Maritime Law and Practice in China
Page 215
CHAPTER 18
Introduction to Chinese maritime procedure law and the Chinese maritime court system
Introduction
18.1 This chapter will give an introduction to the sources of Chinese maritime procedure law, the Chinese maritime court system and a brief review of the Special Maritime Procedure Law and relevant judicial practice directions promulgated by the Supreme People’s Court of the People’s Republic of China (the “SPC”).The Chinese court system
18.2 Chinese courts are divided into a four-level court system, namely, the SPC, the High People’s Court, the Intermediate People’s Court and the Basic People’s Court. There are specialised courts such as the Military Court, the Railway Transport Court and the Maritime Court. 18.3 The SPC is the highest court in China, located in Beijing, the capital city of China. In December 2014, the First Circuit Court of SPC was inaugurated in Shenzhen, Guangdong Province. Since then, the Second Circuit Court of SPC has been set up in Shenyang, Liaoning Province. But, these circuit courts do not deal with maritime cases, which are still handled by the SPC in Beijing. 18.4 The SPC supervises the administration of justice by the local and special people’s courts. The local people’s courts, comprising the High People’s Courts of the provinces and the municipal cities (i.e. Beijing, Tianjin, Shanghai and Chongqing), the Intermediate People’s Court (normally in cities) and the Basic People’s Court (in the city’s districts or counties), are courts of first instance, which handle criminal and civil cases. The special people’s courts include the Military Court, the Railway Transport Court and the Maritime Court.The developments of the Chinese maritime courts system
18.5 When the People’s Republic of China was established in 1949, maritime-related cases were handled by the civil divisions of the local courts. In the mid 1950s, the Water Transportation Courts in Shanghai, Tianjin and Changjiang were established. These courts mainly handled criminal, casualty, cargo damages etc. within the governmental water transportation system. These courts were later abolished, after which maritime cases were handled by the intermediate people’s courts in the coastal port cities.1Page 216
The development of Chinese maritime procedural law
18.8 For a very long time, China did not have a comprehensive code on maritime procedure. The main source of law in this regard was the Civil Procedural Law of the People’s Republic of China (the “CPL”)4 as well as the judicial interpretations of SPC since 1984. 18.9 The CPL played a very important role in the development of China’s maritime procedural law because it clearly specified the jurisdiction of the people’s courts in some maritime cases including collision, general average, salvage.5 18.10 On 25 December 1999, the Special Maritime Procedure Law of the People’s Republic of China (the “SMPL”) was promulgated at the thirteenth meeting of the Ninth Standing Committee of the National People’s Congress. The SMPL is a product of a mixture of experience gained from the adjudication of maritime cases since the establishment of maritime courts in China, and references to international practices. The purpose of the SMPL was filling in the gaps to the legal provisions relating to special procedures for special issues arising out of maritime cases, for example, the adjudication of cases that involve ship arrest, the compulsory auction of ships, and vessel collision. In the adjudication of such cases, it was particularly useful and necessary to look to well-established international practices and customs, as this would ensure international compatibility and strengthen China’s quality and operability in its adjudication of maritime cases, which would in turn be beneficial to China’s trade and shipping industry. 18.11 According to article 2 of the SMPL, the SMPL applies to maritime cases simultaneously with the CPL. Where the provisions of the SMPL are applicable, they prevail overPage 217
A brief review of the Special Maritime Procedure Law
18.12 The SMPL has 12 chapters, namely: (I) general principles, (II) jurisdiction, (III) preservation of maritime claims, (IV) maritime injunction, (V) preservation of maritime evidence, (VI) maritime security, (VII) service, (VIII) trial procedures, (IX) procedure for constitution of limitation fund for maritime claims, (X) procedure for registration and repayment of debt, (XI) procedure for exigence of maritime liens, and (XII) supplemental provisions.General principles
18.13 Article 1 of chapter I clearly stipulates that the purpose of the SMPL is to safeguard the rights to litigation of the parties to maritime cases and ensure that the people’s courts shall ascertain the facts, establish the liabilities, properly apply the laws and promptly hear and determine maritime cases. Article 2 states that the SMPL applies to maritime cases simultaneously with the Civil Procedure Law of the People’s Republic of China (“CPL”), but where the provisions of the SMPL are applicable, they shall prevail over the provisions of the CPL.Jurisdiction
