i-law

Maritime Law and Practice in China

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CHAPTER 21

Maritime injunction

Introduction

21.1 The maritime injunction is a statutory remedy by which claimants may obtain a measure of protection against a respondent whose act has infringed or will potentially infringe the legitimate rights and interest of the claimants. By way of a maritime injunction order of the court, a respondent will be ordered to act or not to act. For example, a carrier may be compelled to issue a bill of lading upon the application of the shipper or the owners may be compelled not to sail at the request of the charterers. 21.2 The basic requirements for a maritime injunction to be granted by a Chinese maritime court are conveniently and succinctly set out in chapter IV of the Special Maritime Procedure Law of the People’s Republic of China (the “SMPL”). 21.3 The relevant provisions in the Supreme People’s Court’s Interpretations on certain issues in relation to the application of the Special Maritime Procedure Law (Fa Shi [2003] No. 3) (the “Interpretations of the SMPL”) regarding the maritime injunction will also be discussed below in conjunction with chapter IV of the SMPL.

The general nature of the remedy

21.4 A maritime injunction is a measure with legal force, namely, the court by making an order will force one party to act or not to act. 21.5 The SMPL is the first procedure law that introduced the mechanism of preservation of actions. Before the amended Civil Procedure Law of the PRC (the “CPL”) came into force on 31 August 2012, other than some rules scattered in the General Rules of Civil Law and some special laws, such as Patent Law, Trademark Act or Copyright Law, there was no systematic legal mechanism conferring a legal remedy on a claimant to obtain an injunction against a respondent’s action in civil litigation. The CPL as amended in 2012 formally introduced the remedy of injunction against a respondent’s action as one of the preservation measures in civil litigation.1 21.6 Unlike the preservation of maritime claims where the target of preservation is property, it is the action of a respondent that is preserved under maritime injunctions. However, the preservation of maritime claims and maritime injunctions are similar in that the ultimate purpose of preservation is to aid future execution of the judgment, if the claimant is successful at trial.

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Application for a maritime injunction

Before or during the arbitration/litigation

21.7 A maritime injunction can be applied not only prior to arbitration or litigation, but also after a party has commenced proceedings.

The court

Before arbitration/litigation

21.8 It is not doubted that the maritime courts in China have jurisdiction to grant maritime injunctions. When a party makes an application for a maritime injunction before bringing an action, it will not be bound by the jurisdiction agreement or arbitration agreement between the parties2 and such an application shall be made to a maritime court of the place where the maritime disputes arose.3 21.9 It is not crystal clear what is meant by “the maritime disputes” as referred to in the phrase “where the maritime disputes arose” under Chinese law, but it is commonly recognised that it does not mean the underlying disputes between the parties; instead it means disputes arising out of the respondent’s acts or omissions.4 21.10 The maritime court that has granted a maritime injunction may also exercise jurisdiction over the underlying disputes if the parties submit the disputes to the same court, provided that there is no jurisdiction agreement or arbitration agreement between the parties.5 Of course, the parties are entitled to submit the underlying disputes to other competent maritime courts after the injunction order has been granted.6

After the proceedings have been commenced

21.11 If parties have agreed to submit their disputes to an arbitration commission in China such as the China Maritime Arbitration Commission (“CMAC”) for resolution, and in the event that a party applies for a maritime injunction, such arbitration commission shall submit the party’s application to the maritime court at the place where the maritime dispute arises.7 Therefore, the party shall first make an application to the tribunal constituted according to the arbitration rules of such arbitration commission and the arbitration commission will then pass on such an application to a competent maritime court. 21.12 If a foreign court has seized the case or relevant disputes have been referred to an arbitration the seat of which is not China, any party to the proceedings may still apply to a competent maritime court of PRC for a maritime injunction,8 namely, the maritime court in the place where the maritime disputes arose. 21.13 If a maritime case is being heard by the High People’s Court in the place where the lower level maritime court is located or by the Supreme Peoples’ Court, such as when

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the parties appeal the case to the aforementioned courts, the High People’s Court or the Supreme People’s Court will also hear the application for a maritime injunction made by the concerned parties.

