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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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Saturday, 14 February 15
SHALE GAS AND TIGHT OIL ARE COMMERCIALLY PRODUCED IN JUST FOUR COUNTRIES - EIA
KNOWLEDGE TO ELEVATE
The United States, Canada, China, and Argentina are currently the only four countries in the world that are producing com ...
Friday, 13 February 15
U.S. WEEKLY COAL PRODUCTION SHOWS 10% DECLINE
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.1 million short tons (mmst) of coal ...
Friday, 13 February 15
SMALL AND MEDIUM-SIZED SHIP OWNERS SQUEEZED OUT OF THE MARKET ON CRASHING DRY BULK MARKET AND EUROZONE CRISIS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Financing issues have started to tighten the noose in the throats of small and medium-size ship owners, who were already facing problems over the p ...
Thursday, 12 February 15
CAPESIZE: THE BEST DESCRIPTION FOR THE MARKET IS, FLAT - FEARNRESEARCH
Handy
The handy and supra market is also being affected by the marginal volume of activity in the commodity sales. We see a small upturn in the T ...
Thursday, 12 February 15
DRY BULK OWNERS SCRAP MORE VESSELS, AS MARKET REACHES HISTORICAL LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has reached historical lows this week, with the Baltic Dry Index (BDI) now trading at levels below operating expense levels for ...
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- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Interocean Group of Companies - India
- Kartika Selabumi Mining - Indonesia
- Economic Council, Georgia
- Eastern Coal Council - USA
- Pendopo Energi Batubara - Indonesia
- Sojitz Corporation - Japan
- ICICI Bank Limited - India
- Indian Energy Exchange, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Savvy Resources Ltd - HongKong
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Wood Mackenzie - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Thiess Contractors Indonesia
- Jaiprakash Power Ventures ltd
- Rashtriya Ispat Nigam Limited - India
- Manunggal Multi Energi - Indonesia
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Meralco Power Generation, Philippines
- Metalloyd Limited - United Kingdom
- Wilmar Investment Holdings
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Star Paper Mills Limited - India
- South Luzon Thermal Energy Corporation
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Agrawal Coal Company - India
- AsiaOL BioFuels Corp., Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Riau Bara Harum - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Minerals Council of Australia
- Merrill Lynch Commodities Europe
- Bhushan Steel Limited - India
- New Zealand Coal & Carbon
- SMC Global Power, Philippines
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Indonesian Coal Mining Association
- Thai Mozambique Logistica
- The Treasury - Australian Government
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Coal and Oil Company - UAE
- Ministry of Finance - Indonesia
- LBH Netherlands Bv - Netherlands
- ASAPP Information Group - India
- Kohat Cement Company Ltd. - Pakistan
- Sindya Power Generating Company Private Ltd
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Lanco Infratech Ltd - India
- Bhatia International Limited - India
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- Orica Mining Services - Indonesia
- Vedanta Resources Plc - India
- Siam City Cement PLC, Thailand
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Edison Trading Spa - Italy
- Australian Commodity Traders Exchange
- Kalimantan Lumbung Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Toyota Tsusho Corporation, Japan
- Karaikal Port Pvt Ltd - India
- Mintek Dendrill Indonesia
- Petron Corporation, Philippines
- Sical Logistics Limited - India
- Ceylon Electricity Board - Sri Lanka
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Attock Cement Pakistan Limited
- International Coal Ventures Pvt Ltd - India
- GMR Energy Limited - India
- Kaltim Prima Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Rio Tinto Coal - Australia
- Larsen & Toubro Limited - India
- Aditya Birla Group - India
- Directorate Of Revenue Intelligence - India
- CIMB Investment Bank - Malaysia
- Indogreen Group - Indonesia
- Baramulti Group, Indonesia
- Jindal Steel & Power Ltd - India
- Australian Coal Association
- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- VISA Power Limited - India
- Standard Chartered Bank - UAE
- Madhucon Powers Ltd - India
- IEA Clean Coal Centre - UK
- Gujarat Sidhee Cement - India
- Renaissance Capital - South Africa
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Electricity Authority - India
- Samtan Co., Ltd - South Korea
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- GVK Power & Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Energy Development Corp, Philippines
- Anglo American - United Kingdom
- CNBM International Corporation - China
- Essar Steel Hazira Ltd - India
- Posco Energy - South Korea
- Planning Commission, India
- Bukit Baiduri Energy - Indonesia
- Parliament of New Zealand
- The State Trading Corporation of India Ltd
- Kumho Petrochemical, South Korea
- Meenaskhi Energy Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Cement Manufacturers Association - India
- Ministry of Transport, Egypt
- Africa Commodities Group - South Africa
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- London Commodity Brokers - England
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- The University of Queensland
- PTC India Limited - India
- Singapore Mercantile Exchange
- Mercuria Energy - Indonesia
- Heidelberg Cement - Germany
- Salva Resources Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Binh Thuan Hamico - Vietnam
- Medco Energi Mining Internasional
- Bangladesh Power Developement Board
- Energy Link Ltd, New Zealand
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Mercator Lines Limited - India
- Holcim Trading Pte Ltd - Singapore
- Electricity Generating Authority of Thailand
- Marubeni Corporation - India
- Oldendorff Carriers - Singapore
- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- Coastal Gujarat Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- White Energy Company Limited
- Leighton Contractors Pty Ltd - Australia
- Romanian Commodities Exchange
- OPG Power Generation Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Barasentosa Lestari - Indonesia
- Carbofer General Trading SA - India
- Vizag Seaport Private Limited - India
- Sakthi Sugars Limited - India
- Trasteel International SA, Italy
- Antam Resourcindo - Indonesia
- Makarim & Taira - Indonesia
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Intertek Mineral Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Orica Australia Pty. Ltd.
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Uttam Galva Steels Limited - India
- San Jose City I Power Corp, Philippines
- Formosa Plastics Group - Taiwan
- Iligan Light & Power Inc, Philippines
- Port Waratah Coal Services - Australia
- PNOC Exploration Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Dalmia Cement Bharat India
- Chamber of Mines of South Africa
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