18.14 Chapter II addresses maritime jurisdiction. This chapter provides for special regulations on jurisdiction over maritime cases. This is supplemental to the provisions in the CPL on territorial jurisdiction. For example, the SMPL provides that in maritime tort cases, the maritime court at the port of registry of the vessel additionally has jurisdiction over the case; in contract of carriage by sea disputes, the maritime court at the port of transshipment additionally has jurisdiction over the case. For charterparty disputes, the maritime courts at the port of delivery, port of redelivery, port of registry and location of the defendant’s domicile would all have jurisdiction. In actions arising from disputes over protection and indemnity contracts, the maritime courts of the place where the subject-matter of insurance is located, where the accident occurred or where the domicile of the defendant is located would all have jurisdiction. In actions arising from disputes over the contracts of the crew of a sea-going ship, the maritime courts of the place where the domicile of the plaintiff is located, where the contract is signed, the location of the port of embarkation or disembarkation of the ship’s crew, or the domicile of the defendant would all have jurisdiction (this is largely favourable to crew members who wish to assert their rights over remuneration and other benefits against their employers or the shipowners). In actions arising from disputes over ship mortgage, the maritime court at the port of registry shall additionally have jurisdiction; while in actions arising from a dispute over the ownership, possession, employment and maritime lien of a ship, the maritime court of the location of the ship, the location of the ship’s port of registry, or the domicile of the defendant, also all have jurisdiction over the dispute. 18.15 The above provisions on jurisdiction are extremely important to the litigation of such cases. This is especially so for the plaintiff, as the plaintiff is permitted to choose aPage 218
Preservation of maritime claims
18.18 Chapter III of the SMPL regulates the law relating to preservation of maritime claims, including the arrest of ships and the auction of ships. As to the law relating to the arrest of ships, the SMPL has laid down regulations according to principles of practicality, such as providing that any party who wishes to apply for preservation of a maritime claim before instituting an action should file an application with the maritime court of the place where the property subject to preservation is located; providing that preservation of a maritime claim shall not be bound by the jurisdiction agreement or arbitration agreement reached between the parties to an action in respect of the maritime claim; providing that a maritime court, having accepted an application, shall make an order within 48 hours and where the order involves adoption of measures for preservation of the maritime claim, it shall be executed forthwith. 18.19 Moreover, it is provided that where preservation of a maritime claim is objected by an interested person, the maritime court, having examined the objection and considering the reasons justified, shall discharge preservation against his property. This provisionPage 219
Ship arrests
18.20 The SMPL provides that apart from the specified maritime claims set out in the SMPL, in which an application may be made for the arrest of a ship, no application may be made except for the enforcement of a judgment, an arbitral award or other legal document. In this regard, the SMPL lists 22 maritime claims where an application may be made for the arrest of a ship. These are finite and include almost all possible contractual or tortious claims in connection with ship operation.Arrest of ships and sister ships
18.21 As to the actual arrest of ships, the SMPL also has specific provisions the main purpose of which is to make sure that shipowners of ships that are arrested shall be liable towards the maritime claim and to make sure that they remain the legal owner of the ships. The SMPL goes further to provide that apart from arresting the ship concerned, it is also possible to arrest other ships owned by the person liable for the maritime claim (i.e. sister ships), except for claims related to ownership or possession of a ship. The same article in the SMPL provides that no ships engaged in military or governmental services may be subject to arrest.Second arrests
18.22 The SMPL provides that no maritime claimant may, on account of the same maritime claim, apply for arrest of a ship that has already been arrested once, except in any of the following circumstances: (1) the person against whom the claim is made fails to provide sufficient security; (2) it is likely that the surety cannot perform the obligations under the security in full or in part; or (3) the maritime claimant agrees, on reasonable grounds, to release the arrested ship or the return of the security provided. In particular, it is necessary to bring the reader’s attention to the third circumstance, which may prove troublesome in enforcement stages. 18.23 Furthermore, a maritime claimant who wishes to apply for arrest of the ship concerned but cannot promptly ascertain the name of the person against whom the claim is made may still apply for its arrest. This provision is practically beneficial to a claimant, because in the modern shipping industry, it is not common for the public to know who the real registered owner is; the person who is known may usually only be the manager.Page 220
“Live” arrests
18.24 At this juncture, it is necessary to bring the reader’s attention to article 27 of the SMPL, which is a special provision. This article provides that after ordering to preserve a ship, i.e. after ship arrest, the maritime court may, with the consent of the maritime claimant, allow continued operation of the ship by means of a restraining disposition or mortgaging of the ship. This regulation means that if the maritime claimant consents, all risks arising from the continued operation of the ship would be borne by the claimant himself. Therefore, it is submitted that a maritime claimant should be extremely cautious before giving any consent, and should make preparations if planning to take on such risks.The duration of arrests
18.25 The SMPL provides that the time limit for ship arrest in preservation of a maritime claim is 30 days. The maritime claimant shall bring an action or apply for arbitration within the 30 days, or else the arrested ship or any security provided might be released. After bringing an action or after arbitration commences, it does not affect the arrest of the ship, and does not lead to the release of the security already provided. Therefore, maritime claimants should pay special attention to the time limit prescribed.Auction of ships