Making the application

21.14 The court can only make such an order upon the claimants’ application and cannot make any maritime injunction ex officio. 21.15 A claimant shall file a written application stating the reasons with the relevant evidence attached.9 The requirements of the contents of the petition papers for a maritime injunction are similar to those for a petition paper for preservation of maritime claims. 21.16 The petition papers for a maritime injunction shall set out the names of the applicant(s) and the respondent(s), the requested matters and the reasons why the conditions for granting a maritime injunction as provided by SMPL are satisfied.

Security

21.17 The maritime court, having entertained an application for a maritime injunction, may request the claimant to provide security. If the claimant fails to do so, the court shall reject the application.10 It is noteworthy that the counter security will be provided to the court only. 21.18 Once a maritime injunction order is made, the court shall proceed to execute against the respondent and the respondent will be compelled to act or not to act. For this reason, all maritime courts are usually very cautious when considering the application and usually will ask the claimant to provide a counter security. 21.19 In practice, a counter security may be in the form of:
  • (a) a bank guarantee to be issued by a Chinese bank;
  • (b) a letter of undertaking issued by a reputable Chinese insurance company or reinsurance company;
  • (c) a letter of undertaking issued by a Chinese P&I Club;
  • (d) a corporate guarantee issued by a reputable Chinese company (this form has now become rare);
  • (e) cash deposit;
  • (f) a guarantee issued by court-recognised guarantee companies. In some maritime courts, such as Ningbo Maritime Court and Qingdao Maritime Court, a guarantee to be issued by their recognised guarantee companies can be accepted. Such guarantee can be arranged by entering into an agreement with the guarantee companies against some paid fees.
21.20 In practice, for each individual case, the local Chinese lawyers will usually discuss with the court in respect of the acceptable form of counter security before the formal application is made.

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 21.21 The counter security should be sufficient to compensate any loss caused by such a maritime injunction, if wrongfully obtained. The amount differs in different maritime courts and will be subject to the discretion of the court. The amount of the counter security may be negotiable. Unlike preservation of maritime claims for which the counter security amount is usually in a sum equivalent to the claim amount or an amount of 30 days’ hire for arresting a vessel, there is no practical standard for the amount of counter security in a maritime injunction case. 21.22 In practice, if the claim amount is quite high, the court would sometimes require cash security in addition to a company bond to be issued by a local security company in order for the total security amount to be equivalent to the total claim amount. 21.23 The court will normally return the counter security to the applicant 15 days after the maritime injunction order is issued if no objection is filed by any other party, including the respondent and other parties who have interests in the pertaining case.11 Further, if the respondent brings a lawsuit against the claimant or commenced arbitration proceedings against the claimant, the court may also not return the counter security despite the fact that the respondent does not make a direct objection to the court.

Conditions for granting a maritime injunction

21.24 Obtaining a maritime injunction is one of the “nuclear weapons” in the legal armoury available to litigants. For this reason, the need for caution should be stressed and the conditions are strict. 21.25 Article 56 of the SMPL has set out the three conditions to be satisfied before a maritime court may consider to grant a maritime injunction, which are:
  • (a) the claimant has a specific maritime claim;
  • (b) a breach of statutory law or contractual obligations by the person against whom an application is made to rectify such breach; and
  • (c) imminent risk of losses will be caused or enlarged if a maritime injunction is not granted forthwith.
21.26 The above conditions will be discussed in detail hereunder in turn.

The claimant has a specific maritime claim

21.27 The statutory law does not have any provisions as to how to interpret “a specific maritime claim”. The court may nevertheless require that “a good arguable case” be made as a minimum threshold condition for the grant of such a relief. 21.28 Unlike an application for the arrest of vessel(s), which requires a maritime claim to fall into one of the 22 categories of claims as set out in article 21 of the SMPL, “a specific maritime claim” does not have such restrictions. It may be a claim made by cargo owners against shipowners, and vice versa, it could also be a claim made by the shipowners against cargo owners so far as such right to make a claim is derived from a statutory right.

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A breach of statutory law or contractual obligations by the person against whom an application is made to rectify such breach

21.29 To obtain a maritime injunction order, it also must be proved that the respondent’s act is in breach of either statutory law or contractual obligation(s). To reach that, ample evidence must be submitted in support of the application, including all material facts of which the court should be made aware. 21.30 In practice, a separate statement of facts may be prepared and attached to the application papers when submitting to the court with a view to presenting a stronger case.

