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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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Sunday, 01 March 15
BDI INDEX SLIGHTLY UP CAUSED AN INCREASE IN THE PANAMAX, SUPARAMAX AND HANDY SIZE INDICES
COALspot.com: The freight market saw some gains this week and BDI was up 5.26 pct closed at 540 points. However the Cape index failed to follow BDI ...
Friday, 27 February 15
WEEKLY US COAL PRODUCTION DOWN AN ESTIMATED 14.0% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 16.5 million short tons (mmst) of coal ...
Thursday, 26 February 15
DRY BULK MARKET COULD REBOUND FROM HISTORICAL LOWS IN THE COMING WEEKS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market could exit from its historical lows in the coming weeks, as Chinese buyers reenter the market after the holiday celebrations. T ...
Thursday, 26 February 15
COAL POLICY RISK: HIGHER ROYALTIES FOR IUP HOLDERS - BAHANA SECURITIES | JAKARTA POST
The Energy and Mineral Resources Ministry plans to raise coal royalties charged to mining operation permit (IUP) holders by the end of the first qu ...
Thursday, 26 February 15
DRY BULK MARKET LOOKING FOR POSITIVE MOMENTUM, BUT PROSPECTS REMAIN DIM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
As the Baltic Dry Index (BDI) inched a bit higher over the past couple of sessions and the Chinese are returning to the market after a week long hi ...
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- White Energy Company Limited
- Price Waterhouse Coopers - Russia
- SN Aboitiz Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TeaM Sual Corporation - Philippines
- Ministry of Transport, Egypt
- Manunggal Multi Energi - Indonesia
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
- Sinarmas Energy and Mining - Indonesia
- Straits Asia Resources Limited - Singapore
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Marubeni Corporation - India
- Australian Coal Association
- VISA Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PNOC Exploration Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Goldman Sachs - Singapore
- GMR Energy Limited - India
- Latin American Coal - Colombia
- GAC Shipping (India) Pvt Ltd
- Central Electricity Authority - India
- Singapore Mercantile Exchange
- San Jose City I Power Corp, Philippines
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Merrill Lynch Commodities Europe
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- Vedanta Resources Plc - India
- Toyota Tsusho Corporation, Japan
- European Bulk Services B.V. - Netherlands
- OPG Power Generation Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- London Commodity Brokers - England
- Maharashtra Electricity Regulatory Commission - India
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement - Thailand
- Orica Australia Pty. Ltd.
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Renaissance Capital - South Africa
- Kumho Petrochemical, South Korea
- Kepco SPC Power Corporation, Philippines
- Bhushan Steel Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Makarim & Taira - Indonesia
- Indian Energy Exchange, India
- Billiton Holdings Pty Ltd - Australia
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- Wilmar Investment Holdings
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Chettinad Cement Corporation Ltd - India
- CIMB Investment Bank - Malaysia
- Therma Luzon, Inc, Philippines
- Essar Steel Hazira Ltd - India
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Bayan Resources Tbk. - Indonesia
- Tata Chemicals Ltd - India
- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Bukit Baiduri Energy - Indonesia
- Energy Development Corp, Philippines
- Grasim Industreis Ltd - India
- Binh Thuan Hamico - Vietnam
- Ambuja Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- The University of Queensland
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- Mercuria Energy - Indonesia
- SMC Global Power, Philippines
- PowerSource Philippines DevCo
- Formosa Plastics Group - Taiwan
- Heidelberg Cement - Germany
- Petrochimia International Co. Ltd.- Taiwan
- Neyveli Lignite Corporation Ltd, - India
- Cement Manufacturers Association - India
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- Pipit Mutiara Jaya. PT, Indonesia
- Bhatia International Limited - India
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Ind-Barath Power Infra Limited - India
- McConnell Dowell - Australia
- Posco Energy - South Korea
- International Coal Ventures Pvt Ltd - India
- MS Steel International - UAE
- Ministry of Finance - Indonesia
- Indo Tambangraya Megah - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Global Business Power Corporation, Philippines
- Trasteel International SA, Italy
- Orica Mining Services - Indonesia
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Pendopo Energi Batubara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Mjunction Services Limited - India
- Semirara Mining Corp, Philippines
- Bharathi Cement Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Bukit Makmur.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- Port Waratah Coal Services - Australia
- Mercator Lines Limited - India
- Africa Commodities Group - South Africa
- Thai Mozambique Logistica
- ASAPP Information Group - India
- Gujarat Sidhee Cement - India
- Dalmia Cement Bharat India
- Power Finance Corporation Ltd., India
- Ministry of Mines - Canada
- Baramulti Group, Indonesia
- Samtan Co., Ltd - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parliament of New Zealand
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Bhoruka Overseas - Indonesia
- Chamber of Mines of South Africa
- Global Coal Blending Company Limited - Australia
- Petron Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Deloitte Consulting - India
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Carbofer General Trading SA - India
- Karbindo Abesyapradhi - Indoneisa
- Interocean Group of Companies - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Meenaskhi Energy Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Simpson Spence & Young - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Lanco Infratech Ltd - India
- GVK Power & Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Metalloyd Limited - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Altura Mining Limited, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Coalindo Energy - Indonesia
- Independent Power Producers Association of India
- Indonesian Coal Mining Association
- Kaltim Prima Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Malabar Cements Ltd - India
- Oldendorff Carriers - Singapore
- Sojitz Corporation - Japan
- TNB Fuel Sdn Bhd - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- India Bulls Power Limited - India
- Bangladesh Power Developement Board
- PTC India Limited - India
- Siam City Cement PLC, Thailand
- New Zealand Coal & Carbon
- Sree Jayajothi Cements Limited - India
- Borneo Indobara - Indonesia
- Eastern Coal Council - USA
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