18.26 As to the auctioning of the arrested ships, the SMPL has the following provisions. 18.27 The application for auction shall be made by the maritime claimant. The maritime court shall, after receipt of an application for auction of a ship, examine the application and make an order to allow or disallow the auction. The maritime court that orders the auction of a ship must then issue an announcement in the newspapers or other news media. In the case of auction of a foreign ship, such announcement is issued in the newspapers or other news media of overseas distribution. Such announcement contains: the name and nationality of the ship for auction; the reasons and grounds for auction of the ship; the composition of the ship auction committee; the time and venue of the ship auction; the time and venue for display of the ship for auction etc. The period of announcement for ship auction must not be less than 30 days. At the same time, the maritime court shall issue a notice to the ship registrar of the State of registry of the ship for auction and to the maritime lien holder, mortgagee and shipowner already known 30 days before an auction of a ship. The ship auction committee mainly arranges the assessment and evaluation of the ship, arranges and presides over the auction, signs the auction confirmation with the bidder and completes ship delivery formalities etc. 18.28 As to the formalities a bidder has to abide by and details on the qualifications of the bidder, the SMPL also sets out detailed and specific regulations. These mainly include: identity qualifications of the bidder, payment of 20 per cent of the purchase price immediately after the auction is confirmed, and payment of the balance within seven days after the date of the purchase. When a buyer has paid the purchase price in full, the shipowner shall, within the designated time limit, deliver to the buyer the ship as is at the berthing place. One point to note is that the law fails to clearly stipulate what happens where the original owner of the vessel refuses to deliver the ship. Under such circumstances, it seems that the shipPage 221
Attachment and auction of cargo carried by ships
18.29 The regulations in this section are shaped from practical experience from the adjudication of maritime cases. There is no clear guidance on the definition of “cargo”, but it is likely that it would include third party cargo and bunker fuel and other material used by the ship. The pre-condition for attachment to happen is that the cargo against which an attachment is applied for is owned by the debtor and the person against whom the claim is made. The time limit for attachment of the cargo carried by a ship for preservation of a maritime claim is 15 days, and the rules relating to the auctioning of the cargo are the same as those relating to the auctioning of ships as stipulated above.Maritime injunctions
18.30 The provisions on maritime injunctions are also a product of experience from years of adjudication of maritime cases by Chinese courts. One of the causes for the need of maritime injunctions is for situations where the ship’s master refuses to sign on a bill of lading, but the cargo has already been loaded onto the vessel. Under such circumstances, maritime injunctions can be very useful for the shipper. A maritime injunction is where on the application of a maritime claimant, compulsory measures are ordered by the maritime court to compel the person against whom a claim is made to do or not to do certain things (i.e. either mandatory or prohibitory), so as to prevent the lawful rights and interests of the claimant from being infringed. 18.31 A party who wishes to apply for a maritime injunction before bringing an action must file an application with the maritime court of the place where the maritime dispute arose. A maritime injunction is not bound by any jurisdiction agreement or arbitration agreement reached between the parties in respect of the maritime claims. The application must be in writing and made to the maritime court, upon which if the maritime court accepts the application, an order is made within 48 hours. Where the order grants a maritime injunction, it shall be executed forthwith, where the conditions for a maritime injunction are not met, it shall make an order to reject the application. The court that orders the maritime injunction should have jurisdiction over the case, unless a jurisdiction agreement or arbitration agreement has been concluded between the parties, then the latter shall take priority.Preservation of maritime evidence
18.32 The procedure relating to preservation of maritime evidence is founded upon the peculiarity of maritime adjudication and litigation – all records relating to a vessel’s navigation are kept onboard and are mobile wherever the vessel travels; if evidence or records are not preserved or copied from the vessel in a timely manner, this may lead to difficulties for the maritime claimant to introduce evidence, and may lead to unfairness. Some vessels may only berth once in a few years and some engage in free trade in international seas and do not even have a fixed navigational route.Page 222
Maritime security
18.34 Preservation of maritime claims, maritime injunction and preservation of maritime evidence all involve securities. Chapter VI regulates the types and manner of security, amount of security, to whom security is requested and provided etc. The types of security include cash, guarantee, mortgage or pledge. The type and amount of the security provided by a maritime claimant is determined by the maritime court. The type and amount of the security provided by a person against whom the claim is made is determined through consultation by the maritime claimant and the person against whom the claim is made; if consultation fails, the matter is determined by the maritime court. The security provided by the maritime claimant is provided to the maritime court, and the security provided by a person against whom the claim is made can be provided to the maritime court or the maritime claimant – providing the security to the maritime court will better protect his rights.Service
