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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by CHEN Xin and WANG Jing
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Chinese maritime law is generally similar to the legal frameworks found around the world, which derive mostly from English law.
Maritime transport and towage services between the ports of the People’s Republic of China (PRC) may only be undertaken by ships flying the national flag and foreign ships may only do so with special permission of the competent authorities of transport and communications under the State Council.1
Under the revised Catalogue for the Guidance of Foreign Investment Industries issued jointly on October 31, 2007 by the National Development and Reform Commission and the Ministry of Commerce, transportation carriage has been upgraded from the restricted to the permitted category. In the liner and tramp maritime transportation sectors, the proportion of foreign investments may not exceed 49%. In international container multi-modal transportation, wholly foreign ownership was permitted before December 11, 2005 in accordance with China’s World Trade Organization (WTO) Accession commitment.2
Maritime law refers to the body of laws and regulations governing the rights and duties arising between parties involved in maritime transportation. The primary laws and regulations relating to maritime affairs are:
Provisions of international treaties concluded or acceded to by China prevail over conflicting provisions in the CMC and international practice may be applied to matters not covered by the applicable laws and international treaties.5
The territorial scope of the CMC covers the sea and water bodies in China connected with the sea, including water bodies used for sea-to-river and river-to-sea direct transportation. The carriage of cargo and passengers between river or lake ports falls outside the scope of the CMC, while transportation between a river port and a seaport, through a sea route, is treated as maritime transportation and is governed by the CMC.6
Only sea-going vessels and other mobile units fall within the cope of the CMC. Ships or craft used for military or public service purposes, and ships of less than 20 tons gross tonnage are excluded from its scope.7
The provisions of the Code apply to State-owned ships.8
The CMC applies to the entire complement of the ship, including the ship’s master.9 Crewmembers with important duties on Chinese ships must pass strict examinations.10 Chinese law requires that the master, chief engineer, navigating officer, engineers, and radio and telephone operators must hold valid job certificates. The examination and awarding of certificates to the crew is the responsibility of the Bureau of Maritime Safety Administration.
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Subject to mandatory provisions of law, parties to contracts may choose the law applicable to such contracts. In the absence of such a choice, the law of the country having the closest connections with the contract is applied.11
The law of the State of the flag flown by the ship governs acquisitions, transfers and extinctions of ownership12 and mortgages.13
The law of the forum governs matters pertaining to maritime liens.14
Claims for damages arising from ship collisions are subject to the law of the locus delicti, except that claims arising on the high seas are decided in accordance with the law of the forum.15
The law where the adjustment of general average is carried out governs its implementation.16
The law applicable to limitations of liability for maritime claims is that of the forum.17
The application of foreign laws or international practices must not jeopardize China’s public interests.18
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Acquisitions, transfers and extinctions of ownership in ships must be registered with the ship registration authorities lest they be of no effect vis-à-vis third parties. Transfers of ownership of a ship must be contracted in writing.19
The ownership of a mortgaged ship may not be transferred without the consent of the mortgagee.20
The master is responsible for the management and navigation of the ship,21 and this responsibility is not relieved, even if another party is piloting the ship.22 The master must take all measures necessary to protect the ship and all persons, documents, goods and other property carried on board.23 In emergencies, the master is responsible for adopting the appropriate measures. For example, when a casualty has occurred at sea, the masters and crew of other ships must deploy their best efforts to rescue threatened life and property. When its loss has become inevitable, the master may decide to abandon the ship.24
The master is the agent of the ship owner’s interests. The master signs bills of lading and concludes salvage contracts.25
Only its owner or a party authorized by the owner may mortgage a ship.26
Ship mortgages must be contracted in writing.27
A mortgage on a ship entitles the mortgagee to preference with respect to the proceeds of its sale at auction if the mortgagor defaults on its debt to the mortgagee.28
Ship mortgages are of no effect against third parties until they are registered with the ship registration authorities. The mortgagee and the mortgagor carry out the registration jointly.29
Ship mortgages may be concluded on ships under construction.30 Unless the contract provides otherwise, a mortgaged ship must be insured by the mortgagor, otherwise the mortgagee has the right to contract insurance coverage and the mortgagor must pay the premiums.31
When the mortgagee transfers all or part of its rights secured by the mortgage, the interests in the mortgage are also transferred.32
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Under article 19 of the CCM, two or more mortgages may be established on the same ship. The ranking of the mortgages is determined according to the dates of their registrations, with priority going to the first to register its interests. Mortgages registered on the same date rank equally. Mortgagees are paid out of the proceeds of the auction sale of the ship in the order of registration of their respective interests.
Mortgages are extinguished when the mortgaged ship is lost. In such an event, the mortgagee enjoys priority over other creditors.33
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A maritime lien is the right of the claimant to priority in compensation against owners, bareboat charterers or operators of the ship that has given rise to the claims.34
Only the following claims may be secured by maritime liens:
The maritime claims set out above are satisfied in the listed order, except that those for salvage arising later have priority over earlier liens. Should there be more than two maritime claims for salvage, the later claims are satisfied first.36
Possessory liens belong to ship builders and repairers to secure building and repairs, and they entitle them to detain ships in their possession for contractual default. Ship builders’ and repairers’ possessory liens are extinguished upon their loss of possession.37
Maritime liens have priority over possessory liens, and possessory liens rank above ship mortgages.38
Maritime liens are enforced by the courts that seize the object ship.39
The following are deducted directly from the proceeds prior to any distribution:
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Maritime liens follow transfers of the claims on which they are grounded.41 They are not extinguished by transfer of ownership of the object ship.42
Maritime liens are however extinguished in any of the following circumstances:
Buyers of ships should thus apply to the Maritime Court to give public notice in order to learn of any outstanding maritime liens. Ships may then be transferred free of all liens not declared within the following 60 days.
