UK: Asia Update - August 2009

Last Updated: 24 August 2009
Article by Barlow Lyde & Gilbert LLP

China

China's Supreme People's Court tries to clarify rules on the law of Bill of Lading

The law relating to bills of lading is codified in chapter IV of the Maritime Code of the People's Republic of China (the "Maritime Code") which came into effect as of 1 July 1993. The Maritime Code lacks clear provisions regarding delivery of cargo without presentation of the original bill of lading and the incorporation of an arbitration clause into the bill of lading. This has caused a huge amount of confusion over the years. The Supreme People's Court ("SPC") is now determined to resolve these problems by giving more definite and clear judicial interpretations for the lower courts to follow.

Delivery of cargo without presentation of the original bill of lading

In February 2009, the SPC issued directive rules on trials for delivery of cargo without presentation of the original bill of lading (Fa Shi (2009) No. 1) which came into effect as of 5 March 2009. The new rules clarify the position on damages and remedies in the event where the carrier delivers the cargo to parties without presentation of the original bill of lading.

The highlights of the new directive rules are as follows:

  • The lawful holder of the original bill of lading may choose to claim for its loss against the carrier either in contract or in tort.
  • The lawful holder of the original bill of lading may claim against both the carrier and the party who took delivery of the cargo without the original bill of lading and hold them jointly liable.
  • The carrier is liable if he delivers the cargo to parties who demand delivery with presentation of a forged bill of lading.
  • The claim amount of the loss is to be calculated in accordance with the CIF price of the cargo at the loading.
  • The carrier is not entitled to limit its liability under Article 56 of the Maritime Code i.e. the package limitation regime similar to the Hague-Visby Rules.
  • The carrier is not liable once he has delivered the cargo to the first lawful holder of the original bill of lading who made the presentation, if the originals are several in a set.
  • The limitation period for claims against the carrier (both in contract and in tort) for delivery of cargo without presentation of the original bill of lading is one year starting from the time when the cargo should have been delivered by the carrier.
  • The limitation period against the carrier (both in contract and in tort) will not be interrupted unless litigation, arbitration or ship arrest has been applied for or the claim has been accepted by the respondent.
  • The rules are applicable to straight bills of lading, "to order" bills, and blank bills.

In relation to straight and "to order" bills of lading, the new rules have set out two specific provisions as follows:

  • The carrier is not liable to the consignee if the carrier suspended the transport, redelivered the cargo, changed the destination or delivered the cargo to other parties under the instruction of the named shipper in the straight bill of lading.
  • The carrier is liable to the shipper who actually consigned the cargo to the carrier and holds the "to order" bill of lading even though he was not named in the bill as the shipper.

Incorporation of arbitration clauses into bills of lading

The SPC is also trying to clarify the rules on incorporation of an arbitration clause into the bill of lading. The issue is of particular significance for the carrier who is a non-Chinese party and seeks to avoid litigation in China by reference to the arbitration clause in the bill of lading.

On 31 December 2003, the SPC issued draft directive rules, on trials for foreign-related and international arbitration, to the public for consultation and comments. The tentative view in the draft is that the arbitration clause in a contract is still binding on the parties to whom the contract has been assigned unless it has been agreed otherwise; and if the express terms in the front of the bill of lading state that the arbitration clause in the charterparty is incorporated into the bill of lading such clause is then incorporated and binding on the holder of the bill of lading provided that the arbitration clause is valid in the first place.

This view is certainly not popular as most of the arbitration clauses in charterparties refer to London or New York as the seat of arbitration and, by recognising the validity of the incorporation of these clauses into the bill of lading, Chinese cargo receivers will have to go to London or New York to resolve their disputes.

It is indicated that the SPC may change its view on this. In Beijing Alison Import & Export Co., Ltd v Solar Shipping & Trading S.A and Songa Shipholding Pte Limited (2007), the SPC held that the arbitration clause in the bill of lading is a unilateral expression of the intent of the carrier and it therefore cannot bind the holder of the bill of lading. It is of note that the arbitration clause in Beijing Alison was not incorporated from the charterparty but instead is a clause of the bill of lading itself. In any event, judicial precedents are not binding in China.