18.35 The SMPL provides that apart from the relevant provisions in the CPL on the service of legal documents in maritime actions, service may also be conducted in the following ways: (1) on the agent ad litem duly entrusted by the person on whom the document is to be served; (2) on the representative office or branch established in the People’s Republic of China by the person on whom the document is to be served, or on the business agent appointed by the person on whom the document is to be served (this provision is advantageous to the operation of legal procedure); and (3) in other appropriate ways whereby such service can be acknowledged. For the third option, the courts can appoint the plaintiff or the applicant as agent to serve the documents, etc. According to Certain Opinions of the Supreme People’s Court on Further Distinguishing Simple Cases from Complicated Ones and Optimizing the Allocation of Judicial Resources promulgated by the SPC on 12 September 2016 (the “Opinion on Allocation of Judicial Resources”)6, where the parties have agreed on the address for service before their disputes arise, the competent people’s court may serve the litigation documents at such agreed address. The courts may also serve the court documents by electronic means such as fax, email, Wechat based on the parties’ agreement.Page 223
Special trial procedures
18.37 The SMPL generally provides for the trial procedure in cases of ship collision, general average and the exercising of rights of subrogation by marine insurers.Trial of ship collision cases
18.38 As to provisions for trial of collision cases, article 82 of the SMPL states that both the plaintiff and the defendant shall fill in the Investigation Form for Maritime Accident truthfully at the time of bringing an action and submitting a defence respectively. This provision ensures that parties concerned will not provide false statements or evidence. Moreover, the statements made in the Investigation Form may not be reversed easily, unless new evidence has come to light and there is good reason for being unable to submit such new evidence within the period of producing evidence. The SMPL goes further to provide that the parties can only apply to consult the evidential documents concerning the ship collision only after they have discharged their burden of proof and furnished the maritime court with the statement to this effect. The survey and appraisal of a ship shall be conducted by institutions or individuals with due authorisation of the PRC or by professionally qualified institutions or individuals. The recognition and respect towards the work of individuals (experts) providing surveying and appraisal services is a big step in this area of law.Trial of general average cases
18.39 Concerning the law on trial of general average cases, the SMPL has shed light on some areas, but left some areas uncertain. For example, article 88 provides that with respect to general average, the parties may either mutually agree to entrust to average adjusters with the adjustment, or directly bring an action in a maritime court. In dealing with an unadjusted average dispute, the maritime court may entrust average adjusters with the adjustment. The purpose of this provision is difficult to understand, and potentially leads to disputes in its enforcement: if both parties have agreed on average adjusters to deal with adjustment, can one party directly bring an action in a maritime court after a dispute arises without having adjusted the average dispute? And when a maritime court entertains an unadjusted average dispute, can the maritime court entrust average adjusters that were not agreed by the parties? If the maritime court entrusts average adjusters that were not agreed by the parties, and one party voices disagreement, what should be done then? As can be seen, this provision may lead to difficulties in practice. The SMPL also stipulates that the general average statement made by average adjusters may be admissible as the proper basis for contribution if no objection is raised by any of the parties; otherwise, the maritimePage 224
Exercising rights of subrogation by marine insurers
18.41 The SMPL sets out the relationship of different parties. For example, the SMPL states that where an accident covered was caused by a third party and the insurer has indemnified the insured, the insurer is entitled to claim compensation against the third party by exercising the right of subrogation up to the amount of the indemnity paid. In exercising the right of subrogation, the insurer brings an action in its own name against the third party. If the insurer has already brought an action against the third party, an insurer may apply to the court entertaining the case for an alteration of the party to the lawsuit. If the losses of the insured caused by the third party cannot be fully covered by insurance indemnity, the insurer and the insured may act as co-plaintiffs to claim compensation against the third party. This provision has solved a long-term problem in maritime litigation, i.e. the scope of coverage of subrogation. When an insurer brings an action or files an application for participating in the action, the precondition is that the insurer should submit the certificate evidencing payment of indemnity by the insurer to the maritime court that entertains the case, 18.42 As for cases where an aggrieved party claims for oil pollution damage caused by a ship, the SMPL lays out mandatory regulations, i.e. the aggrieved party may claim either against the owner of the ship causing oil pollution damage or directly against the insurer who is answerable for the liabilities of the owner of the ship causing oil pollution damage, or against the person who provides financial security therefor. This increases the chances for which an aggrieved party can exercise his rights.Limitation fund for maritime claims