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A contract of carriage of goods by sea is a contract under which the carrier, against payment of freight, undertakes to carry by sea the goods contracted for shipment by the shipper from one port to another.44
The CMC’s provisions on the carriage of goods (Part IV of the Code) apply only to international carriage of goods by sea, that is, maritime transportation between Chinese ports and foreign ports.45 The carriage of goods between the mainland and Hong Kong, Macao or Taiwan is subject to the CMC’s provisions on contracts of international carriage of goods by sea.
The conditions applicable to the transportation of goods between Chinese ports are defined in specific provisions, such as those in the Contract Law, in the Regulations with respect to Water Transportation of Cargo and in the Regulations with respect to Port Operations. In comparison with international carriage of goods by sea, inland water carriers of cargo bear stricter liability for losses of cargo. For example, though an inland water carrier enjoys many exemptions, when none is available, the carrier must pay compensation on the basis of the actual loss of the cargo without limitation. Furthermore, the transportation documents generally used in inland water transportation of cargo are non-transferable waterway bills, while in international carriage of goods by sea, bills of lading are usually transferable.
Where an international contract of carriage of goods by sea is made orally, the carrier and the shipper are entitled to demand confirmation in writing. Telegrams, telexes and faxes have the effect of written documents.46
4.3.1 Definition
According to article 71 of the CMC, a bill of lading is a document that serves as:
In practice, carriers publicise the names of their ships, their routes, their ports of call and the dates of same. Most often, upon accepting bookings, they issue contracts of carriage.
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The statements in the bill of lading are prima facie accurate, but the presumption can be overcome as regards the shipper.47 However, if it is endorsed in favour of a transferee in good faith, the bill of lading becomes binding upon the carrier.
Notwithstanding any other agreements between the shipper and the carrier, if the bill of lading is transferred to a third party, it furnishes the contract of carriage between the carrier and the third party.48 Endorsees of a bill of lading are bound by its terms and not by any different agreements concluded between carriers and shippers.
After receiving the cargo, a receipt indicating its quantity, weight, description, principal markings, apparent condition and port of destination is issued by the monitoring officer, the chief officer or the captain. This is the mate’s receipt. Only with such mate’s receipt can the shipper obtain the corresponding bill of lading.
The bill of lading must be issued in accordance with the above contents in the mate’s receipt.
The mate’s receipt is not transferable.
The carrier and its agents undertake to deliver the goods to the consignee, the endorsee or the holder of the bill of lading in accordance with its stipulations. Only when an original of the bill of lading is produced can the goods be delivered. If the carrier’s failure to perform this duty causes losses, it is liable.
4.3.2. Types of bill of lading
In a so-called straight bill of lading, the shipper designates the consignee.
Under a so-called bill of lading to order, the cargo is delivered according to the shipper’s or the endorsee’s order.
The difference between the two bills of lading has given rise to a long-term controversy over whether goods could be delivered only against the original straight bill of lading. For many years, Chinese courts in their judgments often took the view that the straight bill of lading was not a necessary document for delivery but functioned merely as a cargo receipt. In 2004, during a conference in Qingdao, China’s maritime and high-court judges concluded that delivery of cargo under straight bills of lading should be against surrender of the original bills of lading, regardless of their nature and negotiability. While it seems that this controversy has then been settled, at least at the judiciary level, it has not yet been confirmed in legislation or regulations.
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4.3.3. Negotiability
In China, straight bills of lading are not negotiable while bills to order are.49
Order bills of lading may be negotiated with endorsement to order or by endorsement in blank.
A bearer bill of lading is negotiable without endorsement.50
4.3.4. Clean and foul bills of lading
A clean bill of lading is one that describes the cargo as being in apparent good order and condition. A foul bill of lading bears an indication that the goods were received with damages, irregularities or with shortages in quantities.
If the issuer of a bill of lading does not note otherwise on its face, the goods are deemed to be in apparent good condition and the carrier is obligated to deliver the cargo in compliance with such description.51 If the carrier does not have reasonable means of checking the cargo’s condition, it may make a note to that effect on the bill of lading.
In the opinions of Chinese judges, carriers need not describe the cargo’s quality on the bill of lading. For example, the carrier is not responsible for the protein in soybeans under carriage or for the iron contents of iron ore. In bulk cargo carriage, if the discrepancy in the quantity of cargo is apparent, the carrier may be held liable for failing to note a reservation on the bill of lading.52
4.3.5. Back-dated and post-dated bill of lading
According to article 74 of the CMC, shippers may only require issuance of a bill of lading once the cargo has been loaded on board, and carriers may only issue “shipped” bills of lading. Backdated bills of lading and post-dated bills of lading conceal the actual date of loading, which may deprive the buyer of its contractual rights to reject the cargo under such terms as CIF.53
In Chinese judicial practice, when a bill of lading has been backdated or post-dated, the consignee is allowed to bring suit either in tort or in contract against the carrier for damages. As regards the scope of compensation, the general view is that backdating and postdating have no direct causal link with either any delay in the arrival of the ship or any loss of profit.
