On 28 February 2015, the Supreme People's Court of PRC
published the Regulations on Certain Issues Concerning the
Application of Law Relating to Arrest and Auction of Ships
("The Regulations") which came into force on 1 March
With China being one of the mainstays of global trade, the
number of ship arrest applications has increased continually;
although China is still not regarded as a haven for ship arrest.
The Regulations are intended to extend the scope of the ships that
can be subject to legal auction/sale after arrest, to clarify and
simplify the ship arrest and auction/sale procedures, and increase
the judicial efficiency of the legal sale/auction.
The key changes to the previous regime under the Regulations are
highlighted as follows:
According to Article 2 of the
Regulations, a maritime court can order the arrest of a ship which
has already been arrested by itself or by other Chinese maritime
courts. In addition, if the applicant for the first arrest does not
then apply to auction the ship, the applicant for a subsequent
arrest is entitled to make such an application, and will not need
to wait for the previous arrest to be lifted.
A ship arrested under a bareboat
charterparty can be auctioned or sold. According to the PRC Special
Maritime Procedure Law, a ship under a bareboat charterparty can be
arrested if the bareboat charterer is responsible for the maritime
claim against which the arrest is applied for. However, it was
arguable whether a ship so arrested could be auctioned or sold if
security was not duly provided to lift the arrest. The Regulations
confirm that a ship so arrested can be auctioned or sold in such
The Regulations make it clear that,
except for straightforward claims arising from crew contracts or
personal injury/death, providing counter security for a ship arrest
is a compulsory requirement; regardless of whether the application
is filed before or after the commencement of
litigation/arbitration. The Regulations further provide that the
amount of counter security should be equivalent to the amount of
"the various costs and expenses of maintenance of the ship
that may be incurred during the arrest, the loss of earnings caused
by the arrest, and the costs incurred by the respondent to provide
security for lifting the arrest". Although it remains to be
seen how the maritime courts will apply the Regulations, the
Chinese maritime courts may still have considerable discretion when
ascertaining the amount of any counter security.
The Regulations provide that, in the
following 3 circumstances, the court could return the counter
security to the applicant:
the respondent has agreed to the
a binding legal document has ruled
that the amount of compensation which the respondent should be
liable for is approximately the same as that of the security
demanded by the applicant; and
by the claimant's application
(for the return of the counter security) after issue of a
corresponding and binding judgement, provided that the respondent
fails to file an action for wrongful arrest within 30 days of being
informed of the claimant's application.
The auction procedure has been
simplified in various aspects under the Regulations. In particular,
if the first auction fails, the announcement period for the
subsequent auction has been shortened from 30 days to 7 days.
With regard to the order of priority
for the distribution of the proceeds of sale of a ship, the
Regulations have made it clear that, in circumstances where the
maintenance costs incurred during the period when the ship was
under arrest have been paid by parties other than the shipowner or
the bareboat charterer, the said payments should be categorised as
"litigation costs" and should enjoy the corresponding
order of priority. In addition, with regard to "ordinary
maritime claims" (i.e. claims which are not secured by
maritime lien/possessory lien/mortgage), those claims which are in
relation to the ship will take priority over the other ordinary
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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