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25.1 The conflict of laws, or private international law, is a set of rules applied when disputes involve foreign elements. A foreign element may exist in various forms, for example, where a contract is performed in a foreign country or the domicile of the parties is outside China. Under Chinese law, whether the dispute is a foreign-related dispute can be identified in accordance with article 1 of the Interpretation (I) of the Supreme People’s Court on Certain Issues Concerning Application of the Law of the People’s Republic of China on Choice of Law for Foreign-related Civil Relationship1 (the “Interpretation I”), which provides that when either party to a civil relationship is a foreign citizen, or the habitual residence of either party or the subject matter of the civil relationship is outside the jurisdiction of China, or the legal fact that leads to the establishment, change or termination of the civil relationship happens outside the territory of China, the people’s court of China may identify it as a foreign-related civil relationship.
25.2 Conflict of laws is of particular importance for maritime disputes due to the international nature of marine transportation. The major contracts used for marine transportation, including charterparties and bills of lading, are nearly always made in one country and performed in another. In addition, the vessel itself carries an international nature, since its flag States and nationalities of the owners and charterers are also nearly always different.
25.3 Due to the international nature of maritime law, large numbers of maritime international treaties have been adopted and have been ratified by major shipping countries, including China. In China, the international treaties will be applied by the contracting States first to the relevant foreign-related issues without considering the conflict rules. Apart from the international treaties, China has its own legislation regulating the choice of laws in a foreign-related civil relationship, the Law of People’s Republic of China on Application of Laws to Foreign-Related Civil Relations2 (the “Law of Application of Laws”), which also applies to maritime disputes. However, it is important to note that the
Law of Application of Laws is not a complete set of conflict rules for Chinese Law. The conflict rules can also be found in other legislation such as the General Principles of the Civil Law of the People’s Republic of China (the “General Principle of the Civil Law”) and the Contract Law of People’s Republic of China (the “Contract Law”). of the Maritime Code of People’s Republic of China (the “CMC”) (Application of Law in Relation to Foreign-related Matters) also provides for special rules that apply for maritime disputes, which will prevail if there is any inconsistency between it and other conflict rules applied for general civil and commercial matters.3
General principles
Supremacy of the international treaty
25.4 The general principles of conflict of laws are set out in of the General Principle of the Civil Law (Application of Law in Civil Relations with Foreigners) with the starting point that if there is any difference between international treaties concluded or acceded to by China and the civil laws of China, the international treaties shall prevail. This principle is also reemphasised in the CMC, which sets out in article 268 that international treaties shall apply first if they are in any conflict with the provisions of the CMC, unless the provisions are those on which China has announced a reservation. China is the contracting State to some major international maritime conventions, such as International Convention on Civil Liability for Bunker Oil Pollution Damage 2001, Convention on the International Regulations for Preventing Collisions at Sea 1972, Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1974, International Convention on Salvage 1989, etc.
25.5 International practice may also apply to disputes for which neither the relevant laws of China nor any international treaty concluded or acceded to by China contains any relevant provisions.4
Lex voluntatis
25.6Lex voluntatis means the autonomy of parties in choosing the governing law, which is an important principle in international private law and is widely adopted by most jurisdictions in the world. It is provided in the Law of Application of Laws that the parties concerned may, in accordance with the law, expressly choose laws applicable to foreign-related civil relationships.5 CMC also sets out similar rules that apply to contracts in relation to maritime disputes.
25.7 There is no restriction on the timing of such an agreement. The parties are allowed to choose the governing law when the contract is concluded, after the dispute arises or even at trial.6
25.8 In addition, there is no requirement that such agreement must be made expressly. Where all the parties concerned invoke the laws of the same country and do not raise any objection to the application of the laws, the court may determine that the parties concerned have already selected the laws applicable to the foreign-related civil relationship.7 For example, in Beau Corporation v Shanghai Lizhi International Logistics Co., Ltd,8 the claimant was a company registered in Korea and thus it was a foreign-related dispute. Since both of the parties applied Chinese law to argue the case at trial, the court held that the parties had reached agreement on the governing law and thus Chinese law should be the governing law.
