, further complicating the proceedings. Therefore, the auction of a ship must take into account the issue of satisfying newly arising claims during the period between arrest and judicial sale. The risks during ship arrest primarily stem from natural disasters and unforeseen incidents, such as typhoons or collisions with other vessels. These events often lead to hull damage and depreciation of the vessel's value, which may render the valuation and appraisal reports on which the auction is based unreliable. Notably, if the actual condition of the vessel has undergone substantial changes compared to the appraisal report, the originally determined reserve price loses its basis. Consequently, it would be impractical to deliver the vessel to the purchaser in accordance with the condition stated in the appraisal report, and bidders may challenge the reserve price or the validity of the auction process at any time. Whether hull damage has occurred determines not only whether the original auction process can proceed smoothly, but also how newly arising claims should be satisfied. Therefore, the author suggests that the satisfaction of newly arising claims during the period between ship arrest and judicial sale should be addressed differently depending on whether the vessel has sustained damage. 1. Hull Damage If the hull is damaged, the valuation report and appraisal report on which the judicial sale is based will no longer reflect the vessel's actual condition and cannot serve as the basis for delivering the vessel to the vendee upon completion of the sale. In such cases, the maritime court should terminate the original auction process and engage a valuation agency and an appraisal agency to issue a new valuation report and appraisal report. The court should then render a new ruling on the judicial sale of the vessel, publish a new auction announcement, and designate a new claim registration period. Creditors with newly arising claims must complete claim registration within this newly designated period and subsequently initiate confirmation of claims proceedings. The claim registrations already completed under the original auction process remain valid, and creditors who have previously registered their claims are not required to re-register. Finally, in accordance with Article 117 of the Special Maritime Procedure Law, the maritime court shall convene a creditors' meeting to negotiate a distribution plan. If no agreement is reached, the maritime court shall issue a ruling on the distribution of proceeds. 2. No Hull Damage If the hull remains undamaged, the valuation report and appraisal report on which the judicial sale is based remain valid, and the original auction process should not be terminated. In this case, newly arising creditors should be notified to complete claim registration within the designated registration period, and their claims should be distributed together with previously registered claims from the proceeds of the ship's sale. However, this raises another issue: if a new claim arises after the original claim registration period has expired or is about to expire, the newly arising creditor may be unable to complete claim registration within the original registration period. For instance, if a new claim arises on the day before the registration period expires, the new creditor would not have sufficient time to register the claim. To address this issue, a statutory period should be designated, allowing newly arising creditors a reasonable timeframe to complete claim registration from the date the claim arises. A period of two months would be an appropriate timeframe for this purpose. VI. Proposed Amendments to Legal Provisions To protect the rights of newly arising creditors who seek satisfaction from the proceeds of the judicial sale of the ship, it is necessary to amend the relevant legal provisions. The proposed amendment is as follows: An additional paragraph may be inserted as Paragraph 2 of Article 111 of the Special Maritime Procedure Law: "For claims related to the auctioned ship that arise during the announcement period or after its expiration, creditors shall apply for claim registration within two months from the date the claim arises. Failure to register within this period shall be deemed a waiver of the right to participate in the distribution of the proceeds from the judicial sale of the vessel." In summary, the Special Maritime Procedure Law does not currently provide for the satisfaction procedures for newly arising claims after a ship has been arrested, particularly those arising during the auction period. This omission presents a new challenge for maritime trial. To address this issue, solutions should remain within the framework of the Special Maritime Procedure Law and align with the legislative intent and objectives. The preferred approach is to resolve all claims within the proceeds of the judicial sale as far as possible in a single distribution process. This approach enhances the effectiveness of judicial auctions and strengthens the credibility of maritime judiciary, thereby preventing situations where creditors of newly arising claims seek to arrest the vessel after its sale and transfer, which would impair the vendee's rights and lead to additional disputes and litigation. VII. Authors Luo Chun, Li Chunyu, Xu Jiahui VIII. References [1] Luo Chun, Series of Enforcement Cases on Financial Loan Contract Disputes Between Hongjie Asset Management Co., Ltd. and Diyuan Holdings Co., Ltd., et al., in Ye Liudong (ed.), Judicial Insights from the South China Sea – Selected Cases of the Guangzhou Maritime Court, Sun Yat-sen University Press, 2021. [2] For example, the maritime claims listed in Article 21 of the Special Maritime Procedure Law. [3] Jin Zhengjia, Weng Ziming, Special Study on Maritime Claim Preservation, Dalian Maritime University Press, 1st Edition, August 1996, p.3. 

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.