i-law

Maritime Law and Practice in China


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CHAPTER 10

Sea towage contracts

Sea towage contracts

10.1 In the CMC 1992, a sea towage contract is a contract whereby the tug owner undertakes to tow an object by sea with a tug from one place to another, and the tow party pays the towage. Towage in the CMC 1992 does not include the towage service rendered to ships within the port area.1 Furthermore, maritime towage services between the ports of the PRC shall be undertaken by ships flying the national flag of the PRC, except as otherwise provided for by laws or administrative rules and regulations. No foreign ships may engage in the maritime towage services between the ports of the PRC unless permitted by the competent authorities of transport and communications under the State Council.2 10.2 Sea towage contracts in Chinese shipping practice are always based on standard form of towage, e.g. CHINATOW of China Ocean Engineering Corporation and BIMCO’s TOWCON and TOWHIRE. A sea towage contract must be between tug and tow. Where a tug owner tows a barge owned or operated by him to transport goods by sea from one port to another, it shall be deemed as an act of carriage of goods by sea, and not a towage.3 The CMC 1992 requires that a contract of sea towage shall be made in writing.4 Although a sea towage contract is not a named contract in the Contract Law 1999, the general principles of the Contract Law 1999 can apply to the sea towage contract except where the CMC 1992 has special rules for the sea towage contract.

Third parties to sea towage contracts

10.3 Normally, a tow owner directly enters into a sea towage contract with a tug owner. In some special cases, a sea towage contract may be concluded between a tug owner and a third party rather than a tow owner. Meanwhile, the third party can enter into another contract with the tow owner for the towage service. Of course, it is the tug owner who actually provides towage service for the tow owner. When the object of towage is damaged due to the fault of the tug, a question may arise that whether the tug owner or the third party shall be liable for the damage to the object of towage. This question has been examined in Huatai Property Insurance Co Ltd Shanghai Branch v Shanghai Safe Shipping Enterprises Co (Huatai v Safe Shipping).5 In this case, the defendant entered into a towage contract

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based on BIMCO TOWCON form with Yantai Salvage Bureau. It was agreed that the tow owner hired the vessel Beihai 102 from Yantai Salvage Bureau to tow a FPSO vessel6 Hai Yang Shi You 111 of the tow owner for a trial trip. In the contract between the tow owner and the defendant, it was agreed that the defendant was responsible for the towage with the same tug Beihai 102. The vessel Hai Yang Shi You 111 collided with another vessel during the towage. It was not disputed that the vessel Beihai 102 was liable for the damage to the vessel Hai Yang Shi You 111 due to the collision. The insurer of the vessel Hai Yang Shi You 111 exercised the right of subrogation against the defendant. 10.4 In the Shanghai Maritime Court, the insurer claimed that the defendant as the contractual party to the towage contract should be liable for the damage to the tow. The Shanghai Maritime Court, however, did not recognise the defendant as the party to the towage contract. It was understood that, although the defendant was the contractual party to the contract with the insured tow owner, Yantai Salvage Bureau was actually the party who provided the towage service for the tow owner. The Shanghai Maritime Court interpreted that the contract between the defendant and the tow owner was not the basis of the insurer’s claim, but an evidence of Yantai Salvage Bureau’s status as the performing party in the towage. Therefore, Yantai Salvage Bureau was the actual party to the towage contract and the defendant was not liable for the damage to the tow. 10.5 This interpretation may not completely comply with the principle of privity of contract. However, the same tug in the two contracts Huatia v Safe Shipping may indicate that the defendant may have been acting as an agent of the tow owner only. If the name of the tug were not identified in the contract between the defendant and the tow owner, it is uncertain and difficult to anticipate whether, in Chinese courts, the defendant as a third party who does not actually provide towage service is considered as the contractual party rather than the agent in the towage contract. When a third party exists in the chain of towage contract, the tow owner may choose to claim against the tug owner directly in tort since there is no contractual relation between them.7 However, it seems that a safe solution for the tow owner is to claim against both the third party and the tug owner for joint liability. 10.6 If necessary, the tow owner may claim against all relevant parties involved in the towage service and the Chinese courts will find the liable person for the damage to the tow. In Lin Xianjun and Chen Qianping v Hainan Lingao Kunshe Shipping Company and Others,8 the tow owner entered into a towage contract with the first tug owner but the first tug owner did not provide the agreed tug for towage service. Instead, the second tug owner, according to the agreement between the first tug owner and the second tug owner, provided the second tug to tow the object in the towage contract. The tow sank in the towage due to the unseaworthiness of the second tug. The tow owner claimed for the damage to the tow against the defendants including the first tug owner, the real owner of the second tug, the registered owner of the second tug and the bareboat charterer of the second tug. It was found by the Guangzhou Maritime Court that the first tug owner did not exist in the

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registration of the local authority. Therefore, the tow owner could only claim against other defendants in tort. The Guangzhou Maritime Court ultimately found that the bareboat charterer actually controlled the second tug and provided the towage service to the tow owner. Therefore, it was held that the bareboat charterer of the second tug should be liable for the damage to the tow.

