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Monday, 09 March 15
CHINA'S SUPREME COURT ISSUES NEW JUDICIAL INTERPRETATION ON SHIP ARREST AND JUDICIAL SALE OF SHIPS - GARD
 KNOWLEDGE TO ELEVATE
China is not traditionally a popular jurisdiction for ship arrest. However, Members and clients with ships calling at ports in China should be aware of this development. This guidance is aimed at clarifying ship arrest and sale procedure in the Chinese maritime courts which could lead to more frequent vessel arrests in China.
This Insight is a brief commentary on a new judicial interpretation1 issued by China’s Supreme Court. It covers a number of issues relating to ship arrest and the judicial sale of ships (the Interpretation) that came into force on 1 March 2015.
Provision of counter-security for arrest
It is normal practice for a claimant to provide counter-security when arresting in China. Article 76 of the Special Maritime Procedure Law 1999 (SMPL 1999)2 provides that the amount of counter-security should be equivalent to the probable loss the arrest would cause to the party whose vessel is arrested. Over the years, the practice of the Chinese maritime courts has varied depending on the facts of the case and different approaches by individual judges. In some cases, the counter-security amount was equivalent to 30 days’ hire of the vessel, whilst in others an amount equal to the claim in respect of which the vessel was arrested.
The Interpretation sets out in Article 5 a mechanism to calculate the security amount based on the aggregate of:
- the maintenance expenses of the vessel during the period of arrest
- the loss of use resulting from the arrest
- the cost to the party whose vessel had been arrested (the respondent) to provide security to release the vessel.
This is the same formula used for assessing the losses resulting from wrongful arrest, as set out in Article 24 of the Supreme Court’s judicial interpretation of 2003 relating to application of the SMPL 1999.3
A number of factors remain unclear, however, such as:
- the level of maintenance to be carried out during the arrest period
- the applicable rate of hire while under arrest
- the scope of security costs – in practice, the maritime courts have generally only included the commission payable by the respondent to provide a bank guarantee.
Furthermore, at the time the arrest application is made – and counter-security is assessed – the respondent will not have an opportunity to substantiate or challenge the evidence submitted relating to maintenance, hire and security costs. That said, once counter security has been provided following the vessel’s arrest, the owners may apply for the amount of security to be increased in the event it can be shown that the original amount is insufficient to cover the owners’ likely losses if the arrest proves wrongful.
Although Article 5 still leaves some open questions, at least it sets out a formula to be followed.
A further clarification relating to counter-security is set out in Article 4. This provides that the maritime courts have a discretion not to request counter-security if the arrest relates to a claim for personal injury at sea or a claim arising under a crew service contract.
Multiple arrests of the same vessel
Article 2 of the Interpretation allows multiple claimants to arrest the same vessel as security for their respective claims. Further, if a claimant has made an arrest application but not applied for a judicial sale, then any subsequent claimant making an arrest application may apply for judicial sale of the vessel according to Article 28 of SMPL 1999.
The Interpretation does not, however, tackle the issue of whether each claimant having arrested the vessel must provide counter-security to the full extent of their respective claims.
Judicial sale and procedure
There are several provisions relating to the judicial sale of vessels:
- Article 11 provides that the judicial sale of a vessel is to be organized by a ship auction committee (comprising judges, auctioneers and surveyors, normally three or five persons, as per Article 34 SMPL 1999)
- Article 13 states that in the event of two failed judicial auctions, the sale price of a ship can be reduced – but not to less than 50 per cent of its assessed value
- Article 14 provides that if a ship has still not been sold after a price reduction, the court may lower the price below 50 per cent of its assessed value provided consent is given by creditors representing two thirds or more of the registered creditors’ claims. In the event a sale is still unsuccessful, the court may release the vessel from arrest
- Article 16 requires creditors to register their claims within 60 days after the court’s announcement for the first judicial auction.