Ascertainment of foreign law
25.9 After deciding which laws should apply, the next step is the ascertainment of the content of foreign law. The relevant rules regarding which party shall be responsible for the ascertainment of foreign law is set out in article 10 of the Law of Application of Laws, which provides that “foreign laws applicable to foreign-related civil relations shall be ascertained by people’s court, arbitration commission or administrative organs; parties concerned shall provide laws of the relevant foreign country if they choose to be governed by foreign laws”. The detail of the methods of ascertainment is mentioned in article 193 of the Opinion of Supreme People’s Court on Certain Issues Concerning the Implementation of the “General Principles of the Civil Law of People’s Republic of China” (Trial).9 These methods include those provided by the parties concerned, by a central organ of another country which has entered into any agreements or conventions in respect of judicial assistance in China, by the Chinese embassy or consulate of the foreign country,10 by the embassy of the foreign country in China, and by legal experts of the foreign country and China.
25.10 However, in practice, it is not uncommon that the foreign law cannot be ascertained, especially for those maritime disputes where the governing law is sometimes the law of the flag State, which might be difficult to find out. Under such circumstances, Chinese law would apply even if foreign law is actually the proper law in accordance with the parties’ agreement or the conflict rules.11 Here arises a problem about the definition of the “unable to be ascertained”. Guidelines of this issue are set out in article 17 of Interpretation I which provides that “where a people’s court fails to obtain foreign laws through providing by foreign parties concerned, or channels specified by international treaty that has been
applicable to the People’s Republic of China or other reasonable channels such as provided by domestic and foreign legal experts, such laws may be treated as foreign laws that cannot be ascertained”. If the parties are required to provide the foreign law in accordance with article 10 of the Law of Application of Laws themselves, and if they fail to do so within the time limit specified by the court without a legitimate reason, such laws may also be treated as foreign laws that cannot be ascertained and the Chinese law would then apply. For example, in Wing Wah Oil Ship Co., Ltd v Jiangxi Xinghai Shipping Co., Ltd,12 the claimant argued that Hong Kong law shall be applied while the defendant wanted to apply Chinese law. The court held that Hong Kong was the proper law in accordance with rules of conflict of laws. However, the claimant, as the party that contended that Hong Kong law should apply, did not provide the evidence of Hong Kong law to the court; the court held that it was unable to ascertain the law by itself. Thus Chinese law applied to the subject dispute. Although this case is not a case reported in the Gazette of the Supreme People’s Court and does not have any special effect on the following decisions of other courts, it did show that, in Chinese proceedings, it is crucial to provide the court with the evidence of the foreign law if a party wishes to apply the same.
25.11 Sometimes, even if the party concerned can provide foreign legal expert’s legal opinion on the foreign law, the court is still entitled to exercise its discretion to decide whether to accept such opinion as the foreign law when the parties are in dispute in relation to its content.13 In Hangzhou Cogeneration Import and Export Company Limited v J. Friend Shipping Company Limited,14 the relevant bill of lading provided that the dispute should be governed by English Law. The defendant, who argued that English law should apply, submitted a legal opinion on relevant English law, which cited a few cases and the content of the book Scrutton on Charterparties in the legal opinion but without a case report supporting the legal opinion. The claimant challenged the authority of this legal opinion and argued that English law could not be proved by this legal opinion. The court held that since English law is based on case law, relevant cases and authorities should be carefully considered when determining its content. However, since the relevant case reports and the book authority were not submitted to the court, the court was unable to examine whether the contents of the legal opinion were correct. Consequently, the court held that English law was unable to be ascertained and thus Chinese law applied to the case.
Reservation of public order and the application of mandatory provisions
25.12 Reservation of public order is also an important principle under private international law, which allows the domestic court to refuse to apply foreign law when such application would undermine the public interest of that country. Chinese law also adopts the same principle.15 Apart from the principle of reservation of public order, part of Chinese law would have mandatory application even if the conflict rules lead the court to the foreign law.16 Those provisions that have mandatory application includes those involving the
protection of the interests of workers, food or public health safety, environmental safety, financial safety such as foreign exchange administration, anti-monopoly or anti-dumping or any other situations that should be recognised as mandatory provisions.17
Nature of disputes and application of laws
25.13 The starting point for determining the applicable law is characterisation, which requires the court to characterise the nature of the issues in dispute first since the different conflict rules would apply to different kinds of disputes. It shall be noted that the characterisation issue itself is governed by the lex fori. Thus, the law of the place where the court hearing the dispute is located shall govern the determination of the nature of a foreign-related civil relationship directly. The application of the laws of a foreign country does not include this country’s law on the conflict of laws.18
Contract
25.14 The conflict rules applied to contract is not a rigid one. In most cases, the governing law depends on the intention of the parties to be ascertained in each case on a consideration of the terms of the contract, the situation of the parties and generally on all of the surrounding facts. The freedom of contract is fully respected in relation to conflict of laws. The principle of party autonomy and the doctrine of closest connection are two major principles to be considered in determining the applicable law for a contract dispute.
25.15 It is a general principle adopted by almost all jurisdictions that the parties’ express choice of governing law will generally be respected by the court. For example, article 3 of the EU Convention on the Law Applicable to Contractual Obligations (Rome 1980) provides that “A contract shall be governed by the law chosen by the parties. The choice must be expressed and demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part of the contract.” Similarly, under Chinese law, the parties to a contract are allowed to choose the applicable law to the foreign-related contracts, unless the law provides otherwise.19 The parties are also allowed to agree to leave the right of choosing the governing law to one party in the contract, and the court will respect the said party’s choice based on such clause. For example, in Zhejiang Textiles Import & Export Group Co., Ltd v Uniglory Marine Corporation (UGMC),20 the bill of lading provided that all disputes shall be governed by the law chosen by the carrier, that is UGMC, a Taiwan company. UGMC expressly chose the CMC and the Contract Law of the People’s Republic of China after disputes arose and thus the case was decided by applying the CMC and Contract Law.
25.16 It is a common practice in the shipping industry for the parties to agree on the applicable law by including a law and arbitration clause in a charterparty or a bill of lading.
The standard charterparty forms, such as GENCON and NYPE, which are also broadly used by Chinese shipping practitioners, contain such clauses. The parties will generally accept the applicable law clause set out in these standard forms, usually being English law and US law.21 The governing law clause in the bills of lading is also important. Since the bills of lading are considered as evidence of contract between the shipper/consignee and the carrier, any claim for cargo damage will be made under the clauses and laws applied to the bills of lading. The Hague Rules, Hague-Visby Rules and Hamburg Rules are major international conventions governing disputes arising from carriage of goods by sea. China has not ratified any of them, but has its own set of rules regulating carriage of goods by sea contracts set out in of the CMC. The obligations and liabilities of carriers and shippers might be different under different rules and laws, and thus choice of law would have a substantial effect on the result of disputes arising from bills of lading.
25.17 If the parties expressly choose to apply Chinese law in the contract, Chinese courts will uphold the parties’ choice. Generally, Chinese courts will also uphold the parties’ choice and apply the foreign law provided in the contract to solve disputes if that foreign law can be sufficiently provided and proved. For example, in Jiangsu Oversea Group Corporation v Shanghai Fengtai Insurance Co., Ltd, the insurance policy clearly provided that the English Marine Insurance Act 1906 shall be applied and thus the court applied the said law to the dispute.22 In another case, Cheong Fu Li (Hong Kong) Company Limited v ATC Shipping Co. Ltd,23 in a dispute regarding the release of cargo without production of the original bill of lading, it was provided on the reverse side of the bill of lading that Japanese law was the governing law. The bill of lading was also issued in Japan. The defendant argued that Chinese law should apply given that the claimant did not provide the court with the relevant Japanese law. The court rejected this argument and held that Japanese law should apply since it was so provided on the back of the bill of lading and Japanese law could also be ascertained.
25.18 In addition, under the Chinese legal system, the laws of the Hong Kong Special Administrative Region and Macau Special Administration are also treated as foreign laws.2425.19 Further, there is no requirement that the parties’ choice must be made by a written agreement. The parties are also allowed to change the governing law agreed in the contract by an oral agreement, even after the commencement of legal proceedings. Article 8 of the Interpretation I provides that where the parties concerned agree on the selection or change of selection of the applicable laws before the end of the debate at the court of the first instance, the courts shall give their approval to such selection or change of selection. For example, in Oriental Scientific Instrument Import & Export Co. Ltd v Zim Israel Navigation Co. Ltd,25 the bill of lading provided that Israel law shall apply to relevant disputes.
However, the parties all agreed to apply Chinese law for trial. The court accordingly held that the parties had reached a new agreement to change the governing law of the bill of lading and thus Chinese law should apply.
25.20 However, in practice, some Chinese courts have refused to recognise the governing law clause in the contract, especially those printed on the standard form bills of lading without parties’ negotiation. Some courts consider that such clause does not represent the parties’ true intention and thus cannot be considered as the parties’ agreement. In Mikilines Co. Ltd v Hong Kong Rich Star Shipping Forwarding Co. Ltd,26 the bill of lading provided that Japanese law should apply. However, the Ningbo Maritime Court held that the relevant bill of lading was a standard form and the defendant carrier who issued the bill of lading cannot prove that he had drawn the claimant shipper’s attention to the governing law clause set out on the reverse side of the standard form bill of lading, thus the parties had reached no agreement on the application of Japanese law. Finally, the court held that Chinese law should be the governing law based on the doctrine of closest connection. It seems that, in practice, courts will place the burden of proof on the party who issued the standard form bills of lading and require them to prove that other parties had agreed to be bound by the governing law clause contained in the standard form.
25.21 Some courts are also reluctant to uphold such a governing law clause printed on the standard bill of lading when the parties challenging the governing law clause are not the shipper, but the consignee of the bills of lading or the insurer. In Gothaer Allgemeine Versicherung AG v SK Shipping Co., Ltd, Sunrise Shipping S.A., Shanghai Huagang International Shipping Agency Co., Ltd, P&F Marine Co., Ltd,27 a cargo damage dispute, it was provided on the back of the standard form bill of lading that the 1936 Carriage of Goods by Sea Act of United States should apply. The claimant cargo insurer argued that since the cargo owner as the consignee had no knowledge of the governing law clause at the time of the bill of lading issued, the governing law clauses did not show the parties’ true intention and thus could not be applied. The first instance court, the Shanghai Maritime Court, accepted this argument and held that the relevant parties did not reach an agreement on the application of the 1936 Carriage of Goods by Sea and finally Chinese law was applied to this dispute. This decision was upheld by the Shanghai High People’s Court on appeal.
25.22 In addition, if the governing law clauses on the front and reverse side of the bill of lading are inconsistent, the courts may refuse to admit that the parties had chosen the governing law. In Anhui Light Industries International Co., Ltd. v Shanghai Chuangjian International Freight Forwarding Co., Ltd.,28 it was marked on the front of the bill of lading that the law of United State should apply, while a clause on the reverse side said that Chinese law was the governing law. The Shanghai Maritime Court held that, due to the inconsistency, the parties reached no agreement on the applicable law and Chinese law was the proper law as the law of closest connection with the disputes.
25.23 Under Chinese law, there is no restriction that the law chosen by the parties must have a real connection with the parties or the subject matter of the contract.29
25.24 In the absence of the parties’ express choice on the governing law, the law of the country having the closest connection with the dispute shall apply.30 Article 4 of Rome Convention provides that in a contract for carriage of goods, if the country in which, at the time the contract is concluded, the carrier has his principal place of business is also the country in which the place of loading or the place of discharge or the principal place of business of the consignor is situated, it shall be presumed that the contract is most closely connected with that country. Unlike the Rome Convention, there is no definition of “closest connection” in Chinese law regarding the contract of carriage of goods by sea. In this respect, the courts have discretion to decide which law has the closest connection to the contract for carriage of goods by sea.
25.25 The factors that might need to be taken into consideration when determining the law of closest connection include the nature of the contract, the place of loading and discharging, the place where the contract is concluded or performed, the place where the bill of lading is issued, the domicile of the parties, etc,31 while the decisive factors may vary from case to case.
25.26 In addition, it seems that the nature of releasing cargo without the presentation of bill of lading is classified as a contractual dispute in practice (although there still exist some different opinions that argue that it is a tortious action) and thus the governing law set out in the bill of lading shall also apply to disputes in relation to releasing cargo without presentation of bill of lading. In American President Lines v Guangzhou Feida Electrical Apparatus Factory,32 a case reheard by the Supreme People’s Court in relation to a dispute of releasing cargo without presentation of bill of lading, the Supreme People’s Court overturned the decision of the Guangdong High People’s Court that the law of the place where the tort occurred, i.e. Chinese law should apply and held that, since the bill of lading provided that the US Carriage of Goods by Sea Act was the governing law, the same should apply to disputes arising from the bill of lading, including the release of cargo without production of the bill of lading.
Ownership and mortgage
25.27 Under Chinese law, the acquisition, transference or extinction of the ownership of a ship shall be registered at the ship registration authorities and no acquisition, transference or extinction of the ship’s ownership shall bind against a third party unless registered.33 It is also a common practice that the ship mortgage is registered together with the ownership in the same country. Currently, in most countries of the world, the law of the flag State would apply to any ownership or mortgage dispute of a vessel, including China. Articles 270 and 271 of the CMC provides that the law of the flag State of the ship shall apply to the
acquisition, transfer, extinction and mortgage of the ship. Article 271 also provides that the law of the original country of registry of a ship shall apply to the mortgage of the ship if its mortgage is established before or during its bareboat charter period. However, disputes might arise if the ship, as occasionally happens, is double registered in two jurisdictions. For example, in a ship mortgage dispute, Leqing Branch of Agricultural Bank of China v Hong Kong Samwo International Shipping Co., Ltd,34 the ship was first registered in China and then sold to a Hong Kong company that registered the ship again in Hong Kong. The defendant Hong Kong company argued that Hong Kong law should apply to the ship mortgage dispute. However, Ningbo Maritime Court held that since the ship was first registered in China and this registration was not cancelled when it was later registered in Hong Kong again, PRC law should apply to the mortgage dispute.
Maritime lien
25.28 Maritime lien refers only to a selected group of maritime claims, and is set out in article 22 of the CMC. Since the scope of maritime lien and their ranking differ from country to country, the governing law for disputes in relation to maritime lien is of crucial importance given that this would have a decisive effect on whether a specific item can be compensated prior to other claims. This is actually an issue of whether the court of one jurisdiction will recognise a foreign maritime lien. Under English law, maritime lien is generally categorised as a procedural remedy rather than a substantive right and thus the law of forum would apply. This is a principle set out in the English case The Halcyon Isle,35 where Lord Diplock held that maritime liens involve rights that are procedural or remedial only, and accordingly the question of whether a particular class of claim gives rise to a maritime lien or not is one to be determined by English law as the lex fori. In contrast, some other jurisdictions characterise the maritime lien as a substantive right for conflict of law purpose and thus a foreign law might apply if the connecting factors lead the disputes to another jurisdiction.
25.29 The position of Chinese law is same as that of English law in this respect, where the law of forum shall apply to disputes pertaining to maritime lien.3625.30 The rationale behind this clause is easy to discern. Considering the fact that maritime lien is not extinguished by virtue of the transfer of ownership and the flag State of the target vessel might change after the maritime lien arises, applying the law of the flag State might cause some difficulties in practice. In addition, more than one foreign maritime lien might exist in the same dispute and thus applying different foreign laws might lead to some disorder in ranking. In light of the above, the CMC provides that the law of forum shall apply.37 Further, maritime lien is closely related to the arrest of the vessel in practice. Vessel arrest is apparently a procedural matter and the law of forum applies and thus it might be
a better choice to apply the same laws for the following claims pertaining to the maritime lien in order to avoid unnecessary inconvenience.38
Collision
25.31 Ship collision is a special kind of tort action. Generally, the law of the place where the tortious act is committed would apply to the disputes.39 However, since the ships sometimes collide on the high seas where no governing law can be applied, the general principle of tort action is difficult to apply. Further, due to the fact that the collided ships sometimes fly different flags, it is also impractical to apply the law of the flag State under such circumstances. Thus the governing law of ship collision disputes is a relatively complex issue.
25.32 Since ship collision is a special kind of tort action, the conflict rules of tort disputes sometimes apply to collision when it happens within the territorial water of one jurisdiction. For example, article 4 of 1977 International Convention for the Unification of Certain Rules Concerning Civil Jurisdiction, Choice of Laws and Recognition and Enforcement of Judgment in Matters of Collision provides that when the collision happened within the water of one jurisdiction, the law of the same country shall apply unless the parties agree otherwise. It also provides that if the collision happens on the high seas where no country has jurisdiction over the area, the law of the forum will generally apply.
25.33 Chinese law also follows the principles mentioned in the above convention. Article 273 of CMC provides that the law of the place where the infringing act is committed shall apply to claims for damages arising from collision of ships; the law of the place where the court hearing the case is located shall apply to claims for damages arising from collision of ships on the high seas; if the colliding ships fly the same flag, the law of the flag State shall apply to claims against one another for damages arising from such collision no matter where the collision occurs.
25.34 For ship collision disputes, Chinese law would apply in most circumstances if the case is heard by a Chinese court. The reason is that even if the foreign law is the appropriate governing law in accordance with article 273 of the CMC, Chinese law might still apply if the foreign law cannot be ascertained. In Trade Quicker Inc v Golden Light Overseas Management S.A.,40 a ship collision dispute, the two ships involved were registered in Panama and thus the law of Panama should apply in accordance with CMC. The court required the parties to provide the law of Panama. The parties failed to do so, and the court was also unable to find out the law of Panama itself. Accordingly, the law of forum, i.e. Chinese law, finally applied to the dispute.
25.35 The major disputes of a large amount of collision cases are for the determination of the proportion of the respective fault of the two colliding ships. For the purpose of determining liability of the parties, the 1972 Convention on the International Regulations for Prevention Collisions at Sea (the “1972 Prevention Collision Convention”) would apply since China is a contracting State of this convention. The 1972 Prevention Collision Convention sets out, inter alia, detailed navigation rules that need to be applied for the purpose
of determining the liability of the colliding ships. Thus, in most collision cases, the 1972 Prevention Collision Convention is applied together with the CMC to the disputes.
Salvage
25.36 The conflict rules applied to salvage might be affected by the nature of the salvage service. There are mainly two types of salvage services. Pure salvage is the salvage conducted by the salvor as a volunteer when the vessel is in danger. There is no contract involved in this action and the salvor can claim for award if the salvage succeeds. Another type of salvage service is the contract service. For most contract salvage, the salvage is also conducted based on the principle of “no cure no pay”. The CMC follows the principle of “no cure no pay” and sets out in article 179 that if the salvage operations had a useful result, the salvor shall be entitled to a reward except as otherwise mentioned in the contract or the special compensation mentioned in article 182 of the CMC. However, under the CMC, there is no clause expressly mentioning which law shall apply to the salvage service if there is a foreign element involved in the salvage action.
25.37 For contract salvage, the general principle for contract disputes shall apply since there is no special rule in the CMC regarding the salvage service. Thus the law chosen by the parties in the salvage contract shall apply even if the salvage was carried out in the territorial waters of another jurisdiction. If the parties make no express choice in the contract, the law of the jurisdiction that has the closest connection to the salvage service would apply. In addition, it is important to notice that China is a contracting party to the 1989 International Convention on Salvage thus the same would apply to all disputes to be heard by the Chinese court or arbitral tribunal in China.41 The content of the CMC in relation to salvage () is similar to that of the 1989 International Convention on Salvage on many issues. For example, the elements need to be taken into consideration when fixing the reward to salvage operations are almost the same in the CMC as with the Convention. In a dispute relating to the salvage award , PRC Shantou Marine Safety Administration v Hsin Ying Shipping Co., Ltd, Ever Success (HK) Shipping Company Limited,42 the defendants were foreign companies and thus it was a foreign-related dispute. The defendants applied the CMC in the trial, while the claimant argued that the 1989 International Convention on Salvage shall be applied prior to the application of the CMC. The Court held that since the content of the relevant clauses in the 1989 International Salvage Convention applied by the claimant were the same as the provisions of the CMC, it shall be deemed that the parties had reached an agreement on the application of the CMC in trial.
25.38 However, where the salvage operation is pure salvage with no contract involved, the rules of the conflict of laws are relatively complex. The law of the flag State, the law of the place where the salvage service conducted, or the law of the forum might be relevant. Different jurisdictions hold different opinions on this issue. Under Chinese law, where the parties reach no agreement on the applicable law, it seems that the law of the flag State shall apply if the vessels involved in the dispute both fly the same flag. If, in contrast, the flag States are different and the salvage is operated within the territorial water of one jurisdiction, the
law of that jurisdiction shall apply. If the salvage service is conducted on the high seas, the law of the forum shall apply.43
General average
25.39 Article 274 of the CMC provides that the law of the place where the adjustment of general average is made shall apply to the adjustment of general average. of the CMC sets out the adjustment rules of general average. Nevertheless, since most of the charterparties and bills of lading include a general average clause, which provides that the adjustment shall be made in accordance with the York-Antwerp Rules, the Rules shall be applied instead of the CMC even if the adjustment is made in China.44 It shall be noted that York-Antwerp Rules, which are the most commonly used rules for general average adjustment, are not an international convention compulsorily applied to the jurisdictions that have ratified it. Instead, it will only apply based on parties’ choice.
25.40 Apart from the adjustment of general average, disputes in relation to general average also include other issues such as the nature of the claim, the contribution of general average and general average security, etc. It seems that although article 274 of the CMC provides that the law of the place where adjustment is made shall apply to the “adjustment of general average”, this “adjustment of general average” shall be broadly interpreted to cover other issues.45 For example, in Hainan Hualian Shipping Co., Ltd v Guangxi International Coorperation Trading Company and PICC Guangxi Brach,46 the main engine of MV QINHAI108 completely broke down and thus the owner hired a tug to tow the vessel to the discharge port. The owner claimed that the cost of the tug was a general average loss and the defendant as the cargo owner should contribute for the loss. The defendants, however, argued that the vessel was unseaworthy, thus they were not obliged to contribute. Although the main issue of this case was whether the shipowner was entitled to claim the general average contribution instead of the adjustment of general average, the court also clearly mentioned in the judgment that the law of the place where adjustment was made, i.e. Chinese law, should apply to the current case in accordance with article 274 of the CMC.
25.41 However, when the adjustment is made in a foreign country other than the place of forum, issues such as contribution of general average might not be decided by the law of the place of adjustment.47 Under such circumstances, it seems that, if the parties cannot reach an agreement on the governing law, the law of closest connection, such as the law of the flag State or the law of forum will apply.48
25.42 Generally, matters concerning limitation of liability and the establishment of a limitation fund are characterised as a procedural issue in nature and thus the law of forum and the law of the place where the fund was established would apply according to the conflict rules. This principle is followed by most of the important international conventions concerning the limitation of liability for maritime claims, including the 1957 International Convention Relating to the Limitation of Liability of Owners of Sea-Going Ship (the “1957 Convention”) and the 1976 Convention on Limitation of Liability for Maritime Claims (the “LLMC”). According to the 1957 Convention, the question upon whom lies the burden of proving whether or not the occurrence giving rise to the claim resulted from the actual fault or privity of the owner shall be determined by the law of the forum;49 the rules relating to the constitution and distribution of the limitation fund and all rules of procedure shall be governed by the national law of the State in which the fund is constituted;50 questions of procedure relating to the actions and also the time limit for these actions shall be decided in accordance with the national law of the contracting State in which the action takes place.51 The LLMC applies a similar set of rules, which provide that the procedural questions shall be decided in accordance with the national law of the contracting State in which the action is brought while the rule relating to the constitution and distribution of a limitation fund and all rules of relevant procedures shall be governed by the law of the contracting State in which the fund is constituted.5225.43 However, China is not a contracting State to the above conventions. The rule applied by Chinese court is set out in article 275 of the CMC, which provides that the law of the place where the court hearing the case is located shall apply to the limitation of liability for maritime claims. The CMC is silent on the conflict rules applied to the constitution and distribution of the limitation fund. In practice, it seems that article 275 is construed broadly to cover the constitution and distribution of the limitation fund and thus would have the same application to these issues. In a case of the constitution of a limitation fund, the claimant applied to the Xiamen Maritime Court to set up a limitation fund, while the application was challenged by the defendants. Since one vessel involved in the disputes was flying a foreign flag, the disputes was characterised as a foreign-related dispute and the conflict of law issue arose. The court in this case directly applied article 275 of the CMC and held that the law of forum, i.e. Chinese law, should apply to disputes in relation to the constitution of a limitation fund.5325.44 China is a contracting State to the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea and its 1976 Protocol.54 That said, in relation to the limitation of liability arising from carriage of passenger and their luggage by sea, the Athens Convention shall apply first.
Jurisdiction of Chinese court in foreign-related disputes
25.45 It is, of course, the claimant who decides where to begin legal proceedings and a Chinese claimant would usually choose a Chinese court to sue the defendant, even if the defendant is a foreign company that does not have domicile in China. Such a choice might be affected by a series of factors, such as the low costs, its convenience or a simple wish of “playing on one’s home turf”. The choice of forum might also have a crucial effect on the application of the governing law since the courts of different countries apply their own sets of conflict rules and this might in the end result in different outcomes for cases.
25.46 Similar as the choice of law issue, the clauses in relation to maritime jurisdiction contained in the international conventions to which China is a contracting State shall be applied first. For example, the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1972 provides that only four kinds of courts are competent jurisdictions for actions arising under the said convention, including the court of the place of permanent residence or principle place of business of the defendant, the court of the place of the departure or the destination according to the contract of carriage, the court of the State of the domicile or permanent residence of the claimant if the defendant has a place of business and is subject to jurisdiction in that State, or a court of the State where the contract of carriage was made if the defendant has a place of business and is subject to the jurisdiction in that State.5525.47 Where there is no international convention involved, the rules in relation to the jurisdiction of Chinese courts under Chinese law shall be applied in foreign-related disputes. In the case of an action concerning a contractual dispute or other disputes over property rights brought against a defendant who has no domicile within China, if the contract is concluded or performed within China, or the subject matter of the action is located within China, or the defendant has distrainable property within China, or the defendant has its representative office within China, the court of the place where the contract is concluded or performed, or where the subject matter of the action is, or where the defendant’s distrainable property is located, or where the torts are done, or where the defendant’s representative office is located shall have jurisdiction over the case.56 It seems that Chinese law requires a real connection between the defendant and the chosen forum, i.e. the Chinese court when the foreign defendant has no domicile in China according to the aforementioned clause. However, as mentioned in the previous chapter on jurisdiction, article 8 of the Special Maritime Procedure Law of People’s Republic of China (the “SMPL”) also provides that where all the parties to a maritime dispute are aliens, stateless persons, foreign enterprises or organisations and have agreed in writing to be subject to the jurisdiction of a maritime court of China, notwithstanding that the place that is actually related to the dispute is not within the territory of China, the said maritime court shall have jurisdiction of the dispute.
25.48 For certain kinds of foreign-related disputes, the Chinese courts have exclusive jurisdiction that cannot be contracted out by parties’ agreement. These include disputes arising from the performance of contract for Chinese-foreign equity joint ventures, or
Chinese-foreign contractual joint ventures, or Chinese-foreign cooperative exploration and development of the natural resources in the China.57 In addition, the exclusive jurisdiction set out in article 33 of the Civil Procedure Law of PRC (the “CPL”) and article 7 of SMPL also cannot be contracted out by the parties.
25.49 In addition, Chinese courts may also acquire jurisdiction even if the contract provides that relevant disputes shall be submitted to the court or arbitration in another jurisdiction. Such are not uncommon in maritime disputes, especially those disputes arising from contracts of carriage of goods by sea.
25.50 The standard charterparties generally contain an arbitration clause that provides that any disputes arising from the charterparty shall be submitted to arbitration in London or in New York at the parties’ choice. Although some bills of lading themselves do not contain such arbitration clauses, it is usually marked that the provisions of the relevant charterparty shall be incorporated into the bills of lading and thus the disputes shall be solved by arbitration too. Generally, the parties would follow such clause since it is the express choice agreed between them in the contract. However, when the discharge port is in China and, especially in cargo damage cases, the disputes arise under the bill of lading, the claimant cargo receivers or insurers might commence proceeding in a Chinese court even if the carrier argues that there is an arbitration clause under the relevant bill of lading.
25.51 Here arises an issue about whether Chinese courts would recognise the validity of the arbitration clause in the bill of lading, and in most circumstances the actual question is whether the arbitration clause of the charterparty can be incorporated into the bill of lading.
25.52 In respect of this issue, the CMC provides that if the clauses of a voyage charter are incorporated into a bill of lading, the charterparty clauses shall govern the relationship between the carrier and bill of lading holder.58 However it does not mention under what circumstances a clause in the charterparty can be successfully incorporated into the bill of lading. Further, according to the CMC, it appears that only the clauses of voyage charter are allowed to be incorporated into a bill of lading. There is no such provision in the chapter on time charterparty in the CMC.
25.53 Apart from the CMC, the issue of validity of an arbitration clause incorporated into the bill of lading has been provided in the Explanations concerning Relevant Issues of Foreign Related Commercial and Maritime Trial Practice published by the Fourth Civil Court of the SPC (the “Explanation”).59 According to article 98 of the Explanation, after the clauses of the charterparty have been incorporated into the bill of lading, the relation between the carrier and the holder of the bill of lading shall be governed by the bill of lading, instead of the charterparty; further, unless the incorporation clause expressly provides that the arbitration clause, jurisdiction clause and applicable law clause shall be incorporated into the bill of lading, those clauses in the charterparty shall not bind the holder of the bill of lading.
25.54 In practice, it seems that Chinese courts are very reluctant to recognise such incorporations of an arbitration clause. First, the words of incorporation of an arbitration clause
must be marked on the front page of the bill of lading.60 Second, the date of charterparty and the name of the parties shall also be expressly mentioned on the front page of the bill of lading.61 Even so, the Chinese courts may refuse to recognise the validity of the arbitration clause such as where the holder of the bill of lading (such as the consignee and insurer) does not participate in the negotiation of the arbitration agreement and thus the clause does not bind them.6225.55 It seems that, in practice, the Chinese court will hold that it has jurisdiction even if the bill of lading contains or is incorporated into an arbitration clause. It is usually difficult to challenge the jurisdiction of the Chinese court once the Chinese cargo receiver has submitted the case to the court. There might be a policy reason for Chinese courts not to give up the jurisdiction in relation to bills of lading.
25.56 Under such circumstance, the carrier might try to obtain an anti-suit injunction from an applicable foreign court. However, any anti-suit injunction granted by the foreign court would not be recognised by the Chinese courts. An anti-suit injunction would only have a limited use in China if the bill of lading holder does not have any assets in such applicable foreign country or if the company’s directors have no association with the relevant foreign country.