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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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Wednesday, 25 February 15
PORT OF NEWCASTLE SHIPPED 13.16MT OF COAL IN JANUARY; DECLINED 16.70% FROM A MONTH AGO
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.15 billio ...
Wednesday, 25 February 15
BDI SLIPPING ONCE MORE TO FRESH HISTORICAL LOWS
COALspot.com: With the BDI slipping once more to fresh historical lows and the Chinese holidays underway, signs for a positive reversal in the Dry ...
Tuesday, 24 February 15
FOB INDONESIA COAL SWAP SET TO RALLY
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap increased US$ 3.30 (+7.30%) ...
Tuesday, 24 February 15
Q3' FOB RICHARDS BAY COAL SWAP CLOSED $59.80 W/E 20 FEB
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month and decline week on week.
The Q2 swap has soar ...
Tuesday, 24 February 15
IHS ENERGY COAL CONFERENCE OF THE AMERICAS
Attend the IHS Energy Coal Conference of the Americas 17-19 March in Cartagena, Colombia and learn about timely concerns in today's coal indust ...
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- Kaltim Prima Coal - Indonesia
- Malabar Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Latin American Coal - Colombia
- IHS Mccloskey Coal Group - USA
- Sical Logistics Limited - India
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Formosa Plastics Group - Taiwan
- SMC Global Power, Philippines
- Africa Commodities Group - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Mercator Lines Limited - India
- Gujarat Mineral Development Corp Ltd - India
- OPG Power Generation Pvt Ltd - India
- Star Paper Mills Limited - India
- Cigading International Bulk Terminal - Indonesia
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- VISA Power Limited - India
- Siam City Cement - Thailand
- Central Java Power - Indonesia
- Pendopo Energi Batubara - Indonesia
- Commonwealth Bank - Australia
- Binh Thuan Hamico - Vietnam
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- PTC India Limited - India
- GMR Energy Limited - India
- Global Business Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- The University of Queensland
- Petrochimia International Co. Ltd.- Taiwan
- Meenaskhi Energy Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Videocon Industries ltd - India
- Eastern Energy - Thailand
- Romanian Commodities Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Meralco Power Generation, Philippines
- Coalindo Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- IEA Clean Coal Centre - UK
- Therma Luzon, Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Sakthi Sugars Limited - India
- Planning Commission, India
- ASAPP Information Group - India
- Energy Link Ltd, New Zealand
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Indo Tambangraya Megah - Indonesia
- Posco Energy - South Korea
- Directorate Of Revenue Intelligence - India
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Sarangani Energy Corporation, Philippines
- Electricity Authority, New Zealand
- Maheswari Brothers Coal Limited - India
- Lanco Infratech Ltd - India
- Kobexindo Tractors - Indoneisa
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- Essar Steel Hazira Ltd - India
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Oldendorff Carriers - Singapore
- Mjunction Services Limited - India
- Xindia Steels Limited - India
- MS Steel International - UAE
- Global Coal Blending Company Limited - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- ICICI Bank Limited - India
- Medco Energi Mining Internasional
- Rio Tinto Coal - Australia
- Parliament of New Zealand
- Mintek Dendrill Indonesia
- Cement Manufacturers Association - India
- Renaissance Capital - South Africa
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Indonesian Coal Mining Association
- Goldman Sachs - Singapore
- Salva Resources Pvt Ltd - India
- Tata Chemicals Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Ambuja Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- Uttam Galva Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- Dalmia Cement Bharat India
- Sojitz Corporation - Japan
- Georgia Ports Authority, United States
- Kideco Jaya Agung - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Iligan Light & Power Inc, Philippines
- CNBM International Corporation - China
- Ind-Barath Power Infra Limited - India
- Wood Mackenzie - Singapore
- Barasentosa Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- Bharathi Cement Corporation - India
- Energy Development Corp, Philippines
- Indogreen Group - Indonesia
- Bulk Trading Sa - Switzerland
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Bangladesh Power Developement Board
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- Savvy Resources Ltd - HongKong
- Central Electricity Authority - India
- Trasteel International SA, Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Energy Exchange, India
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Altura Mining Limited, Indonesia
- Electricity Generating Authority of Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Toyota Tsusho Corporation, Japan
- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- Indika Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Price Waterhouse Coopers - Russia
- SN Aboitiz Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Bukit Baiduri Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Indian Oil Corporation Limited
- Gujarat Sidhee Cement - India
- European Bulk Services B.V. - Netherlands
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- Petron Corporation, Philippines
- TeaM Sual Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Heidelberg Cement - Germany
- Bhoruka Overseas - Indonesia
- Madhucon Powers Ltd - India
- Timah Investasi Mineral - Indoneisa
- Tamil Nadu electricity Board
- Directorate General of MIneral and Coal - Indonesia
- New Zealand Coal & Carbon
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Mining Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Global Green Power PLC Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Miang Besar Coal Terminal - Indonesia
- Kumho Petrochemical, South Korea
- White Energy Company Limited
- Karaikal Port Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Australian Coal Association
- Bhatia International Limited - India
- Carbofer General Trading SA - India
- The State Trading Corporation of India Ltd
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Ministry of Transport, Egypt
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