4.3.6. Validity
In Chinese shipping law, bills of lading may contain provisions not in the contract of carriage. But any stipulation that derogates from the carrier’s statutory liability is deemed by Chinese courts to be null and void.54
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4.3.7. Attribution of jurisdiction over bills of lading to foreign courts
Attributions of jurisdiction in bills of lading to foreign courts are given strict interpretation by Chinese courts. Out of respect for national sovereignty, Chinese courts will not validate attributions of jurisdiction to foreign courts unless the State of the designated foreign court practices judicial reciprocity with China.
4.3.8. Arbitration clauses in bills of lading
In principle, Chinese courts respect arbitration clauses in bills of lading. The validity of arbitration clauses is subject to the law where the arbitration is to take place.
Arbitration clauses designating China as the place of arbitration are ruled invalid under any of the following circumstances:
Sometimes, a bill of lading provides for arbitration indirectly through a clause incorporated in a charter party. The effectiveness of such incorporation is difficult to predict. In practice, Chinese courts are likely to deem the incorporation clause effective if it specifies the date, place of conclusion and other elements necessary to identify the charter party.
4.3.9. Applicable law clauses in bills of lading
Bills of lading may choose the applicable law provided that there does not result, in the particular dispute, a derogation from the statutory liability of the carrier under Chinese law. If the dispute relates to the delivery of goods, the applicable law clause would be deemed valid in China even if it might reduce the carrier’s responsibility. For example, Chinese courts tend to admit the applicability of the foreign law even if the result, contrary to Chinese law, is that the carrier need not require the original bill of lading before delivering the cargo.
If the bill of lading does not include a choice of law, Chinese courts apply the law of the State with the closest connections to the commercial contract. The place of performance, the place of issuance, the situs of the goods and other elements would be considered in determining the most closely connected State.
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In Chinese law, a carrier is a party that concludes in its own name or on behalf of another party a contract of carriage of goods by sea.55 A carrier is characterized as such on the basis of the following considerations:
4.4.1. Actual carriers
Actual carriers are the persons to whom the performance of the carriage of goods, or of any part of the carriage, has been entrusted, which includes any other person to whom such performance has been entrusted under a sub-contract.56
Generally, an actual carrier intervenes in the following situations:
The system of network liability applies to the carrier and the actual carrier. Where the performance of the carriage or part thereof has been entrusted to an actual carrier, the carrier remains responsible for the entire carriage as well as for the acts or omissions of the actual carrier and those of its employees or agents acting within the scope of their employment or agency. Nevertheless, where a contract of carriage by sea explicitly provides that a specified part of the carriage is to be performed by a named actual carrier other than the carrier, then the carrier may contractually exclude its liability for losses, damages or delays arising while the goods are in the possession of such actual carrier.
If the loss, damage or delay in delivery occurs during the part of the carriage undertaken by the actual carrier, the cargo owner is entitled to make a claim against the actual carrier directly, and need not do so against the carrier first.
Where the carrier and the actual carrier are in fact both responsible for loss, damage or delay, they may be held liable jointly and severally. In such an event, after compensating the claimant, the carrier or the actual carrier may claim against the other to account for its share of the responsibility for the loss, damage or delay.
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4.4.2. Non-vessel operating contractual carriers
Intermediaries without vessels, so-called non-vessel operating contractual carriers (NVOCCs), may accept cargo from shippers, issue bills of lading or other forms of transportation documents in consideration of the freight charges received from the shipper and assume responsibility for providing carriage by sea.
NVOCCs must submit their bills of lading to the Ministry of Transportation for registration and they must provide security for the satisfaction of debts and for the payment of fines arising from failures to fulfil or to properly fulfil their obligations as carrier. In practice, if an NVOCC fails to respect these obligations, Chinese courts may void their contracts of carriage of goods by sea. Also, an agent that issues a bill of lading on behalf of an unregistered NCOCC may be held jointly liable for losses sustained by the holder of the bill.
For the carriage of non-containerized goods, and in line with the Hague Rules, the limitation period starts from the time of loading of the goods onto the ship and ends when the goods are unloaded.57
As for the carriage of containers of goods, the liability of the carrier starts when it takes possession of the container and lasts until its release.
Before delivery of the goods at the port of destination, the consignee and the carrier may request that the goods be inspected. The party requesting such inspection bears the cost but is entitled to compensation from the party that caused the damage.58
4.5.1. Seaworthiness
The carrier must exercise due diligence:
The following circumstances are considered to be indications of unseaworthiness:
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Generally, when deciding claims on the ground of unseaworthiness, Chinese courts require a direct causal link between the loss and the unseaworthiness.
Carriers must exercise due diligence in adopting appropriate measures based on the information already known or that which can be predicted, including the nature of the cargo on board. If a carrier exercises due diligence to make the ship seaworthy before setting sail or at the time of setting sail, then even if the ship is actually unseaworthy due to latent defects that subsequently cause the loss of cargo, the carrier may still be exempted from liability.
