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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, 04 February 15
MARKET INSIGHT - LINOS KOGEVINAS
It has been just about over 2 months since, in a move that surprised many and caused widespread apprehension, OPEC decided to maintain its producti ...
Tuesday, 03 February 15
Q1'15 FOB INDONESIA COAL SWAP CLOSED $ 3.29 HIGHER COMPARED TO Q4'15 DELIVERY PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 rose week over week and month on month.
The Q1 swap up US$ 0.68 (+1.41%) month o ...
Tuesday, 03 February 15
FOB NEWCASTLE COAL SWAP FOR Q4 DELIVERY CLOSED 5.86% LOWER THAN Q1 PRICE
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery rose US$ 0.26 per MT (+0.51%) week over week and declined US$ 0.02 (-0.04%) ...
Monday, 02 February 15
API 4 FOB RICHARDS BAY COAL SWAP ROSE WEEK OVER WEEK
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and day on day.
The Q1 swap has decli ...
Monday, 02 February 15
INDONESIA'S ADARO ENERGY PRODUCED 56.21 MILLION TONNES OF COAL IN 2014; UP 8% Y-O-Y
COALspot.com: PT. Adaro Energy, Indonesia’s largest coal producer, has increased coal production by 8% to 56.21 million tonnes (Mt) from both ...
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- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Siam City Cement PLC, Thailand
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- GMR Energy Limited - India
- Eastern Coal Council - USA
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Sical Logistics Limited - India
- Maheswari Brothers Coal Limited - India
- Barasentosa Lestari - Indonesia
- Aditya Birla Group - India
- Orica Australia Pty. Ltd.
- New Zealand Coal & Carbon
- Wilmar Investment Holdings
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tata Chemicals Ltd - India
- White Energy Company Limited
- SN Aboitiz Power Inc, Philippines
- Bangladesh Power Developement Board
- Miang Besar Coal Terminal - Indonesia
- Independent Power Producers Association of India
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- Mintek Dendrill Indonesia
- Aboitiz Power Corporation - Philippines
- Xindia Steels Limited - India
- Mjunction Services Limited - India
- Bhushan Steel Limited - India
- McConnell Dowell - Australia
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- Timah Investasi Mineral - Indoneisa
- Merrill Lynch Commodities Europe
- Formosa Plastics Group - Taiwan
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Globalindo Alam Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Ministry of Mines - Canada
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Videocon Industries ltd - India
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- Samtan Co., Ltd - South Korea
- Electricity Generating Authority of Thailand
- AsiaOL BioFuels Corp., Philippines
- Petron Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Mercuria Energy - Indonesia
- Minerals Council of Australia
- SMG Consultants - Indonesia
- MS Steel International - UAE
- Gujarat Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Coal and Oil Company - UAE
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Parliament of New Zealand
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- Pipit Mutiara Jaya. PT, Indonesia
- ASAPP Information Group - India
- Antam Resourcindo - Indonesia
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PNOC Exploration Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- GVK Power & Infra Limited - India
- Bhoruka Overseas - Indonesia
- Altura Mining Limited, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- Bayan Resources Tbk. - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Sidhee Cement - India
- Sindya Power Generating Company Private Ltd
- Indo Tambangraya Megah - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Latin American Coal - Colombia
- Agrawal Coal Company - India
- International Coal Ventures Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Pendopo Energi Batubara - Indonesia
- Uttam Galva Steels Limited - India
- Jindal Steel & Power Ltd - India
- Cement Manufacturers Association - India
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- The University of Queensland
- Standard Chartered Bank - UAE
- Carbofer General Trading SA - India
- Billiton Holdings Pty Ltd - Australia
- Directorate Of Revenue Intelligence - India
- Indonesian Coal Mining Association
- Attock Cement Pakistan Limited
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thai Mozambique Logistica
- Indika Energy - Indonesia
- Larsen & Toubro Limited - India
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Essar Steel Hazira Ltd - India
- Eastern Energy - Thailand
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- Kumho Petrochemical, South Korea
- Banpu Public Company Limited - Thailand
- Bhatia International Limited - India
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Indian Energy Exchange, India
- Tamil Nadu electricity Board
- Australian Commodity Traders Exchange
- Ministry of Finance - Indonesia
- Karaikal Port Pvt Ltd - India
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Rashtriya Ispat Nigam Limited - India
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Dalmia Cement Bharat India
- Africa Commodities Group - South Africa
- Vizag Seaport Private Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Binh Thuan Hamico - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- Interocean Group of Companies - India
- Karbindo Abesyapradhi - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- ICICI Bank Limited - India
- Planning Commission, India
- Savvy Resources Ltd - HongKong
- European Bulk Services B.V. - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Oldendorff Carriers - Singapore
- Anglo American - United Kingdom
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- TeaM Sual Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Siam City Cement - Thailand
- Borneo Indobara - Indonesia
- SMC Global Power, Philippines
- Kartika Selabumi Mining - Indonesia
- The State Trading Corporation of India Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Georgia Ports Authority, United States
- Kobexindo Tractors - Indoneisa
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Coalindo Energy - Indonesia
- Deloitte Consulting - India
- Manunggal Multi Energi - Indonesia
- Singapore Mercantile Exchange
- Sree Jayajothi Cements Limited - India
- Ministry of Transport, Egypt
- Kepco SPC Power Corporation, Philippines
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Parry Sugars Refinery, India
- VISA Power Limited - India
- Metalloyd Limited - United Kingdom
- Indogreen Group - Indonesia
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Central Java Power - Indonesia
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- Bharathi Cement Corporation - India
- Salva Resources Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Grasim Industreis Ltd - India
- Bukit Makmur.PT - Indonesia
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