june2016 legal briefing - uk p&i · international sea transport.this briefing provides general...

8
JUNE 2016 LEGAL BRIEFING Sharing the Club’s legal expertise and experience Cargo claims under Chinese law

Upload: others

Post on 04-Nov-2019

4 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

JUNE 2016

LEGALBRIEFINGSharing the Club’s legal expertise and experience

Cargo claims underChinese law

Page 2: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

LEGAL BRIEFING

2 Legal Briefing June 2016

Sharing expertiseThis briefing is one of a continuing serieswhich aims to share the legal expertise withinthe Club with our Members.

A significant proportion of the expertise in theManagers’ offices around the world consistsof lawyers who can advise Members ongeneral P&I related legal, contractual anddocumentary issues.

These lawyers participate in a virtual team,writing on topical and relevant legal issuesunder the leadership of our Legal Director,Chao Wu.

If you have any enquiries regarding thisbriefing, please contact Dingjing Huang([email protected] or+44 20 7204 2085) and he will be pleasedto respond to your query.

The team also welcomes editorial suggestionsfrom Members on P&I related legal topicsand problems. Please contact Jacqueline Tan([email protected] or+44 20 7204 2118) or Chao Wu([email protected] or+44 20 7204 2157)

Previous issuesCopies of previous briefings are available todownload as pdfs from our website. Visitwww.ukpandi.com/publications. �

THE AUTHOR

Dingjing HuangUnderwriting and Legal Analyst

Dingjing joined ThomasMiller in 2016 after workplacements with UKClub’s claims andunderwriting. He has aPhD in maritime law and

speaks Mandarin and Shanghainese.Dingjing supports both underwritingand legal sectors with a particular focuson Chinese business and legal issues.

Direct +44 20 7204 [email protected]

LEGAL BRIEFINGS TEAM

Jacqueline TanSenior Claims Executive

Jacqueline is aqualified barrister andsolicitor. She worksmainly with Members inJapan. Jacquelinespeaks Malay, French

and Hokkien. She is a member of theClub’s environmental team, whichinforms Members of the latest changesto legislation and their implications.

Direct +44 20 7204 [email protected]

Dr Chao WuLegal Director

Chao has a PHD in lawfrom Paris University(Sorbonne). She isresponsible for thelegal aspects of Clubdocumentation and

cover for Members’ contractualarrangements, the Club’s Rules andBye-Laws and general legal advice.Chao is a recognised authority oninternational marine pollution law andUS environmental law.

Direct +44 20 7204 [email protected]

Page 3: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

June 2016 Legal Briefing 3

GENERAL GUIDANCE

Cargo claims underChinese law

Although China has not ratified theHague/Hague-Visby Rules, theHamburg Rules or the RotterdamRules, elements of these conventionshave been incorporated into theChinese Maritime Code 1992(“CMC”).These include provisionsregarding the responsibilities,exemptions and limitations available toa carrier, the obligations of a shipperand the regulation of transportationdocuments drawn from the Hague-Visby and Hamburg Rules.

Chapter IV “Contract of Carriage ofGoods by Sea” of the CMC is the maindomestic law relevant to cargo claims ininternational sea transport.This briefingprovides general guidance on the legalissues for the handling of cargo claimsunder Chinese law, and clarifies someissues that Members frequentlyexperience under Chinese law.

Cargo shortage claim: CIQreports vs other surveyors’ reports

In cases of shortage claims, claimants inChina will normally rely on the CIQ(China Inspection and Quarantine)certificate as proof or evidence of loss.Chinese Courts are reluctant to acceptalternative evidence that differs from orcontradicts certificates issued by agovernment body, such as CIQ. In thissense, it is extremely difficult to challengea CIQ survey report and establish a casein favour of the owners/carriers.Additionally, Chinese Courts generallyregard a “quantity unknown” clause asineffective against a third party bill oflading holder or a cargo receiver.Owners/carriers are expected to deliverthe quantity of cargo described in thebill of lading. Often there is littleprospect of a short loading defencebeing upheld by Chinese Courts.

Possible defences to a shortage claiminclude:

• shortage caused by reasons for whichthe owner/carrier is not responsible.For instance, the “shortage” may bethe result of the inherent vice of thecargo (which entitles the carrier tobe exempted from liability under theCMC);

• a possible 0.5% trade allowance forbulk cargo, where such is acceptableto the Court or where the shortagecan be attributed to differentmeasurement methods;

• an argument of short loading at theport of loading according to a draftsurvey conducted by the ship and/orindependent surveyor.