4.5.2. Care for cargo
Other than the obligation of due diligence to make the ship seaworthy, the carrier must properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried. The carrier bears the burden of proving that it has fulfilled these duties. Sometimes, Chinese courts set a very high standard of proof in this respect. For example, if containers carried on deck were washed overboard during a bad storm, it would usually be very difficult for the carrier to prove that the lost containers had been properly tightened and secured and, in such circumstances, the courts tend not to characterize the accident as arising from a peril of the sea but will find a failure in the handling of the goods. Another example concerns carriage of grains in bulk: such goods can easily overheat, but it is difficult to convince Chinese courts to accept that such an occurrence is due to the inherent nature of the goods and not due to insufficient ventilation.
4.5.3. Deviation
Goods must be delivered to the port of discharge via the itinerary agreed upon by the parties, or that which is customary, or that which is dictated by geographical considerations. However, deviations are permissible to save or to attempt to save human life or property or for any other valid reason.
There is usually a clause in the overleaf of any bill of lading advising that, at the discretion of the carrier, the ship may call at any ports. Most Chinese courts take the view that terms or conditions that give the carrier the liberty to call at ports not specified on the schedule constitute derogations from its obligations imposed by Chinese maritime law. Such provisions therefore should be rendered void. Some opine that if the vessel is a liner, the carrier is entitled to choose the rotation in the calling of the discharge ports pursuant to the publicized schedule, but should not frustrate the commercial purpose of the contract of carriage by sea. For example, any unusual rotation might be too time consuming and might cause damage to the cargo.
The causal link between the loss of, or damage to, the goods is also ambiguous in Chinese judicial practice.
Most Chinese courts hold that if a ship carries out an unreasonable deviation, the carrier should be liable for the subsequent loss of, or damages to, the goods, regardless of whether they were caused directly by the deviation, on the grounds that the deviation would be considered to have entailed unnecessary risks during the voyage.
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Under article 51 of the CMC, carriers are not liable for the loss of, or damage to, the goods while they are in their charge, if they arise from any of the following causes:
Under Chinese law, carriers must first prove that any loss of, or damage to, goods is covered by the above exemptions, and then further prove that they have fulfilled their legal duties. However, where fires are concerned, the claimant must prove the fault of the carrier to be their cause.
Under article 56 of the CMC, carriers’ liability for the loss of, or damage to, the goods is limited to an amount equivalent to 666.67 Units of Account (Special Drawing Rights) per package or other shipping unit, or 2 Units of Account per kilogram of the gross weight of the goods lost or damaged, whichever is the higher. Where the nature and value of the goods have been declared by the shipper before shipment and inserted into the bill of lading, or where a higher amount than the abovementioned limitation of liability have been defined by the carrier and the shipper, the carrier must pay the agreed compensation.
Where a container, pallet or similar item is used to consolidate goods, the number of packages or other shipping units enumerated in the bill of lading as packed indicates the number of packages or shipping units. In the absence of such enumeration, the goods in or on such means of carriage are treated as one package or one shipping unit. Where the means of carriage is not owned or furnished by the carrier, it is deemed to be part of the package or shipping unit.
For containerized goods, if the details of the goods in the container are enumerated in the bill of lading, the quantity of goods is in principle the number of units but the statement of quantity in a bill of lading is only prima facie evidence subject to rebuttal by the carrier. Such situations are not uncommon in practice, and the phrase “said to contain” is often noted on the face of bills of lading. Where the goods inside a container are uncertain, the container together with the goods inside are deemed to be one unit.
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If it is proved that any loss of, damage to, or delay in delivery of, the goods resulted from an act or omission of the carrier done with the intent to cause such loss, damage or delay or recklessly and with knowledge that such loss, damage or delay would probably result, carriers, their servants and agents are not entitled to the benefit of the limitation of liability provided by Chinese maritime law.59
A voyage charter party is an agreement under which the ship owner charters out and the charterer charters the whole or part of the ship’s space for the carriage by sea of the intended goods from one port to another, while the charterer pays the agreed amount of freight.60 Under a voyage charter party, the ship owner must manage the ship, pay expenses incurred, and take care of the goods.
There are some special provisions under Chinese maritime law regarding voyage charter parties. In accordance with article 47 of the CMC, ship owners under voyage charter parties must, before and at the beginning of any voyage, exercise due diligence to make the ship seaworthy, and must avoid undue deviations from the itinerary. They must also carry the goods to the port of discharge according to the agreed route or the customary or geographically direct routes.61
Generally, the terms and clauses relating to the carriage of goods in charter parties, such as the freight clauses and lien clauses, can be incorporated into bills of lading to bind their holders.62 Neither consignees nor holders of bills of lading are liable for demurrage, dead freight or any other expenses at the port of loading unless clearly stated otherwise in the bills.
A multimodal transportation contract is one under which the multimodal transport operator undertakes:
The network liability system applies to multimodal transport. Multimodal transportation operators are responsible for the entire carriage. When the goods have been lost or damaged during a certain segment of the carriage, the provisions of the applicable laws and regulations governing that specific section of the multimodal transportation determine the liability of each operator. If it is impossible to identify the segment in which the loss or damage occurred, the multimodal transport operator is liable for compensation in accordance with the stipulations regarding the carrier’s liabilities and the limitations thereon.
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The limitation period for claims against the carrier with regard to the carriage of goods by sea is one year, counting from the day on which the goods were delivered or should have been delivered by the carrier.64
The limitation period for carriers’ claims against shippers, such as for outstanding freight or dangerous cargo, is also one year, counting from the day on which the carrier knows or should have known of the right to claim. However, the limitation period for claims against carriers in connection with voyage charter parties is two years, counting from the day on which the claimant knew or should have known that a right to claim had arisen.65
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The CMC provides a set of rules for charter parties that apply only when there are no stipulations or no different stipulations in this regard in the charter party.66
Charter parties must be concluded in writing.67
The CMC covers time charter parties and bareboat charter parties.