Seaworthiness of tug and tow

10.7 Under the CMC 1992, seaworthiness of the tug and tow is not absolute. On the one hand, the tug owner shall, before and at the beginning of the towage, exercise due diligence to make the tug seaworthy and towworthy and to properly man the tug and equip it with gears and tow lines and to provide all other necessary supplies and appliances for the intended voyage. On the other hand, the tow owner shall, before and at the beginning of the towage, make all necessary preparations therefore and shall exercise due diligence to make the object to be towed towworthy and shall give the tug owner a true account of the object to be towed.9 10.8 The tow owner also needs to provide the certificate of towworthiness and other documents of the object to be towed issued by the relevant survey and inspection organisations.10 If the tow owner fails to provide the necessary certificates and documents, he shall be liable for the damage to the tug owner even if the towage is not performed. In The Zhao Qing Gong 1111,11 the tug owner agreed to tow the vessel Zhao Qing Gong 1111 for a coastal voyage from Fujian Fuzhou to Guangdong Sihui and the tow owner agreed to pay the towage. The towage contract provided that the tow owner was responsible for the certificate of towworthiness. The tow owner paid RMB 80,00012 as the first instalment of towage fee. The tug owner sent the tug from Xiamen to Fuzhou but could not contact the tow owner. Thus the towage contract was not performed. The tow owner claimed against the tug owner for return of the paid instalment of towage fee. It was found that the tow owner failed to provide the certificate of towwothiness because the tow vessel Zhao Qing Gong 1111 was an inland water vessel only. The tug owner argued that the cost of fuel for the return voyage of the tug was more than RMB 80,000 which was the damage to the tug owner because of the tow owner’s breach of the towage contract. The Guangzhou Maritime Court held that it was the tow owner, not the tug owner, who breached the towage contract and, therefore, dismissed the tow owner’s claim.

Force majeure in sea towage contract

10.9 The general principle of force majeure in contract law applies to the sea towage contract in the CMC 1992. Where the object towed cannot reach its destination due to force majeure or other causes not attributable to the fault of either party, unless the towage contract provides otherwise, the tug owner may deliver the object towed to the tow party or its

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agent at a place near the destination or at a safe port or an anchorage chosen by the master of the tug, and the contract of towage shall be deemed to have been fulfilled.13 10.10 If, before the commencement of the towage service, due to force majeure or other causes not attributable to the fault of either party, the towage contract cannot be performed, either party may cancel the contract and neither shall be liable to the other. In such event, the towage fee that has already been paid shall be returned to the tow party by the tug owner, unless otherwise agreed upon in the towage contract.14 If, after the commencement of the towage service, due to force majeure or other causes not attributable to the fault of either party, the towage contract could not be performed, either party may cancel the towage contract and neither shall be liable to the other.15

Towage fee and duress

10.11 The payment of the towage fee is an important obligation of the tow owner in a towage contract. Where the tow owner fails to pay the towage fee or other reasonable expenses as agreed, the tug owner shall have a lien on the object towed under the CMC 1992.16 If the tow owner refuses to pay the towage fee relying on duress, he has the burden to prove the existence of the duress. In Zhoushan Yuntong Shipping Co Ltd v Zhejiang Qianhong Marine Co Ltd,17 although the towage fee was fixed to be RMB 1.25 million, the tug owner required a further RMB 200,000 for the towage. Because the tow lost power before the towage, the tow owner agreed to pay the further towage fee. After the towage service, the tow owner refused to pay the further towage fee and argued that he had to agree to pay the further towage fee at the request of the tug owner in duress, because otherwise both the tow and the crews and goods on board the tow would be in danger. This argument was refused by the Ningbo Maritime Court. The Ningbo Maritime Court pointed out that the tow owner could cancel the towage contract if he refused to pay the further towage fee. It was found that the tow was still safely anchored and had kept the correct anchoring position before and during the towage. Therefore, the tow owner failed to prove the existence of duress and was liable for the payment of the further towage fee as was agreed.

Liabilities and immunities

10.12 The liability regime of towage in the CMC 1992 is based on the fault of parties. This liability regime applies only if and when there are no provisions or no different provisions in this regard in the sea towage contract. In the course of the sea towage, if the damage suffered by the tug owner or the tow owner was caused by the fault of one of the parties, the party in fault shall be liable for compensation. If the damage was caused by the faults of both parties, both parties shall be liable for compensation in proportion to the extent of

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their respective faults.18 Notwithstanding the fault-based liability regime, the tug owner shall not be liable if he proves that the damage suffered by the tow party is due to one of the following causes:
  • (1) fault of the master or other crew members of the tug or the pilot or other servants or agents of the tug owner in the navigation and management of the tug;
  • (2) fault of the tug in saving or attempting to save life or property at sea.
The provisions of this article shall only apply if and when there are no provisions or no different provisions in this regard in the sea towage contract.19 10.13 If death of or personal injury to a third party or damage to property thereof has occurred during the sea towage due to the fault of the tug owner or the tow owner, the tug owner and the tow owner shall be jointly and severally liable to that third party. Except as otherwise provided for in the towage contract, the party that has jointly and severally paid compensation in an amount exceeding the proportion for which it is liable shall have the right of recourse against the other party.20