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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, 08 February 15
BDI FELL CONTINUOUSLY HIT A THREE DECADES LOW
COALspot.com: This week Baltic Exchange Dry Freight Index (BDI) fell continuously hit a three decades low.
The BDI continuously fell and was d ...
Friday, 06 February 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 1.1% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 20.1 million short tons (mmst) of coal ...
Friday, 06 February 15
SHIP DAMAGED BY FIRE CAUSED BY PIRATES FOUND TO BE CONSTRUCTIVE TOTAL LOSS - TAYLOR WESSING
KNOWLEDGE TO ELEVATE
The High Court was asked to determine a number of preliminary issues, including whether a vessel was a constructive total ...
Thursday, 05 February 15
BDI HAS NOW FALLEN A LEVEL CLOSE TO THE INDEX'S HISTORIC LOW - INTERMODAL
They say a picture is worth a thousand words and in this instance just one look at the tables above is enough to understand the great pressure the ...
Thursday, 05 February 15
ULTRAMAX LEVELS FROM INDIA TO CHINA IN THE MID US$ 5000'S - FEARNLEYS AS
Handy
Despite the overall weak sentiment, there is a scent of optimism in the Atlantic market for ppt dates. Continent is still struggling with o ...
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- Petron Corporation, Philippines
- Electricity Generating Authority of Thailand
- Africa Commodities Group - South Africa
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Kapuas Tunggal Persada - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Ambuja Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
- Borneo Indobara - Indonesia
- Indonesian Coal Mining Association
- The State Trading Corporation of India Ltd
- The University of Queensland
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Chamber of Mines of South Africa
- Wood Mackenzie - Singapore
- South Luzon Thermal Energy Corporation
- Semirara Mining Corp, Philippines
- Formosa Plastics Group - Taiwan
- Sree Jayajothi Cements Limited - India
- Bulk Trading Sa - Switzerland
- Kideco Jaya Agung - Indonesia
- Bukit Baiduri Energy - Indonesia
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Kumho Petrochemical, South Korea
- Globalindo Alam Lestari - Indonesia
- Malabar Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Lanco Infratech Ltd - India
- Attock Cement Pakistan Limited
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- Central Java Power - Indonesia
- Coal and Oil Company - UAE
- MS Steel International - UAE
- PowerSource Philippines DevCo
- Marubeni Corporation - India
- Global Green Power PLC Corporation, Philippines
- Carbofer General Trading SA - India
- Mintek Dendrill Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petrochimia International Co. Ltd.- Taiwan
- Dalmia Cement Bharat India
- Chettinad Cement Corporation Ltd - India
- Bukit Makmur.PT - Indonesia
- Siam City Cement - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Gujarat Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- Independent Power Producers Association of India
- Commonwealth Bank - Australia
- Renaissance Capital - South Africa
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- The Treasury - Australian Government
- Interocean Group of Companies - India
- Jindal Steel & Power Ltd - India
- Bhoruka Overseas - Indonesia
- Videocon Industries ltd - India
- Posco Energy - South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- SMC Global Power, Philippines
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Vizag Seaport Private Limited - India
- Indian Energy Exchange, India
- Mercuria Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Global Coal Blending Company Limited - Australia
- Orica Mining Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Altura Mining Limited, Indonesia
- Standard Chartered Bank - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Merrill Lynch Commodities Europe
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- Thai Mozambique Logistica
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Bangladesh Power Developement Board
- Star Paper Mills Limited - India
- Power Finance Corporation Ltd., India
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Coalindo Energy - Indonesia
- Singapore Mercantile Exchange
- ASAPP Information Group - India
- PNOC Exploration Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Madhucon Powers Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Sojitz Corporation - Japan
- Bukit Asam (Persero) Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Pendopo Energi Batubara - Indonesia
- Goldman Sachs - Singapore
- Directorate Of Revenue Intelligence - India
- Karaikal Port Pvt Ltd - India
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Australian Coal Association
- Sinarmas Energy and Mining - Indonesia
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Ministry of Transport, Egypt
- Bhatia International Limited - India
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Oldendorff Carriers - Singapore
- Energy Link Ltd, New Zealand
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indika Energy - Indonesia
- Trasteel International SA, Italy
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- San Jose City I Power Corp, Philippines
- Coastal Gujarat Power Limited - India
- Xindia Steels Limited - India
- Minerals Council of Australia
- India Bulls Power Limited - India
- Vedanta Resources Plc - India
- Intertek Mineral Services - Indonesia
- Samtan Co., Ltd - South Korea
- Economic Council, Georgia
- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Parliament of New Zealand
- International Coal Ventures Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Uttam Galva Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- SMG Consultants - Indonesia
- OPG Power Generation Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Tamil Nadu electricity Board
- Edison Trading Spa - Italy
- Binh Thuan Hamico - Vietnam
- Meenaskhi Energy Private Limited - India
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- White Energy Company Limited
- CIMB Investment Bank - Malaysia
- Heidelberg Cement - Germany
- Kaltim Prima Coal - Indonesia
- Ministry of Finance - Indonesia
- Orica Australia Pty. Ltd.
- Krishnapatnam Port Company Ltd. - India
- Bayan Resources Tbk. - Indonesia
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- PTC India Limited - India
- Baramulti Group, Indonesia
- Ind-Barath Power Infra Limited - India
- Central Electricity Authority - India
- Makarim & Taira - Indonesia
- McConnell Dowell - Australia
- Larsen & Toubro Limited - India
- Manunggal Multi Energi - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- IEA Clean Coal Centre - UK
- IHS Mccloskey Coal Group - USA
- Kartika Selabumi Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Grasim Industreis Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- GMR Energy Limited - India
- Indo Tambangraya Megah - Indonesia
- Toyota Tsusho Corporation, Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Parry Sugars Refinery, India
- Eastern Energy - Thailand
- Antam Resourcindo - Indonesia
- Deloitte Consulting - India
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- CNBM International Corporation - China
- Tata Chemicals Ltd - India
- Thiess Contractors Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
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