Charterers, under both time and bareboat charter parties, warrant that the chartered ships will be used for the agreed maritime transportation between safe ports and places within the trading area agreed upon.68 They also warrant that the ship will be employed to carry the lawful merchandise agreed upon in the contract.69
Time charter parties are contracts under which the ship owner provides a designated manned ship to the charterer, and the charterer employs the ship during the contractual period for the agreed service against payment of hire.70
At the time of delivery, the ship owner must exercise due diligence to make the ship seaworthy and fit for the intended use71 and, if the ship becomes unseaworthy during the term of the charter party or falls below contractual standards, the ship owner must take all reasonable corrective measures as soon as possible.72
Chartered ships may be sublet, subject to timely notification to the ship owner73 and they may be sold by their owners subject to the charter party.74
Bareboat charter parties are those under which the ship owner gives the charterer possession of an unmanned ship to employ and operate within an agreed period and for which the charterer pays the ship owner the hire.75
The ship delivered must be fit for the agreed service.76
Charterers are responsible for maintenance and repairs during the term of the charter.77
During bareboat charter parties, the subject ships must be insured at the agreed value by the charterer and at its expense.78
Charterers may not assign their rights and obligations under the charter party nor may they sublet the ship without the ship owner’s written consent.79
Ship owners may not mortgage a ship under bareboat charter without the prior written consent in writing of the charterer.80
When ships under bareboat charter are lost or missing, payment of hire ceases from the day when the ship was lost or when it last communicated.81
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According to Chinese maritime law, a collision of ships refers to accidents involving the physical or non-physical contact of ships at sea or in adjacent navigable waters.82 Ships mean movable or non-movable vessels or craft and other movable units, but do not include those used for military or public service.
Neither of the parties is liable to the other if the ship collision is caused by force majeure or without fault of either party as well as where the cause of the collision is in doubt.83
Where a ship collision is caused by the fault of one of the ships, it alone is liable.84
If the colliding ships are all at fault, each ship is liable in proportion to its faults in causing the loss or damage. If it is impossible to determine the apportionment of the respective faults, the liability of the colliding ships is divided equally.85
In the event of a ship collision for which liability may be attributed, claims may be made for the loss of, or damage to, property caused by the collision, including the value of the ship or reasonable repair costs, crew wages and dispatch expenses. The ship’s value corresponds to the market price at the place of collision or at the port of registry. If the market price is not available, compensation is paid on the basis of the original purchase price minus reasonable depreciation.
Losses of cargo are measured by reference to its actual value, which is the value declared when the cargo is loaded on board, plus freight and insurance paid by the claimant.
Claims may also be pressed for consequent losses and expenses arising from the collision. This includes salvage expenses, general average, towage, wreck removal, loss of hire or freight, interest and so forth.
Expenses for reasonable actions implemented to mitigate losses may also be claimed.
Where the ship is a total loss, the expected lost profit accumulates for the time reasonably necessary to book a substitute ship, which may not exceed two months. Generally, lost profit is calculated as the average net profit earned from the voyages frustrated by the collision.
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Because the scene of a ship collision cannot be preserved and evidence is therefore likely to disappear, and because ship records showing its displacements may be easily falsified, Chinese law stresses the importance of honest completion of the official investigative forms prior to submission of any statement of claim, the communication of replies by the defendants, and the exchange of parties’ evidence, so that the responsible party can be prevented from hiding the facts and producing false evidence. The parties are estopped from denying their statements made on the official forms.
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According to Chinese law, liability in respect of certain maritime claims may be limited to a particular quantum, irrespective of the total actual losses and damages.86 This concept is peculiar to shipping, and is intended to facilitate the development of the industry.87
Only the following parties may limit their liability:
Insurers of maritime claims may limit their liability to the same extent as has the assured.89
Ships with a gross tonnage not exceeding 300 tons and those engaging in transport services between the ports of China as well as those used for other coastal operations may not limit their liability under the CMC.
Under article 207 of the CMC, only the following maritime claims may be limited:
Liability may not be limited for losses due to reckless acts or omissions with the intent or awareness that such loss would probably result.90
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According to article 208, liability may not be limited with respect to:
The ceilings on liability for maritime claims are set down in article 210 of the CMC. In respect of claims for loss of life or personal injury, the ceiling is calculated as follows:
In respect of claims other than those for loss of life or personal injury, the ceilings are:
Liability limitations on maritime claims are a unique feature of admiralty actions. A condition imposed on ship owners and salvage enterprises to limit their liability is that they must have applied to a Chinese maritime court to vest a fund for maritime claims. After constitution of a fund, parties that have made maritime claims against the applicant are prohibited from applying for arrest or attachment of any property of the applicant in respect of the same maritime accident. This procedure is independent both of court proceedings in whatever jurisdiction and of arbitration pursuant to any agreement between the parties.
After a maritime court has approved an application for constitution of a limitation of liability fund, a public announcement is made and any interested party may, based on legal grounds and within the prescribed period of time, veto the fund.