The law on the incorporation of arbitration clauses into bills of lading is still not settled. With the SPC still undertaking further research and consultation on this, it is hoped that new directive rules will soon be issued to clarify the confusion in this regard.

Marine arbitration in Shanghai

On 14 April 2009, the State Council of the People's Republic of China published its decision to turn Shanghai into an international financial and shipping centre by 2020. Local regulations and decrees are being drafted to facilitate this process.

For the shipping industry, this means improving maritime arbitration services in Shanghai. China is still considered a difficult jurisdiction that parties will seek to avoid if possible. There are currently 10 maritime courts in China exercising special jurisdiction over shipping disputes.

On 25 May 2009, the Shanghai municipal government opened the Shanghai Arbitration Court of International Shipping as an alternative forum for parties in international shipping disputes to resolve their problems in China.

The Arbitration Court is set up under the auspices of the Shanghai Arbitration Commission and will hear disputes relating to shipping traffic, logistics, transport, maritime affairs and port construction. The Arbitration Court has enlisted a panel of 66 experienced shipping experts from both China and overseas from which parties may choose their arbitrators.

On 18 June 2009, China Maritime Arbitration Commission (CMAC), based in Beijing, which is the most well known maritime arbitration commission in China, re-launched its Shanghai branch, giving it the new name of Shanghai Maritime Arbitration Institute, to compete with the Arbitration Court.

It will be interesting to see how these two arbitration centres in Shanghai work to improve the dispute resolution environment in China and fulfil the city's aim of delivering a world-class arbitration service to the global shipping industry in the near future.

Singapore

Freezing assets in Singapore in support of foreign arbitration proceedings

In recent years, there has been some uncertainty surrounding the question of whether it is possible to freeze assets in Singapore in support of foreign proceedings. This issue has just been revisited in a judgment of the Singapore high court in Multi-Code Electronics Industries (M) Bhd v Toh Chun Gordon 1.

Multi-Code involved the granting of a freezing order in Singapore in connection with court proceedings commenced in Malaysia. In circumstances where the Singapore proceedings were stayed, the court was asked to discharge the freezing order on the ground that it was exclusively in support of a foreign action.

While the court did discharge the injunction as against some of the defendants, it did so not as a matter of principle but specifically on the basis of facts peculiar to this case. In doing so, the court identified the following prerequisites necessary to obtain an order granting or continuing a freezing order in Singapore in support of foreign proceedings:

(a) the claimant must show it has a reasonable accrued cause of action justiciable2 in Singapore;

(b) the court must have (in personam) jurisdiction over the Singapore or foreign defendant;

(c) there must be assets within the territorial jurisdiction of Singapore which could be the subject of a freezing order;

(d) substantive proceedings must be brought in Singapore against the defendant(s), although those proceedings could be stayed; and

(e) the substantive proceedings need not in fact end in a Singapore judgment in order to ground the jurisdiction of the court to grant the freezing order.

The Multi-Code Electronics decision is helpful because, while it may not change the law in this area, it does provide further confirmation of the Singapore court's willingness to grant interim relief even if the claim is never actually determined in Singapore. Furthermore, although Multi-Code did not concern foreign arbitration proceedings, the court expressly associated itself with the comments made in an earlier decision3 which had sought to extend the application of these principles to cases involving foreign arbitration proceedings.

Of course, ultimately, if one is aware that a counterparty in a transaction may have substantial assets located in Singapore, in order to remove any doubt as to the availability of interim relief, one solution would be to insist that Singapore be the seat of the arbitration in respect of any disputes which may arise. Outside of the issue of whether the proceedings are considered foreign, it is relatively straightforward to obtain a freezing order over assets in Singapore and this can in most cases tip the balance of bargaining power significantly.

Footnotes

1 [2009] 1 SLR 1000

2 i.e. appropriate for determination by the courts

3 Front Carrier Ltd [2006] 3 SLR 854

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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