Imminent risk of losses will be caused or enlarged if a maritime injunction is not granted forthwith

21.31 There is no universally applied standard that the court could refer to as to what circumstance would constitute “imminent”. Therefore, it will be subject to the court’s discretion based on the factual background of an individual case. The “imminence” could be reflected in “time” or “consequence” or both. 21.32 On the surface of the prima facie evidence, even if the act(s) of the respondent has beached law or contract, the court may not grant the application if there is no feature of imminence.

Review and issue of a maritime injunction order

21.33 The court after reviewing the application for a maritime injunction must make an order to either grant or reject the application. If all the conditions as above discussed are satisfied, the court shall make a civil order followed by an injunction order.12 If any of the conditions are not satisfied, or if the claimant refuses to provide counter security or the counter security is not sufficient, the court will make an order to reject the application.13 21.34 Article 57 provides that the maritime court, having accepted an application, shall make an order within 48 hours. 21.35 In practice, given the difficulties to evaluate the “imminence” of the case and the uncontrollable consequence if an injunction is wrongfully granted, the court is generally very reluctant to grant an injunction order. In some complicated matters, the court may hold a hearing to give the respondent a chance to defend its case. After having considered the case from both parties, the court will then make an order. In the circumstances, the abovementioned 48 hours might already have long expired when the court makes the order.

Execution

21.36 Where an order for granting a maritime injunction is made, it shall be executed forthwith.14 The maritime injunction order shall be executed by the court.15 If the respondent or other related parties refuse to comply with the injunction order, the maritime court

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should enforce the execution against the party in accordance with the relevant provisions under the CPL.16 21.37 Where a respondent refuses to comply with the maritime injunction, the maritime court may, depending on the seriousness of the circumstances, impose a fine or put the person under detention, if the act constitutes a crime, the party will be prosecuted for the crime committed.17 21.38 A fine imposed upon an individual shall fall into the range of RMB 1,000 and RMB 30,000 while a fine imposed on a company shall fall into the range of RMB 30,000 and RMB 100,000. As to the detention period, it shall be no more than 15 days.18

Reconsideration and objection

21.39 Where the respondent is not satisfied with an injunction order made, he may within five days after receipt of the order, apply to the same maritime court for reconsideration.19 Such application for reconsideration can only be made once.20 The court, upon receipt of such application shall within five days after receipt of the application make a decision.21 During the reconsideration period by the court, the execution of the order shall not be suspended.22 If the court considers the reasons are justified not to grant an injunction, it shall withdraw the order timely and cease the execution.23 The court also has to try to mitigate the losses caused by wrongful execution. 21.40 A party with interest may also file an objection to the maritime court; the maritime court, having reviewed such objection, shall either withdraw the injunction order if they find that the reasons are justified or notify the party in writing that the court considers their objection is not grounded.24 “A party with interests” refers to those who have legal interests in the actions or omission of the respondent under the law.

Maritime injunctions wrongfully obtained

21.41 If the maritime injunction is wrongfully obtained, the claimant shall indemnify the person against whom the injunction is made or the other interested parties for the losses they have incurred.25 21.42 However, the law does not provide the test for determining a wrongful maritime injunction. 21.43 In practice, the claims for wrongful maritime injunction would be very rare because the court will take steps to ensure that the injunction is granted on a sound basis; otherwise, the court will reject the application so long as there is some suspicion for such risks.

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Comparison with a Mareva injunction

21.44 A Mareva injunction is an interim order of the court restraining the respondent under English law. The expression “Mareva injunction” takes its name from the leading case of Mareva Compania Naviera SA v International Bulkcarriers SA.26 In England, the expression now used is “freezing injunction”. 21.45 A Mareva injunction does not create rights in rem. It creates no property or security in the frozen assets (and does not, therefore, render the applicant a secured creditor of the respondent for any damages that may ultimately be awarded) and generates exclusive rights in personam rendering a breach a contempt of court. It is an order prohibiting the respondent from doing defined act or actions, which are confined to disposing of or dealing with his assets. 21.46 In contrast, in China, if one party is seeking for a similar outcome to refrain someone from disposing of or dealing with his assets, he has to apply for preservation of the maritime claims or properties instead of applying for a maritime injunction. 21.47 In addition, a Mareva injunction could be made before and after judgment while a maritime injunction can only be obtained before or during the proceedings.