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In so far as he can do so without serious danger to his ship and persons on board, every master is bound to render assistance to any person in danger of being lost at sea.94
The master of a ship in distress has the authority to conclude a contract for salvage operations on behalf of the ship owner as well as on behalf of the owner of the property on board.95
According to article 176 of the CMC, under either of the following circumstances, salvage contracts may be modified by the courts upon suit by a party, or modified by an award of the arbitration organization to which the dispute has been submitted:
Salvagers must exercise due care in carrying out their operations and they must seek to minimize damage to the environment.96
Except when salvage is necessary to protect the environment, or as agreed contractually, the salvager is not entitled to payment if the salvage operations have had no useful result.97
Article 180 provides that salvager’s rewards are quantified according to the following criteria:
In no event may rewards exceed the value of the ship and other salvaged property.
Salvage rewards are paid by the owners of the ship and other property in proportion to their shares of the total salvaged value.98
Rescuers of human life may not demand any remuneration from those whose lives are saved, though they are entitled to a fair share of the payments to the salvagers of the ship and other property, as well of any award for preventing or minimizing damage to the environment.99 Salvagers are entitled to obtain security from the owners of salvaged ships and other property and, until satisfactory security has been provided, salvaged ships or other property may not be removed by their owners.100 If salvagers’ claims are not satisfied by the owners of salvaged ships or property, they may bring actions before courts or arbitration panels.101
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In the absence of payment or security for a salvaged ship and other property within 90 days after the event, the salvager may apply to the court for an order for their sale by auction.102
Under article 203 of the CMC, adjustments of general average are governed by the average adjustment rules agreed upon in the relevant contract. The provisions contained in the CMC apply in the absence of such an agreement.
In Chinese law, general average applies to the extraordinary sacrifice or expenditures intentionally and reasonably incurred for preserving from peril the ship, goods and other property involved in a common maritime adventure.103
The burden of proof is borne by the party claiming in general average.104
While rights to contribution in general average are not affected because the harm may have arisen due to the fault of one of the parties, the remedies otherwise available in respect of such fault may still be exercized.105
Contributions on general average are made in proportion to the values of the respective beneficiaries relative to the total amount on general average.106 At the request of any interested person, contributing parties must provide security for their general average contribution.107
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According to its article 153, the CMC applies to maritime insurance, and the Insurance Law applies only to fill gaps in its provisions.
Contracts of maritime insurance are those under which the insurer promises, in exchange for premiums paid by the insured, to indemnify for losses, whether total or partial, of the insured subject matter as well as for liabilities of the insured, caused by perils of the sea. The covered perils mean any maritime perils agreed upon between the insurer and the insured, including perils occurring on inland rivers or on land that is related to the maritime venture.108
Article 218 provides that insurance may be contracted for:
Insurers may contract reinsurance for these risks.
The insurable value is that agreed upon between the insurer and the insured and, in the absence of such agreement, it is calculated as follows:
The insurer and the insured agree upon the insured amount provided that it may not exceed the insurable value and any excess is null and void.110
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The Special Maritime Procedure Law, which came into effect on July 1, 2000, concerns legal relations with respect to ships and those arising in maritime transportation and it is intended to implement China’s treaty obligations while respecting the country’s specific characteristics.
Jurisdiction over disputes arising in connection with ships and sea transportation is attributed to specialized maritime courts. In practice, they are concerned mostly with torts, disputes over maritime contracts and the preservation and enforcement of maritime claims.
Maritime courts have been constituted in ten cities along China’s coast (including the Yangtze River), namely Dalian, Tianjin, Qingdao, Shanghai, Ningbo, Xiamen, Guangzhou, Haikou, Beihai and Wuhan. In deciding cases, the maritime courts, the higher people’s courts of the places where such maritime courts are located and the Supreme People’s Court all apply the Special Maritime Procedure Law.
The parties to a maritime dispute may agree in writing in their contract to attribute jurisdiction over disputes arising in connection therewith. Despite all the parties to a dispute being foreign, and even if their dispute has no actual connection with China, the choice of a Chinese maritime court is likely to be enforced by a Chinese court.
The choice of jurisdiction of the parties must not however violate any legal attribution of exclusive jurisdiction. For instance, the following actions must be brought exclusively before the Maritime Court where the port is located, where the pollution occurred or where the contract was performed:
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The Special Maritime Procedure Law incorporates into Chinese law the provisions of the International Convention on the Arrest of Ships.111
10.3.1 Ships subject to arrest
According to article 23 of the Special Maritime Procedure Law, ships may be arrested in any of the following circumstances:
Ships engaged in military or governmental services are not however subject to arrest.
At the time of the arrest of any ship, ships that belong to the owners, or time or voyage charterers liable for the underlying claim may also be arrested.
10.3.2. Arrest procedures
Holders of maritime claims may file an application for preservation of property before the maritime courts where the property is located. The application must indicate the particulars of the claim, its justification, the subject matter to be preserved and relevant evidence.
Provision by applicants of security is a condition for arresting a ship. In practice, the amount of security to be provided is generally the equivalent of 30 days of hire of the ship. Ship owners can claim for compensation for damages resulting from unjustified demands including claims for wrongful arrest, which can be satisfied from the security provided to the maritime court.
If a maritime court accepts an application, it must, within 48 hours, either order the arrest of the ship or reject the application. Any dissatisfied party may, within five days after receipt of the order, apply for review, but not more than once. The maritime court must announce the result of the review within five days after receipt of the application. Execution of the order is not suspended during the review.
