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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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Thursday, 12 February 15
INDONESIAN COAL PRICE REFERENCE INCHED DOWN 1.44% IN FEBRUARY
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 62.92 pe ...
Thursday, 12 February 15
NEWBUILDING ORDERING ACTIVITY DRAGS ON, AS OWNERS ARE LOOKING FOR LOWER PRICES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners appear to be waiting for lower prices in their dealings with Asian shipyards, as the dry bulk market is at historical lows. According t ...
Wednesday, 11 February 15
DRY BULK MARKET REMAINED UNDER PRESSURE : STABILIZING CAPE MARKET HARDLY HELPED SENTIMENT
COALspot.com: The Dry Bulk market remained under pressure last week, while the stabilizing Cape market hardly helped sentiment.
Greece based s ...
Wednesday, 11 February 15
BDI HITTING THE ALL-TIME LOW; FFA MARKETS NOT SHOWING ANY POSITIVE SIGNS
With the BDI hitting the all-time low and with FFA markets not showing any positive signs for a possible recovery in the near future, pessimism is ...
Tuesday, 10 February 15
IRON ORE MARKET TO REMAIN OVERSUPPLIED IN 2015: PRICE FORECAST $70/T - WOOD MACKENZIE
COALspot.com: With January witnessing the price of iron ore falling to its lowest levels since May 2009, Roger Emslie, Principal Metals & ...
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- Deloitte Consulting - India
- Miang Besar Coal Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Georgia Ports Authority, United States
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- Renaissance Capital - South Africa
- Bhatia International Limited - India
- LBH Netherlands Bv - Netherlands
- Indogreen Group - Indonesia
- Edison Trading Spa - Italy
- GVK Power & Infra Limited - India
- Videocon Industries ltd - India
- VISA Power Limited - India
- Kumho Petrochemical, South Korea
- Directorate General of MIneral and Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Global Coal Blending Company Limited - Australia
- The State Trading Corporation of India Ltd
- Coalindo Energy - Indonesia
- Singapore Mercantile Exchange
- Indian Oil Corporation Limited
- Ambuja Cements Ltd - India
- Central Java Power - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Xindia Steels Limited - India
- Gujarat Sidhee Cement - India
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Barasentosa Lestari - Indonesia
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- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Pendopo Energi Batubara - Indonesia
- Indonesian Coal Mining Association
- GMR Energy Limited - India
- Wood Mackenzie - Singapore
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Vizag Seaport Private Limited - India
- Bhushan Steel Limited - India
- Asmin Koalindo Tuhup - Indonesia
- MS Steel International - UAE
- Bukit Baiduri Energy - Indonesia
- Latin American Coal - Colombia
- CIMB Investment Bank - Malaysia
- Kartika Selabumi Mining - Indonesia
- Independent Power Producers Association of India
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- Goldman Sachs - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Agrawal Coal Company - India
- PowerSource Philippines DevCo
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kideco Jaya Agung - Indonesia
- Merrill Lynch Commodities Europe
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- Attock Cement Pakistan Limited
- Australian Coal Association
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Leighton Contractors Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- Larsen & Toubro Limited - India
- Manunggal Multi Energi - Indonesia
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- IEA Clean Coal Centre - UK
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Parry Sugars Refinery, India
- Medco Energi Mining Internasional
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Meralco Power Generation, Philippines
- Kobexindo Tractors - Indoneisa
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Grasim Industreis Ltd - India
- Riau Bara Harum - Indonesia
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- Port Waratah Coal Services - Australia
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- ICICI Bank Limited - India
- Krishnapatnam Port Company Ltd. - India
- Bayan Resources Tbk. - Indonesia
- Bhoruka Overseas - Indonesia
- Indo Tambangraya Megah - Indonesia
- Intertek Mineral Services - Indonesia
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- Therma Luzon, Inc, Philippines
- Metalloyd Limited - United Kingdom
- Coastal Gujarat Power Limited - India
- Marubeni Corporation - India
- Ministry of Transport, Egypt
- Global Business Power Corporation, Philippines
- Petron Corporation, Philippines
- Anglo American - United Kingdom
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Mercator Lines Limited - India
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Thai Mozambique Logistica
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Sakthi Sugars Limited - India
- Cigading International Bulk Terminal - Indonesia
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- Cement Manufacturers Association - India
- Borneo Indobara - Indonesia
- Oldendorff Carriers - Singapore
- Commonwealth Bank - Australia
- The Treasury - Australian Government
- Planning Commission, India
- IHS Mccloskey Coal Group - USA
- GN Power Mariveles Coal Plant, Philippines
- European Bulk Services B.V. - Netherlands
- San Jose City I Power Corp, Philippines
- Thiess Contractors Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- The University of Queensland
- Kepco SPC Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- Indika Energy - Indonesia
- Vedanta Resources Plc - India
- GAC Shipping (India) Pvt Ltd
- Siam City Cement - Thailand
- Ind-Barath Power Infra Limited - India
- Economic Council, Georgia
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Finance - Indonesia
- Mercuria Energy - Indonesia
- Essar Steel Hazira Ltd - India
- SMG Consultants - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Australian Commodity Traders Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- South Luzon Thermal Energy Corporation
- Coal and Oil Company - UAE
- White Energy Company Limited
- Lanco Infratech Ltd - India
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Sarangani Energy Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Posco Energy - South Korea
- Standard Chartered Bank - UAE
- Jindal Steel & Power Ltd - India
- Parliament of New Zealand
- Savvy Resources Ltd - HongKong
- Bharathi Cement Corporation - India
- Power Finance Corporation Ltd., India
- Makarim & Taira - Indonesia
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- Mjunction Services Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Dalmia Cement Bharat India
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- Antam Resourcindo - Indonesia
- Indian Energy Exchange, India
- Chamber of Mines of South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- PTC India Limited - India
- Siam City Cement PLC, Thailand
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