However, the burden of proof forarguing such defences is quite heavy.The carrier may be asked to provideconsecutive and detailed ship records.

In 2006, the Supreme People’s Courtdelivered a useful judiciary note. Itconcerned a case where there was adiscrepancy between the tanker’s ullagereport and the receiver’s shore tanksurvey report.The Supreme People’sCourt advised that the carrier’s liabilityperiod is from manifold to manifold, andthe tanker’s ullage report should prevailover the receiver’s shore figures – unlessthe ship’s crew accept the receiver’sreport.Thus,unless the receiver’s surveyorhas taken ullage on board jointly with theship, any shortage claims based only onshore figures will be rejected. In a recentcase the Club was involved in, theTianjinMaritime Court applied the sameprinciple to a dry bulk cargo shortage.The decision was upheld by the TianjinHigher Court (The “STX Horizon”[2015] JGMSZZ No.117).This decisionis encouraging for owners/carriers.

There appears to be no general rule indealing with shortage claims.Theclaims need to be considered on a

China has become a significant importer of goods, and Members often faceclaims advanced by shippers or consignees in China.

Page 4: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

4 Legal Briefing June 2016

CARGO SURVEY

case-by-case basis. Early notification tothe Club or Club’s local correspondentis always recommended so that acarrier’s surveyor can be appointed toattend the CIQ’s inspection toinvestigate and collect relevant evidenceat an early stage on the carrier’s behalf.

Cargo survey report

Carriers/owners are recommended toconduct pre-cautionary cargo surveysfor those cargoes that frequently attractclaims, and also where discrepancies orissues have arisen at load ports. Suchsurveys can be helpful to prevent inflatedclaims. Under Chinese law, once a cleanbill of lading is issued and consigned toa third party, it becomes conclusiveevidence as to the cargo condition/quantity on loading.Any evidence tothe contrary will only be used by theclaimants for their benefit.Therefore,where there has been a dispute overcargo quality/quantity at the load port,the cargo survey reports should not begiven to the Chinese receivers as thesewill only be used against carriers.

Carrier’s responsibility period

Under the Hague/Hague-Visby Rules,the carrier's responsibility is stated to befrom tackle to tackle. Under the CMC,the period of the carrier’s responsibilityis not so defined.

For container cargo, the carrier’sresponsibility is stated to start from thetime the carrier takes over the goods atthe port of loading until the time whenthe goods are delivered at the port ofdischarge (port-to-port).

For non-container cargo, the carrier’sresponsibility starts from the time thegoods are loaded onto the ship untilthe time the goods are discharged fromthe ship.

Exemptions

CMC’s treatment of a carrier’sexemption is almost identical to thatunder the Hague/Hague-VisbyRules, subject to slight difference inwording.

According to CMC Article 51, a carriershall not be responsible for loss ordamage arising or resulting from: (1)fault of the Master, crew members, pilotor servant of the carrier in thenavigation or management of the ship;(2) fire, unless caused by the actual faultof the carrier; (3) force majeure andperils, dangers and accidents of the seaor other navigable waters; (4) war orarmed conflict; (5) act of thegovernment or competent authorities,quarantine restrictions or seizure underlegal process; (6) strikes, stoppages orrestraint of labour; (7) saving orattempting to save life or property atsea; (8) act of the shipper, owner of thegoods or their agents; (9) nature orinherent vice of the goods; (10)inadequacy of packing or insufficiencyor illegibility of marks; (11) latentdefect of the ship not discoverable bydue diligence; (12) any other causesarising without the fault of the carrieror his servant or agent.

It is noteworthy that, unlike theHague/Hague-Visby Rules,unseaworthiness does not have an“overriding” effect under the CMC. Byvirtue of Article 54 of the Code, whereloss or damage is caused concurrentlyby unseaworthiness and an evententitling the carrier to be exoneratedfrom liability, the carrier is still able todischarge its liability partially to theextent that such partial liability was aresult of an exemption event.

The interpretation of such exemptionsby Chinese Courts may not always bethe same as under English law.

The Club was involved in a case inChina involving a cargo of steel pipeswhere the markings on part of thecargo were illegible.This resulted in thereceivers failing to take delivery of partof the cargo.Whilst the CMC containsan exemption from liability forillegibility of cargo marks, the Courtheld that the carrier could not availhimself of this exemption where he hasnot made any remarks regarding theillegible markings on the B/L. It isqueried whether an English Courtwould necessarily have reached thesame conclusion.