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The arrest of ships to preserve maritime claims is limited to 30 days, after which the ship must be released, unless the maritime claim holder has in the meantime brought an action before the courts or applied for arbitration, or if the arrest occurred while a legal action or arbitration was pending. On the expiration of the time limit for arrest, if the party against which the claim is made has not provided security and if it is inappropriate to keep the ship under arrest, the maritime claim holder, provided that it has brought an action before the courts or applied for arbitration, may request of the maritime court that it order the arrested ship to be auctioned.
10.3.3. Re-arrest of ships
Except in any of the following circumstances, a ship may be arrested only once in connection with any single maritime claim:
Subject to the following conditions, holders of maritime claims may apply for attachment of cargo carried by a ship to obtain satisfaction of their claims:
The maritime claim holder may apply for attachment of cargo carried by a ship before commencing any legal action or arbitration proceedings. In such event, the time limit for attachment of the cargo is 15 days, within which a maritime claimant must initiate a lawsuit or arbitration proceedings, lest the attachment order automatically be lifted. Applicants for attachment of cargo must provide security, the amount of which is generally equivalent to the value of cargo arrested.
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On the expiry of the time limit for cargo attachment, if the person against whom the claim is made fails to provide security, and where it is inappropriate to keep the cargo under attachment, the maritime claim holder, having brought an action or applied for arbitration, may apply to the maritime court which ordered the attachment to have the cargo sold at auction. In addition, where the cargo cannot be preserved or is difficult to preserve, or where the expenses for its preservation are likely to exceed its value, a maritime claim holder may apply for an anticipatory auction.
After a public announcement by a maritime court ordering the forced auction of a ship or the constitution of a liability limitation fund, the creditors may, within the period announced for registration of their claims, apply in writing for their registration in relation with the ship to be auctioned, failing which they are deemed to have abandoned their rights to participate in the proceeds of the auction.
The maritime court must examine applications of creditors and issue orders either allowing the registration where evidence justifying the claim is provided or rejecting the application. If the document supporting the existence of the claim is issued by a foreign court or arises from a foreign arbitration, the claimant must bring a legal action to confirm its rights. During the hearing, the defendant is heard and other creditors may also submit their objections. Where a court decides in its favour, the plaintiff is entitled to obtain satisfaction of its claims. Such judgments and written orders of maritime courts are binding and none of parties may appeal against them.
When claims are validated, maritime courts issue notices to the creditors to hold a meeting. The creditor’s meeting may through negotiation put forward a plan for distribution of the auction proceeds. The meeting may adopt an agreement on satisfaction. The agreement on satisfaction becomes legally binding if the maritime court orders its confirmation.
The Special Maritime Procedure Law has established procedures for the issue of injunctions to avoid or minimize losses and to protect the legitimate rights and interests of the parties. A maritime injunction is a compulsory measure ordered by a maritime court upon the application of a holder of a maritime claim to compel the party against which the claim is made to implement or to avoid certain conduct. For example, a maritime injunction may be issued to sign a bill of lading, to obtain that cargo be accepted by its consignee, or for the return of a ship to its owner by a charterer. The party against which the claim is issued must comply with the injunction lest it be held liable, including under the criminal laws.
In accordance with article 56 of the Maritime Procedure Law, the following conditions must be satisfied to obtain a maritime injunction:
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Since a maritime injunction may have grave consequences, Chinese courts tend in practice to interpret these conditions strictly, and will usually require security from applicants to protect respondents.
Maritime security differs in nature from a guarantee under the Chinese law. A guarantee is established to ensure payment of debts, and it is collateral to the main contract. Maritime security arises frequently when maritime claim holders, who apply to maritime courts for conservatory measures and injunctions, provide security to ensure compensation for any possible losses sustained on account of wrongful applications. Also, parties against which a claim is brought may provide maritime security to a maritime court or the maritime claim holder to obtain release of their property under arrest or attachment.
Maritime security may be provided in cash, by letter of guarantee, by mortgage or by pledge. In practice, the type and amount of the security is determined through discussion between the maritime claim holder and the person against whom the claim is brought. The agreed security may be posted either with the court or with the claimant. If consultation fails, the terms of the security are decided by the maritime court.
In appropriate cases, providers of maritime security may apply to the maritime courts for their reduction, alteration or cancellation. In connection with conservatory measures, if court proceedings or arbitration proceedings are not commenced in a timely manner, the maritime court may, upon application of the claim debtor, order return of the security.
1 Article 4 of the CMC.
2 Catalogue for the Guidance of Foreign Investment Industries, Order of the State Development and Reform Commission, the Ministry of Commerce, adopted and promulgated on November 30, 2004, http://english.mofcom.gov.cn/aarticle/topic/lawsdata/ForeignInvestment/200501/20050100015843.html
3 The Law was adopted at the 28th Session of the Standing Committee of the Seventh NPC.
4 The Law was adopted at the 24th Session of the Standing Committee of the Fifth NPC on August 23, 1982 and revised at the 13th Session of the Standing Committee of the Ninth NPC on December 25, 1999, promulgated on the same date and which came into effect as of April 1, 2000.