Release of counter-security
The practice of the Chinese maritime courts relating to release or return of counter-security has been a concern for claimants in the past. Counter-security could be held up to two years after the claim had been settled on the basis that it represented security for a possible, subsequent wrongful arrest claim brought by the respondent.
Article 6 of the Interpretation will no doubt be welcomed by claimants. It provides that counter-security should be returned to the claimant forthwith:
- if the respondent agrees, or
- if the claimant requests its return, supported by a valid judicial instrument affirming that the respondent is liable for the claim and the awarded amount is approximately equivalent to the amount of security.
In addition, when a claim has been finally concluded, the claimant can apply to the maritime court for return of the security. The court will notify the respondent and allow them to bring any wrongful arrest claim within 30 days, failing which the security will be returned to the claimant.
Arrest and judicial sale of bareboat chartered vessels
Article 23 of SMPL 1999 allows a claimant to apply to arrest a vessel where its bareboat charterer may be liable for a maritime claim and the ship is under bareboat charter at the time of arrest. However, it has not been clear whether the claimant could apply for judicial sale of the vessel following the arrest.
This is now resolved by Article 3 of the Interpretation, which provides that the claimant is entitled to apply (under Article 29 SMPL 1999) for a judicial sale of the vessel to recover a maritime claim for which the bareboat charterer is liable.
This provision is likely to expose head owners to the possibility of their vessel being subjected to a judicial sale through no fault of their own. This might be of significant interest to a shipowner who finances a bareboat charterer to purchase a vessel.
Miscellaneous
Article 7 provides that the shipowner or bareboat charterer is to remain in charge of management of the vessel while under arrest. Should they fail to do so, the maritime court may appoint the claimant or a third party to manage the ship. In which case, the management costs are to be borne by the shipowner or bareboat charterer, or to be paid out of the proceeds of a judicial sale of the vessel.
Under Article 9, the maritime court must terminate the arrest order in the event that it is impossible to enforce the arrest for “objective reasons”. It has not been defined what amounts to “objective reasons”. One possibility could be that the vessel is no longer within the jurisdiction of the Chinese maritime courts, another that the vessel has become a total loss.
The Interpretation should result in a more common approach to arrest and judicial sale by the Chinese maritime courts. However, some issues arising under the SMPL 1999 remain to be resolved, such as whether insolvency of an owner of an arrested ship should take priority over a maritime lien. Nevertheless it is expected that this Interpretation will be generally welcomed by the maritime courts and parties involved in maritime claims.
Acknowledgement: Thanks to Wang Jing & Co for use of their in-house English translation of the Interpretation, in which further details of the changes can found.
Questions or comments concerning this Gard Insight article can be e-mailed to the Gard Editorial Team.
Source: Gard | Hellenic Shipping
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Tuesday, 10 March 15
OIL PRICE FORECASTING - IGNORE THE EXPERTS: COLIN MARSHALL
KNOWLEDGE TO ELEVATE
Experts put themselves on a pedestal, making claims to have special forecasting abilities for oil price trends. They, too ...
Tuesday, 10 March 15
FOB NEWCASTLE COAL SWAPS HEADING SOUTH
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery declined US$ 0.24 per MT (-0.47%) month over month and US$ 1.52 (-2.93%) we ...
Tuesday, 10 March 15
CFR SOUTH CHINA POWER-STATION COAL SWAPS DECLINE
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery fell US$ 0.42 (-0.74%) per MT month over month and declined US$ 1.00 &nbs ...
Monday, 09 March 15
INDONESIA GREETS INDIA RATE CUT AS GOOD FOR EXPORTS - GLOBEASIA
Indonesian commodity producers and economists have hailed the Indian central bank’s rate cut as good for boosting exports from Southeast Asia ...
Monday, 09 March 15
CHINA'S IMPORTS - NEVER MORE IMPORTANT TO SHIPPING? - CLARKSONS
Over the last 15 years China has led maritime forecasters a right old dance. In 2002, rumours that Chinese iron ore imports were about to take off ...