Page 5: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

June 2016 Legal Briefing 5

BURDEN OF PROOF

Burden of proof

The CMC, like the Hague/Hague-Visby Rules, requires a claimant toprove that loss or damage to the cargowas due to the carrier’s fault.Thecarrier bears the burden of proof tobring itself within an exemption forsuch loss or damage.An exception tothis principle is loss or damage causedby fire without the carrier’s actual fault.Here, the burden of proof is on thecargo interests to show that the cause ofthe fire can be attributed to the carrier.

There is no provision in the CMCsimilar to Article IV (1) of the Hague/Hague-Visby Rules, which providesthat the burden of proving the exerciseof due diligence shall be on the carrieror other person claiming an exemptionunder this sub-article where the loss ordamage has resulted fromunseaworthiness.

Identification of carrier:a contractual carrier or anactual carrier

Modelled on the Hamburg Rules, theCMC provides for two types ofcarriers, namely the “carrier” and the“actual carrier.”A “carrier” means anyperson by whom or in whose name acontract of carriage of goods by sea hasbeen concluded with a shipper.An“actual carrier” means any person towhom the performance of the carriageof the goods, or of part of the carriage,has been entrusted by the carrier, andincludes any other person to whomsuch performance has been entrusted.

The carrier may entrust the whole orpart of the carriage to an actual carrier,but will remain responsible for thewhole carriage, except where a contractof carriage by sea provides explicitlythat a specified part of the carriagecovered by the said contract is to beperformed by a named actual carrierother than the carrier.The contractmay further provide that the carriershall not be liable for the loss, damageor delay in delivery arising from anoccurrence which takes place while thegoods are in the charge of the actualcarrier during such part of the carriage.The actual carrier has the same

responsibility and liability of the carrierfor loss or damage to the cargo duringthe carriage performed by the actualcarrier and enjoys the same limitationsof liability and other defences availableto the carrier.Where the carrier andthe actual carrier are both liable, theirliability shall be joint and several(CMC Article 60).

Delivery delays

Under the Hague/Hague-Visby Rules,liability for delay in delivery is notregulated. CMC is modelled onHamburg rules in relation to delayliabilities.

Delay in delivery under the CMCrefers to the situation where the goodshave not been delivered at thedesignated port of discharge within thetime frame expressly agreed upon.Thecarrier is liable for loss or damage tothe goods caused by the delay due tothe fault of the carrier, except wherethe delay has resulted from causes forwhich the carrier is not liable under theCMC (Article 50).

Furthermore, the carrier is liable for theeconomic losses caused by delay indelivery of the goods, even if no loss ordamage to the goods has actuallyoccurred, unless such economic lossesare due to carrier’s exemptions.Theperson entitled to make a claim for lossof goods may treat the goods as lostwhen the carrier has not delivered thegoods within 60 days from the time fordelivery as agreed between the parties.

Limitation of time

Under the CMC, the limitation periodfor claims against the carrier arising fromthe carriage of goods by sea is one year,counting from the day on which thegoods are delivered or should have beendelivered by the carrier.This is the sameas under the Hague/Hague-Visby Rules;however, there is nothing in the CMCregarding the provision of an extensionof time limit by agreement.The only wayto protect the time limit is to commencelegal proceedings within one year.

Additionally, a Supreme People’s Courtjudicial interpretation (Fashi [1997]

No.3) provides that the one-year timebar under the CMC (Article 257)should also apply to a carrier’s claimagainst the shipper in relation tocarriage of goods by sea.The time limitstarts counting from the date when thecarrier knows or should have knownthat their rights have been infringed.

Members are advised to take note thatunder Chinese law, a one-year time baris also applicable to containerdemurrage claims against the shipper, asthis is likely to be different from theposition in many other jurisdictions.The time limit starts counting from theday after the free-time expiration date.

The CMC also defines other timelimits for maritime claims:

• 90 days for a recourse claim against athird party by a person against whoma claim has been made (normally theowner or carrier).Time will countfrom the day on which the personclaiming for the recourse settles theclaim or the day a copy of a court’sacceptance of the claim against thatperson is served (Article 257).

• one year for claims regarding seastowage and general average (Articles260 and 263).

• two years for passenger claims(Article 258), collision claims (Article261), salvage claims (Article 262),marine insurance claims (Article 264)and charter party disputes (Articles257 and 258).

• three years for claims regardingcompensation for oil pollutiondamage, counting from the day onwhich the pollution damageoccurred (Article 265).

• One year to enforce a maritime lien(Article 29).

Limitation of liability forcargo claims

Regarding carriage of goods by sea, thecarrier’s liability for the loss or damageto the goods is limited to an amountequivalent to 666.67 SDR per packageor other shipping unit, or 2 SDR per

Page 6: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

kilogramme of the gross weight of thegoods lost or damaged, whichever is thehigher.This is the same as under theHagueVisby Rules.

Where a container, pallet or similararticle of transport is used toconsolidate goods, the number ofpackages or other shipping unitsenumerated in the bill of lading aspacked in such article of transport isdeemed to be the number of packagesor shipping units. If not so enumerated,the goods in such article of transportshall be deemed to be one package orone shipping unit.Where the article oftransport is not owned or supplied bythe carrier, such article of transport is tobe counted as one additional packageor one shipping unit, for the purpose ofcalculating the limitation.

The liability of the carrier for theeconomic losses resulting from delay indelivery of the goods is be limited to anamount equivalent to the freightpayable for the goods so delayed.Wherethe loss or damage to the goods hasoccurred concurrently with the delayin delivery thereof, the applicablelimitation of liability for the carrier willbe that as provided for loss or damageto the goods.

Even if the cargo claim is brought onthe basis of tort, the limitation ofcarrier’s liability still applies.

Choice of law and jurisdictionclauses in bills of lading andcharter parties

Choice of law clause

The CMC contains provisions inrelation to foreign-related maritimeclaims (Chapter XIV).Article 269explicitly provides that unless otherwiseprovided by law, parties may agree uponthe applicable law to a contract.Whereparties have not made a choice ofapplicable law, the law of the countryhaving the closest connection with thecontract shall apply.Therefore, a choiceof law clause under the bills of ladingwill be respected under Chinese law.However, it is noteworthy that similarwording of Article III (8) of theHague/Hague-Visby Rules is

6 Legal Briefing June 2016

CHOICE OF LAW

incorporated in Article 44 of the CMC,which provides that any stipulation in acontract of carriage of goods by sea or abill of lading or other similardocuments evidencing such contractthat violates the provisions of ChapterIV “Contract of Carriage of Goods bySea” of the CMC shall be null and void.

Article 10 of the Law of Choice of Law2010 provides that where partieschoose a foreign law as the applicablelaw of their contract, such foreign lawshall be provided by parties and shall bedetermined by a Chinese Court, anarbitral authority or an administrativeauthority. In a situation where theforeign law cannot be determined orwhere there is no relevant provision inthe chosen law, the law of China mayapply at the discretion of the Court.Acceptable proofs of foreign lawinclude statutes, judicial decisions,expert evidence and legal literatures.However, Chinese Courts seeminconsistent on whether the relevantforeign law should be provided.

One example of failure to provideproof of foreign law can be found inthe decision of Bondex Logistics Co., Ltdv.Yantai Zhonglian Industries Co., Ltd([2013] LMSZZ No. 7). In this case, aset of bills of lading was issued inrelation to a container of cargo shippedto Los Angeles, US.The terms on theback of the bills of lading provided thatAmerican law should be applicable fordisputes arising under the bills oflading.Yantai Zhonglian Industriesclaimed non-delivery of the cargounder the bills of lading.

The Shandong Higher Court, as thecourt of appeal, found that theappellant failed to submit any proof ofthe relevant provisions under theapplicable American law and therefore,the applicable law could not beascertained by the Court. On this basis,the Court decided that Chinese lawshould apply to the dispute.

In contrast, in a Ningbo MaritimeCourt’s decision ([2013]YHFSCZ No.636), Japanese law was applied to a billof lading claim without the defendantproviding any proof of the relevantprovisions under Japanese law. In this

case, the vessel loaded the plaintiff ’scargo of steel in Japan and the plaintiffwas the lawful holder of the bills oflading.The cargo was discharged inKorea, but subsequently misdelivered toanother party.The plaintiff possessedthe bills of lading and claimed againstthe defendant carrier for compensation.

Ningbo Maritime Court decided thatunder Chinese law, the parties canchoose the law applicable to thecontract.The defendant provided theChinese translation to the back clauseof the bill of lading and intended toprove that Japanese law should apply tothis case. Under Japanese law, thecarrier has no liability regarding the lossor damage to the cargo before loadingor after discharging.The plaintiffcontended that Chinese law shouldapply to this case.

During the proceedings, the defendantdid not provide any proof of therelevant Japanese law provisions.However, the trial judge independentlyresearched the content of the relevantJapanese law and made his decision inaccordance with Japanese law.

Arbitration agreement

Articles 16 to 18 of the ChineseArbitration Law 1994 set out thegeneral principles regarding arbitrationagreement.

Article 16 of the Chinese ArbitrationLaw provides that an arbitrationagreement can be either an arbitrationclause in the contract or a separatewritten arbitration agreement madebefore or after the dispute arose.A validarbitration agreement must contain(1) an expression of intention to applyfor arbitration, (2) the matters forarbitration, and (3) a designatedarbitration commission.

If an arbitration agreement does notcontain any provision concerning thematters for arbitration or the arbitrationcommission, or such provisions are notsufficiently clear, the parties may reach asupplementary agreement to clarify theposition.Where such a supplementaryagreement is not made, the arbitrationagreement will be regarded as invalid

Page 7: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

June 2016 Legal Briefing 7

FOREIGN JUDGEMENTS

by a Chinese Court.A judicialinterpretation by the Supreme People’sCourt on Arbitration Law (Fashi [2006]No.7) further explains this point.Anarbitration agreement which onlyprovides the applicable arbitration rulesis invalid unless the parties reach asupplementary agreement or thearbitration commission can beascertained from the arbitration rules.An arbitration agreement whichcontains more than one arbitrationcommission or which only provides theplace of arbitration is invalid unless theparties can subsequently agree adesignated arbitration commission or ifthere is only one arbitrationcommission at the agreed place.

On the basis of the above, it appears thatan arbitration clause in a bill of ladingwill be recognised by a Chinese Court if:(1) the clause is clearly printed on thebill of lading (not simply incorporatedinto the bill of lading); (2) the wordingof the clause clearly provides for alldisputes under the bill of lading to bereferred to arbitration; and (3) the placeof the arbitration and the applicablearbitration rules are clearly specified.

China is a contracting State of the NewYork Convention 1958.Therefore, inmost circumstances, a foreign arbitralaward will be recognised and enforcedby the Chinese Courts, so long as it iseffectively made in a contracting State.By virtue of ArticleV of theConvention, where recognition orenforcement of an arbitration award issought, the law deciding whether thearbitration agreement is valid or notshould be the law of the place wherethe arbitration award is made.

Jurisdiction clause and foreignjudgements

Part Four of the Chinese Civil ProcedureLaw as amended in 2012 provides forcivil procedures involving foreignelements.The provisions of this Partshall be applicable to any civil litigationinvolving foreign elements within theterritory of the People’s Republic ofChina.The amended Civil ProcedureLaw removed the requirement thatparties to a contract with foreignelements may only choose the

jurisdiction to which the concernedcontract is actually connected.However, in practice, Chinese Courtsare still inclined to seize jurisdiction onthe basis that China is the jurisdictionwith the real or closest connection tothe claim; see Compania Sud AmericanadeVapores SA v Hin-Pro InternationalLogistics Ltd ([2015] EWCA Civ 401).

For contractual disputes, ChineseCourts only have exclusive jurisdictionover contracts concerning operation ofChinese-foreign joint ventures orChinese-foreign cooperativeexploration and development of thenatural resources in China. For othercontractual disputes, the parties mayagree on the jurisdiction withoutrestrictions. Nevertheless, ChineseCourts are reluctant to upholdpre-printed jurisdiction clauses(whether to arbitrate or to litigate) onthe basis that such a clause may beregarded as unfair and unconscionable.

A foreign judgement may be recognisedand enforced in China under aninternational or bilateral treaty to which

China is a party or, in the absence ofsuch a treaty, upon the principle ofreciprocity.The InternationalConvention on Civil Liability for OilPollution Damage 1992 (CLC 1992)and the International Convention onCivil Liability for Bunker Oil PollutionDamage 2001 (Bunker Convention), towhich China is a party, containprovisions of mutual recognition andenforcement of foreign judgementsamongst party states. China hasconcluded bilateral treaties with Russiaand very few other countries underwhich judgements shall be mutuallyrecognised and enforced.