5 Article 268 of the CMC.
6 Article 2 of the CMC.
7 Article 3 of the CMC. Ships’ apparel is also subject to the CMC.
8 Article 8 of the CMC.
9 Article 31 of the CMC.
10 Article 32 of the CMC.
11 Article 269 of the CMC.
12 Article 270 of the CMC.
13 But the law of the country of original registry of a ship applies to mortgages established before or during bareboat charters, article 271 of the CMC.
14 Article 272 of the CMC.
15 If the colliding ships belong to the same country, no matter where the collision occurs, the law of the flag State applies to claims for damages, article 273 of the CMC.
16 Article 274 of the CMC.
17 Article 275 of the CMC.
18 Article 276 of the CMC.
19 Article 9 of the CMC.
20 Article 17 of the CMC.
21 Article 35 of the CMC.
22 Article 39 of the CMC.
23 Article 35 of the CMC.
24 Article 38 of the CMC.
25 Articles 72 and 175 of the CMC.
26 Article 12 of the CMC.
27 Article 12 of the CMC.
28 Article 11 of the CMC.
29 Article 13 of the CMC.
30 Article 14 of the CMC.
31 Article 15 of the CMC.
32 Article 18 of the CMC.
33 Article 20 of the CMC.
34 Article 21 of the CMC.
35 Article 22 of the CMC. Claims are excluded for oil pollution damage caused by ships carrying more than 2,000 tons of oil in bulk, provided that the ship is covered by a valid certificate attesting that it has contracted oil pollution liability insurance coverage or given other appropriate financial security.
36 Article 23 of the CMC.
37 Article 25 of the CMC.
38 Article 25 of the CMC.
39 Article 28 of the CMC.
40 Article 24 of the CMC.
41 Article 27 of the CMC.
42 Article 26 of the CMC.
43 Article 29 of the CMC.
44 Article 41 of the CMC.
45 Article 2 of the CMC.
46 Chinese law requires only that voyage charter parties to be concluded in writing.
47 Article 80 of the CMC.
48 Article 78 of the CMC.
49 Article 79 of the CMC.
50 Article 79 of the CMC.
51 Article 76 of the CMC.
52 Carriers often add the words “said to contain” or “said by shipper to contain” before the number of units of a commodity. The carrier marks this phrase on the bill of lading if it does not supervise the loading or unloading of the cargo, which is the typical case in a full container load shipments. Such clauses may protect the carrier from liability if it proves that the container or the package is intact for the duration of its responsibility.
53 It seems that, in practice, and upon request of the shipper, a carrier will often accept to back date bills of lading that are issued after loading of the cargo and will issue post-dated bills of lading when loading has not been completed.
54 Typical of such illegal provisions would be those assigning to the carrier the proceeds of insurance contracts on the goods.
55 Article 41 of the CMC.
56 Article 41 of the CMC.
57 Article 46 of the CMC. This is the so-called principle of tackle to tackle, that is, from the moment when the tackle is hooked onto the cargo at the port of loading until the goods are discharged onto the ground and the hook of the tackle is released.
58 Article 83 of the CMC.
59 Article 59 of the CMC.
60 Article 92 of the CMC.
61 Article 94 of the CMC.
62 Article 95 of the CMC.
63 Article 102 of the CMC.
64 Article 257 of the CMC.
65 Article 259 of the CMC.
66 Article 127 of the CMC.
67 Article 128 of the CMC.
68 Articles 134 and 154 of the CMC.
69 Articles 135 and 154 of the CMC.
70 Article 129 of the CMC.
71 Article 132 of the CMC.
72 Article 133 of the CMC.
73 Article 137 of the CMC.
74 Article 138 of the CMC.
75 Article 144 of the CMC.
76 Article 146 of the CMC.
77 Article 147 of the CMC.
78 Article 148 of the CMC.
79 Article 150 of the CMC.
80 Article 151 of the CMC.
81 Article 152 of the CMC.
82 Article 165 of the CMC.
83 Article 167 of the CMC.
84 Article 168 of the CMC.
85 Article 169 of the CMC.
86 Article 204 of the CMC.
87 Article 205 of the CMC.
88 Articles 204 and 205 of the CMC.
89 Article 206 of the CMC.
90 Article 209 of the CMC.
91 The Convention was adopted in Brussels on 29 November 1969 and entered into force on 19 June 1975. The 1969 Convention was replaced by its 1992 Protocol as amended in 2000. China acceded to the Convention on January 30, 1980 and it entered into force in China on April 29, 1980.
92 The Convention was adopted in Vienna on May 21, 1963, and it entered into force on November 12, 1977. China has not signed the Convention.
93 The provisions governing salvage do not apply to fixed or floating platforms or mobile offshore drilling units when such platforms or units are engaged in exploration, exploitation or production of sea-bed mineral resources, article 173 of the CMC.
94 Article 174 of the CMC.
95 Article 175 of the CMC.
96 Article 177 of the CMC.
97 Article 179 of the CMC.
98 Article 183 of the CMC.
99 Article 185 of the CMC.
100 Article 188 of the CMC.
101 Article 189 of the CMC.
102 Article 190 of the CMC.
103 Demurrage and loss of markets as well as other indirect losses are not admitted to general average, article 193 of the CMC.
104 Article 196 of the CMC.
105 Article 197 of the CMC.
106 Article 198 of the CMC.
107 Article 202 of the CMC.
108 Article 216 of the CMC.
109 Article 219 of the CMC.
110 Article 220 of the CMC.
111 The Convention was adopted in Geneva on, March 12, 1999. It replaced the 1952 International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships.