Maritime Law and Practice in China

Liang Zhao and Lianjun Li

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CHAPTER 4 Charterparties

4.1 In of the CMC 1992, “Contract of Carriage of Goods by Sea”, the voyage charter is considered as a type of special contract for the carriage of goods by sea.1 Although the time charter is considered as another kind of contract of carriage of goods by sea, it is not included in the same chapter along with the voyage charter in the CMC 1992. Time charters and bareboat charters are separately regulated in of the CMC 1992. At common law, the voyage charter and the time charter are both considered as contracts of carriage of goods by sea. While the bareboat charter is a kind of lease contract, under common law, the general principles behind the time charter may sometimes be applied to bareboat charters.2 Practically speaking, the different categories of charterparties do not affect chartering practice. 4.2 Because the CMC 1992 does not provide specifically for the concept of a ship in the context of a charterparty, the general concept of a ship in the CMC 1992 applies. A “ship” as referred to in the CMC 1992, means sea-going ships and other mobile units, but does not include ships or craft used for military or public service purposes, nor small ships of less than 20 tons gross tonnage.3 Therefore, the provisions on charterparty including voyage charter, time charter and bareboat charter in the CMC 1992 apply only to charterparties for sea-going ships, while the Contract Law applies for inland water ships (albeit that there is no specified charterparty contract in the Contract Law).4 4.3 The CMC 1992 provides that maritime transport means the carriage of goods or passengers by sea, including sea–river and river–sea direct transport, and the provisions concerning contracts of carriage of goods by sea as contained in are not applicable to the maritime transport of goods between ports within the PRC.5 Therefore, the provisions concerning the voyage charter in of the CMC 1992 will not apply to the coastal carriage of goods in China,6 whereas there is no such limit of application for time charters and bareboat charters.

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Voyage charter

4.4 A voyage charterparty in the CMC 1992 is a charterparty under which the ship-owner charters out and the charterer charters in, the whole or part of the ship’s space for the carriage by sea of the intended goods from one port to another and as part of the bargain, the charterer pays the agreed amount of freight.7 Voyage charters must be in writing. Telegrams, telexes and telefaxes have the effect of written documents.8 The Contract Law provides that the parties may, when making a contract, use written form, verbal form or any other form9 and “written form” means any form that renders the information contained in a contract capable of being reproduced in a tangible form such as a written agreement, a letter, or electronic text (including telegram, telex, facsimile, electronic data interchange and email).10 The Contract Law applies to the written form requirement for voyage charter, and electronic text, such as email can also be regarded as a contract in writing.11 Hence, where some voyage charters are fixed by exchange of emails through chartering brokers, this requirement is still satisfied. 4.5 In Chinese shipping practice, voyage charters are mainly based on standard forms such as the GENCON 1976. Such standard forms have been recognised in Chinese judicial practice.12 However, where parties generally agree to refer to the GENCON form but do not otherwise indicate a specific version of GENCON form, such agreement would not be recognised by Chinese courts.13 As a matter of Chinese business tradition, the formal contract, i.e. the voyage charter, needs to be signed by the representative of parties and sealed with the respective stamps of the parties. In practice, if a voyage charter has been signed but not sealed, the contract may still not be held void due to the lack of the stamp. Chinese courts may recognise it as a valid contract if the shipowner and charterers have actually performed the contract.14 In practice, shipowners may use the ship’s seal instead of the company seal to be affixed on the voyage charter. The Chinese courts recognise this practice and shipowners cannot deny the validity of voyage charters on the excuse of the use of the ship’s seal.15 It is also a kind of shipping practice that where parties to a voyage charter are Chinese companies, including companies from Hong Kong, Macau and Taiwan where Chinese is an official language, a bilingual voyage charter in both Chinese and English is concluded. The Contract Law provides that if a contract is made in two or more languages that are equally authentic as contracted, the words and sentences used in the different language texts shall be assumed to be identical in denotation. If the words and sentences used in different language texts contain discrepancies, they should be interpreted according to the purpose of

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the contract.16 However, in judicial practice Chinese courts do naturally prefer to construe contracts based on the Chinese version.