Pursuant to Article 282 of the CivilProcedure Law as amended in 2012,where a Chinese Court finds that theforeign judgement violates the basicprinciples of Chinese law or the publicinterests of China, the Court will rejectany recognition and enforcement ofthat foreign judgement.

Thus, there is a risk that a foreignjudgement on cargo claim may not beenforceable in China.

Page 8: JUNE2016 LEGAL BRIEFING - UK P&I · international sea transport.This briefing provides general guidance on the legal issues for the handling of cargo claims under Chinese law,and

RECOMMENDATIONS

New Jersey

Thomas Miller (Americas) IncT +1 201 557 7300F +1 201 946 0167

London

Thomas Miller P&I LtdT+44 20 7283 4646F +44 20 7283 5614

Piraeus

Thomas Miller (Hellas) LtdT +30 210 42 91 200F +30 210 42 91 207/8

Hong Kong

Thomas Miller (Hong Kong) LtdT + 852 2832 9301F + 852 2574 5025

www.ukpandi.com / www.ukdefence.com

Arrest of ship

Chinese law in relation to arrest of shipis modelled on the Arrest of ShipConvention 1999.The ChineseMaritime Procedure Law (Article 21)sets out 22 types of claims under whichthe relevant ship may be arrested by theclaimants.Amongst all these claims aship may be arrested for claims arisingfrom any agreement relating to thecarriage of goods or passengers onboard the vessel and loss or damage toor in connection with goods carried onboard the vessel.Therefore, carriers/owners should be aware of the risk ofarrest of a ship in the situation where acargo claim is raised in China.

The time limit for arresting a ship is 30days.Where the claimant does not startlegal proceedings or arbitration withinthe time limit, the ship will be releasedor the security provided will bereturned.Where legal proceedings orarbitration is commenced within 30 daysof the arrest or the arrest is made in thecourse of legal proceedings or arbitration,this time limit will not apply.

Security and counter security

The Maritime Procedure Law (Article18) provides that the ship will bereleased where securities are providedby the respondent or upon the requestof any party on justifiable grounds.TheArticle only provides that the MaritimeCourt shall release the vessel in a timelymanner with no detailed time line. Inpractice, the quickest release everachieved was within 24 hours upon theprovision of a valid security.

The form and amount of securityprovided by the respondent may beagreed between the parties.Where noagreement can be reached, theMaritime Court will determine theamount. Security may be provided inthe form of cash, guarantee, mortgageor pledge. Security provided by therespondent may be presented either tothe Maritime Court or to theclaimant. Guarantee provided byforeign institutions may be acceptableby Chinese Courts only if the foreignguarantee is notarised or re-guaranteedby a Chinese financial institution.

Chinese Courts do not accept IG ClubLOUs as good security.The UK P&IClub has a facility in place with domesticinsurers – China Re and PICC – toissue acceptable securities in China onbehalf of the Club’s Members.

Upon receipt of an application for a shiparrest, the Maritime Court will requirethe claimant to provide counter security,failing which, the application will berejected.The only exception for countersecurity is in respect of claims forseamen’s wages and personal injuryclaims.The form and amount of thecounter security is to be determined bythe Maritime Court.The amount of thecounter security will be based on the losslikely to be sustained by the respondentdue to the claimant’s wrongful arrest.According to the Judicial Interpretationon Ship Arrest and Judicial Sale (Fa Shi(2015) No. 6), the amount of countersecurity is arrived at on a considerationof the costs and expenses to be incurredin the maintenance of the ship duringthe arrest, the loss of use of the ship

during the arrest, and the costs ofproviding security to release the ship.

This requirement for a counter securitymay pose difficulties for cargo receiverswho wish to arrest a ship. Chinesecargo underwriters, however, have nosuch difficulties because their corporateLOUs are deemed adequate countersecurities for ship arrests.

Recommendations for Members

If Members face claims by shippers orconsignees in China, Members arerecommended to consider thefollowing points:

• Chinese Courts tend to protectChinese receivers’ rather thancarriers’ interests.

• Early involvement and investigation isalways recommended, as well as usingfull efforts in collecting evidence atan early stage.

• Where it is clear that the cargoliability cannot be avoided, anamicable settlement of the claim isrecommended to avoid thecomplicated and costly litigationprocess in China.�

For more information or further advice onthis topic, please contact Dingjing Huang([email protected] or+44 20 7204 2085), Jacqueline Tan([email protected] or+44 207204 2118) or Chao Wu([email protected] or+44 20 7204 2157)