18.43 Chapter IX of the SMPL provides for the procedure for the constitution of a limitation fund for maritime claims. The provisions are aimed at regulating that the person liable may apply for liability limitation in accordance with law, and may apply to a maritime court for constitution of the limitation fund for maritime claims, in order to avoid actions to arrest its vessel or attach its property. The constitution of a limitation fund should be applied for before the first hearing and should be filed with the maritime court of the place where the accident occurred, or the place where the contract is performed or the place where the ship is under arrest. 18.44 The constitution of a limitation fund for maritime claims is not bound by the jurisdiction agreement or arbitration agreement reached between the parties. The maritime court shall, within seven days of the acceptance of an application for constitution of a limitation fund for maritime claims, notify all the interested persons already known and issue an announcement of the same in the newspapers or other news media. Such notice and announcement shall contain: the name of the applicant, the facts and reasons for application, the particulars for constitution of the limitation fund for maritime claims, thePage 225
Procedure of registration and repayment of debt
18.45 The SMPL deals with registration of debts in several places. As to common features of debt registration, the SMPL provides that: after announcement of the maritime court’s order for forced auction of a ship, the creditors shall, within the time limit announced, apply for registration of their claims pertaining to the ship to be auctioned. Creditors who fail to register their claims before the expiry of the said time limit period are deemed to have abandoned their rights to be satisfied from the proceeds of the auction. After the maritime court’s announcement of acceptance of the application to constitute a limitation fund for maritime claims, the creditors shall, within the time limit announced, apply for registration of their claims relevant to the maritime accident that occurred at a particular scene. The creditors who fail to register their claims before expiry of the time limit announced shall be deemed to have abandoned their rights to the debt. All injured parties should pay very special attention to this strict provision. An application for registration of claims should be in writing and the maritime court shall examine the application in accordance with law. After examining and confirming the debts, the maritime court shall issue a notice to the creditors for a creditor’s meeting, and make arrangements for and convene the creditor’s meeting. The creditors’ meeting may, through negotiation, put forward a plan for distribution of the proceeds from auction of the ship or the limitation fund for maritime claims and sign an agreement on satisfaction, and the agreement on satisfaction shall be legally binding after the maritime court makes an order to confirm it. If the consultation at the creditors’ meeting fails, the maritime court shall, according to the ranking of the claims provided for in the Maritime Code of the People’s Republic of China (the “Maritime Code”) and other related laws, decide on the plan for distribution of the proceeds from auction of the ship or the limitation fund for maritime claims.Procedure for exigence of maritime liens
18.46 The provisions in chapter XI on the operational procedure for exigence of maritime liens are founded upon article 26 of the Maritime Code. Before the SMPL was enacted, there was no procedural law on the operation of article 26 and it was thus difficult to enforce. Now, the SMPL provides that where a ship is transferred, the transferee may apply to the maritime court for exigence of the maritime lien, demanding the maritime lien holder to assert his right promptly so as to extinguish the maritime lien attached to the ship. However, article 121 states that a transferee who wishes to apply for exigence of the maritime lien shall file an application with the maritime court of the place where the ship is to be deliveredPage 226
Other sources of law for maritime actions
18.47 The Special Maritime Procedure Law of the People’s Republic of China (the “SMPL”) and the Civil Procedural Law of the People’s Republic of China (the “CPL”)7 constitute the main source of law for maritime action in China. Besides, the judicial interpretations of SPC and the international conventions/treaties to which China is a party are also the source of law in this regard. 18.48 The introduction of the judicial interpretations is to supplement the SMPL and the CPL. Judicial interpretation provide guidance for the effective enforcement of legislation in order to fill gaps and to solve conflicts and some vagueness among the laws. 18.49 The main judicial interpretations in relation to maritime action of SPC since 19848 include:- (1) Opinions of the Supreme People’s Court on Several Issues Concerning the Application of the Special Maritime Procedural Law of the People’s Republic of China (2002);
- (2)
Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law to the Arrest and Auction of Vessels (2015);Page 227
- (3) Opinions of the Supreme People’s Court Concerning the Application of the Civil Procedure Law of the People’s Republic of China (2015);
- (4) Certain Provisions of the Supreme People’s Court on the Acceptance Scope of Maritime Courts (2016);
- (5) Provisions of the Supreme People’s Court on the Jurisdiction over Maritime Lawsuits (2016).