Compulsory provisions

4.6 The CMC 1992 provides that the provisions in article 47 and article 49 in apply to the shipowner under a voyage charter.17 Article 47 provides for a seaworthiness obligation, that the carrier shall, before and at the beginning of the voyage, exercise due diligence to make the ship seaworthy, properly man, equip and supply the ship, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. Meanwhile, article 49 provides for an obligation of non-deviation, that the carrier must carry the goods to the port of discharge on the agreed or customary or geographically direct route, save for any deviation for saving or attempting to save life or property at sea or any reasonable deviation that shall not be deemed to be an act of deviating from the provisions in article 49. It means that the CMC 1992 imposes compulsory obligations of seaworthiness and non-deviation on the shipowner, and the shipowner is consequently not allowed to exclude the seaworthiness obligation by use of an exemption clause or the non-deviation obligation by a liberty clause. 4.7 The standard of seaworthiness is a question of fact. If a ship has satisfied the basic requirements of seaworthiness, the charterer is not allowed to require a higher or different standard of seaworthiness. In Lin Shichang & Zhejiang Yushun Shipping Co Ltd v Jiangsu Shunhe Petrochemical Co Ltd,18 the shipowner chartered its ship to the charterer for carriage of fuel oil. The charterer was also the seller of the fuel oil who agreed to sell the goods to the buyer. It was agreed in the sale of goods contract that the buyer would not accept the ship for berthing and discharge of fuel oil until the the ship passed inspection. At the port of discharge, the ship did not pass the inspection of the buyer. The charterer then chartered a new ship and discharged the goods by barge. The shipowner claimed against the charterer for payment of demurrage. Meanwhile, the charterer counterclaimed against the shipowner for loss due to the charter of the barge. In the claim and counterclaim, the charterer’s main argument was that the ship involved was unseaworthy because she had failed to pass the buyer’s inspection. The Ningbo Maritime Court held that the shipowner had proved the seaworthiness of the ship by submitting relevant ship documents. As to the inspection of the buyer, it was a special requirement of ship from a third party and it should not be used as a reference to the standard of seaworthiness of the ship. This judgment was confirmed at appeal by the Zhejiang High People’s Court. 4.8 The CMC 1992 further provides that other provisions in regarding the rights and obligations of the parties to the contract apply to the shipowner and the charterer under voyage charter only in the absence of relevant provisions or in the absence of provisions differing therefrom in the voyage charter.19 This means that parties to a voyage charter are free to agree their rights and obligations in the voyage charter except for the obligations

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of seaworthiness and non-deviation. In ECO Shipping Co Ltd v Fuzhou Changxiong Ocean Fishery Co Ltd and others,20 the parties agreed for a clause of possessory lien on cargo in the voyage charter. The Xiamen Maritime Court held that the agreement of possessory lien was valid since it did not infringe any prohibition of law and therefore the provisions concerning the possessory lien in the CMC 1992 did not apply to the voyage charter.21 In Dalian Ouxiang Shipping Co Ltd v Dalian Jingbei Petroleum Chemical Industry Sales Co Ltd,22 the Shanghai High People’s Court held that a clause of measurement operation in a voyage charter was valid based on the principle of freedom of contract, because it did not infringe the compulsory obligations of seaworthiness and non-deviation of shipowners. In China Pingan Property Insurance Co Ltd Jiangsu Branch v CCCC International Shipping Corporation,23 the Shanghai Maritime Court confirmed the validity of the exemption clause from a standard form of voyage charter and the shipowner was therefore held not to be liable for the damage to the goods. This ruling was confirmed on appeal of the case by the Shanghai High People’s Court. 4.9 Conversely, the provisions of the CMC 1992 apply to a voyage charter if there is no specific relevant clause in the voyage charter. In China Pingan Property Insurance Co Ltd Qingdao Branch v Bright Sail (Hong Kong) Co Ltd,24 the shipowner argued that they were entitled to an exemption of liability for short delivery of goods based on the Owner’s Responsibility Clause of GENCON 94 which provides that:

The Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by personal want of due diligence on the part of the Owners or their Manager to make the Vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied, or by the personal act or default of the Owners or their Manager.

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