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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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Tuesday, 10 March 15
OIL PRICE FORECASTING - IGNORE THE EXPERTS: COLIN MARSHALL
KNOWLEDGE TO ELEVATE
Experts put themselves on a pedestal, making claims to have special forecasting abilities for oil price trends. They, too ...
Tuesday, 10 March 15
FOB NEWCASTLE COAL SWAPS HEADING SOUTH
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery declined US$ 0.24 per MT (-0.47%) month over month and US$ 1.52 (-2.93%) we ...
Tuesday, 10 March 15
CFR SOUTH CHINA POWER-STATION COAL SWAPS DECLINE
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery fell US$ 0.42 (-0.74%) per MT month over month and declined US$ 1.00 &nbs ...
Monday, 09 March 15
INDONESIA GREETS INDIA RATE CUT AS GOOD FOR EXPORTS - GLOBEASIA
Indonesian commodity producers and economists have hailed the Indian central bank’s rate cut as good for boosting exports from Southeast Asia ...
Monday, 09 March 15
CHINA'S IMPORTS - NEVER MORE IMPORTANT TO SHIPPING? - CLARKSONS
Over the last 15 years China has led maritime forecasters a right old dance. In 2002, rumours that Chinese iron ore imports were about to take off ...
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- Kideco Jaya Agung - Indonesia
- Parliament of New Zealand
- ASAPP Information Group - India
- Coal and Oil Company - UAE
- Africa Commodities Group - South Africa
- Samtan Co., Ltd - South Korea
- Vijayanagar Sugar Pvt Ltd - India
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- Toyota Tsusho Corporation, Japan
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- SMG Consultants - Indonesia
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- Marubeni Corporation - India
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- Chamber of Mines of South Africa
- Heidelberg Cement - Germany
- Directorate Of Revenue Intelligence - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indika Energy - Indonesia
- Mjunction Services Limited - India
- South Luzon Thermal Energy Corporation
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Coastal Gujarat Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- Metalloyd Limited - United Kingdom
- Essar Steel Hazira Ltd - India
- Simpson Spence & Young - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Lanco Infratech Ltd - India
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- Minerals Council of Australia
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Posco Energy - South Korea
- Makarim & Taira - Indonesia
- Trasteel International SA, Italy
- Larsen & Toubro Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Sindya Power Generating Company Private Ltd
- Energy Link Ltd, New Zealand
- Planning Commission, India
- Australian Commodity Traders Exchange
- Kohat Cement Company Ltd. - Pakistan
- Orica Australia Pty. Ltd.
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Eastern Coal Council - USA
- Ind-Barath Power Infra Limited - India
- Merrill Lynch Commodities Europe
- GMR Energy Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thiess Contractors Indonesia
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- Mercator Lines Limited - India
- Kumho Petrochemical, South Korea
- Cigading International Bulk Terminal - Indonesia
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- Attock Cement Pakistan Limited
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining and Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Iligan Light & Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Savvy Resources Ltd - HongKong
- Neyveli Lignite Corporation Ltd, - India
- PowerSource Philippines DevCo
- Orica Mining Services - Indonesia
- Grasim Industreis Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Georgia Ports Authority, United States
- Deloitte Consulting - India
- Australian Coal Association
- Independent Power Producers Association of India
- Kaltim Prima Coal - Indonesia
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Wilmar Investment Holdings
- London Commodity Brokers - England
- SN Aboitiz Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Energy Development Corp, Philippines
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Edison Trading Spa - Italy
- Ministry of Finance - Indonesia
- Petron Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Central Java Power - Indonesia
- Interocean Group of Companies - India
- IEA Clean Coal Centre - UK
- Holcim Trading Pte Ltd - Singapore
- Formosa Plastics Group - Taiwan
- Salva Resources Pvt Ltd - India
- Parry Sugars Refinery, India
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Electricity Generating Authority of Thailand
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Dalmia Cement Bharat India
- Oldendorff Carriers - Singapore
- Sical Logistics Limited - India
- Kepco SPC Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- Bukit Baiduri Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Power Finance Corporation Ltd., India
- White Energy Company Limited
- Chettinad Cement Corporation Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Therma Luzon, Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Aditya Birla Group - India
- European Bulk Services B.V. - Netherlands
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Wood Mackenzie - Singapore
- Bayan Resources Tbk. - Indonesia
- Bhushan Steel Limited - India
- Barasentosa Lestari - Indonesia
- Indian Energy Exchange, India
- Intertek Mineral Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tamil Nadu electricity Board
- Pipit Mutiara Jaya. PT, Indonesia
- Global Green Power PLC Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- The University of Queensland
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Bhatia International Limited - India
- Meralco Power Generation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SMC Global Power, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Port Waratah Coal Services - Australia
- India Bulls Power Limited - India
- MS Steel International - UAE
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Ministry of Transport, Egypt
- Asmin Koalindo Tuhup - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Global Coal Blending Company Limited - Australia
- Videocon Industries ltd - India
- Kartika Selabumi Mining - Indonesia
- Malabar Cements Ltd - India
- Baramulti Group, Indonesia
- Pendopo Energi Batubara - Indonesia
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