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- Intertek Mineral Services - Indonesia
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- Bhushan Steel Limited - India
- OPG Power Generation Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Ind-Barath Power Infra Limited - India
- VISA Power Limited - India
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Indonesian Coal Mining Association
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- Kepco SPC Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Parry Sugars Refinery, India
- Leighton Contractors Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- Kumho Petrochemical, South Korea
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
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- Wilmar Investment Holdings
- Uttam Galva Steels Limited - India
- Salva Resources Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Attock Cement Pakistan Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Latin American Coal - Colombia
- TNB Fuel Sdn Bhd - Malaysia
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- Malabar Cements Ltd - India
- Heidelberg Cement - Germany
- Australian Coal Association
- Eastern Coal Council - USA
- Larsen & Toubro Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Formosa Plastics Group - Taiwan
- Metalloyd Limited - United Kingdom
- Power Finance Corporation Ltd., India
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- Xindia Steels Limited - India
- Dalmia Cement Bharat India
- Commonwealth Bank - Australia
- Singapore Mercantile Exchange
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- GVK Power & Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Karaikal Port Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Minerals Council of Australia
- Sojitz Corporation - Japan
- Energy Link Ltd, New Zealand
- Chettinad Cement Corporation Ltd - India
- Thai Mozambique Logistica
- Mercator Lines Limited - India
- PowerSource Philippines DevCo
- Petron Corporation, Philippines
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Authority, New Zealand
- Bharathi Cement Corporation - India
- Bukit Makmur.PT - Indonesia
- Barasentosa Lestari - Indonesia
- Deloitte Consulting - India
- Marubeni Corporation - India
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- Lanco Infratech Ltd - India
- Kapuas Tunggal Persada - Indonesia
- New Zealand Coal & Carbon
- Riau Bara Harum - Indonesia
- Cement Manufacturers Association - India
- Miang Besar Coal Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Bangladesh Power Developement Board
- Sical Logistics Limited - India
- Coal and Oil Company - UAE
- South Luzon Thermal Energy Corporation
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Kalimantan Lumbung Energi - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Binh Thuan Hamico - Vietnam
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- Simpson Spence & Young - Indonesia
- Bayan Resources Tbk. - Indonesia
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Vizag Seaport Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Jindal Steel & Power Ltd - India
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Chamber of Mines of South Africa
- Mintek Dendrill Indonesia
- PNOC Exploration Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Videocon Industries ltd - India
- Economic Council, Georgia
- IEA Clean Coal Centre - UK
- Vedanta Resources Plc - India
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Directorate Of Revenue Intelligence - India
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- Price Waterhouse Coopers - Russia
- Altura Mining Limited, Indonesia
- Straits Asia Resources Limited - Singapore
- Orica Australia Pty. Ltd.
- Edison Trading Spa - Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coalindo Energy - Indonesia
- PTC India Limited - India
- CNBM International Corporation - China
- Interocean Group of Companies - India
- Kideco Jaya Agung - Indonesia
- Thiess Contractors Indonesia
- Global Business Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- ICICI Bank Limited - India
- Ministry of Transport, Egypt
- MS Steel International - UAE
- GMR Energy Limited - India
- Banpu Public Company Limited - Thailand
- Posco Energy - South Korea
- Mjunction Services Limited - India
- Kobexindo Tractors - Indoneisa
- Sree Jayajothi Cements Limited - India
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Indian Oil Corporation Limited
- White Energy Company Limited
- Jaiprakash Power Ventures ltd
- Global Green Power PLC Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- AsiaOL BioFuels Corp., Philippines
- International Coal Ventures Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Oldendorff Carriers - Singapore
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Energy Exchange, India
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- ASAPP Information Group - India
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Grasim Industreis Ltd - India
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Goldman Sachs - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Energy Development Corp, Philippines
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- SN Aboitiz Power Inc, Philippines
- Wood Mackenzie - Singapore
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
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