LAW AND PRACTICE
1. Maritime and Shipping Legislation and Regulation
1.1 Domestic Laws Establishing the Authorities of the Maritime and Shipping Courts
The admiralty jurisdiction of the High Court of the Hong Kong Special Administrative Region of the People's Republic of China is chiefly to be found in the High Court Ordinance (Cap. 4). Section 12A of the statute lists the different types of maritime claim which give rise to the distinctive feature of admiralty jurisdiction, namely, the right to arrest a ship in order to obtain security for the claim.
In personam admiralty actions may also proceed in the District Court, where the amount in dispute and the subject-matter are within the monetary limits and jurisdiction of the District Court Ordinance.
As with English law, Hong Kong law recognises the traditional maritime liens which are characterised by their ability to survive a private sale of the vessel or res:
- damage done by a ship;
- crew wages;
- Master's disbursements.
There are also what are commonly referred to as "statutory liens" – claims such as charterparty, bill of lading, vessel supplies, repair claims, etc – which enable arrest, provided that certain criteria as to the ownership and control of the vessel are met.
Lastly, there are claims which give rise to the right of ship arrest, irrespective of considerations of ownership:
- any claim to the possession or ownership of a ship;
- any question arising between the co-owners of a ship as to possession, employment or earnings of that ship; and
- any claim in respect of a mortgage of or charge on a ship or any share therein.
1.2 Port State Control
Pursuant to the Shipping & Port Control Ordinance and also the Merchant Shipping Ordinances, the Marine Department is responsible for all navigational matters in Hong Kong and the safety standards of all classes and types of vessels. The Marine Department has the responsibility to ensure that ships visiting Hong Kong comply with the requirements of the relevant international maritime conventions. In order to discharge this function, officers of the Department carry out PSC inspections on ships visiting Hong Kong in accordance with the provisions of IMO Resolution A.1138(31) and the Tokyo Memorandum of Understanding (MOU) Port State Control Manual.
In the event of casualties such as groundings, collisions and pollution, the Marine Department will conduct maritime accident investigations, following which reports are published concerning safety and security standards and recommended improvements.
1.3 Domestic Legislation Applicable to Ship Registration
Key Legislation and Regulations in Hong Kong
The key statutory provisions in Hong Kong applicable to ship registration are:
- Merchant Shipping (Registration) Ordinance (Cap. 415, Laws of Hong Kong) (MSRO);
- Merchant Shipping (Registration) (Fees and Charges) Regulations (Cap. 415A, Laws of Hong Kong);
- Merchant Shipping (Registration) (Ships' Names) Regulations (Cap. 415B, Laws of Hong Kong);
- Merchant Shipping (Registration) (Tonnage) Regulations (Cap 415C, Laws of Hong Kong); and
- Companies Ordinance (Cap. 622, Laws of Hong Kong) (CO).
The governmental authority which handles the registration of ships in Hong Kong is the Registrar of Shipping of the Hong Kong Shipping Registry, Marine Department.
1.4 Requirements for Ownership of Vessels
The following categories of person are qualified to be owners of Hong Kong-registered ships (Section 11(4) of the MSRO):
- an individual who holds a valid Hong Kong Identity Card and is ordinarily resident in Hong Kong; or
- a company incorporated in Hong Kong; or
- a non-Hong Kong company registered with the Hong Kong Companies Registry under Part 16 of the CO as a non-Hong Kong company. Any overseas company wishing to be the owner of Hong Kong-registered ships can either incorporate a limited liability company in Hong Kong as a wholly owned subsidiary of the parent company, or register the overseas company in Hong Kong under Part 16 of the CO.
Each of the above categories of person is classified as a "qualified person".
In each case, a local representative person must also be appointed for each Hong Kong-registered ship (Section 68 of the MSRO), and that person must be:
- a qualified person and the owner or part-owner of the ship; or
- a company incorporated in Hong Kong which is engaged in the business of managing, or acting as an agent for, ships.
A ship is registrable if:
- a majority interest in the ship is owned by one or more qualified persons (Section 11(1)(a) of the MSRO); or
- the ship is operated under a demise charter by a body corporate who is a qualified person (whether or not a majority interest in the ship is owned by one or more qualified persons) (Section 11(1)(b) of the MSRO), and a representative person is appointed in relation to the ship.
A "ship" includes every description of vessel capable of navigating in water not propelled by oars, and includes any ship, boat or craft and an air-cushion vehicle or similar craft used wholly or partly in navigation in water (Section 2 of the MSRO).
By virtue of the definition of "ship", a ship which is still under construction and is not capable of being used in navigation is therefore not registrable under the MSRO. There is also no provision under the MSRO which provides for the registration of ships under construction.
1.5 Temporary Registration of Vessels
Ship registration in Hong Kong can be by way of full registration or provisional registration. Provisional registration of a ship in Hong Kong can be effected under Section 27 of the MSRO and is appropriate when the original title documents (eg, the builder's certificate, the bill of sale, etc) cannot be produced at the time of full registration. Provisional registration under the MSRO is optional and is not a prerequisite for full registration for a ship. It is a valid registration, but only for a period of one month, and may be extended for a further period of one month maximum upon application by the owner with acceptable justification.
Dual registration is not permitted, either onto Hong Kong's register or from Hong Kong's register. Hence, a ship which, at the time of registration, remains registered in a place outside Hong Kong or subsequently becomes registered in a place outside Hong Kong will cease to be registrable under the MSRO.
However, section 11(1)(b) of the MSRO allows the registration of a demise or bareboat-chartered ship onto Hong Kong's register by a demise- or bareboat-charterer (who is a body corporate and a qualified person), in which case, the application for registration must be accompanied by a statement in the required statutory declaration that the ship will not be registered elsewhere as long as it is registered in Hong Kong (Section 19(5)(b)(ii)(C) of the MSRO) or, if it is, that any such registration will be deleted. The demise-charter (bareboat-charter) registration is valid for the period of the demise or bareboat charter.
A demise charter is defined under Section 2 of the MSRO as "a charterparty by which a ship is chartered or let by demise and under which the demise-charterer has the possession of the ship and has control of all matters relating to the navigation and operation of the ship, including employment of the Master and crew".
1.6 Registration of Mortgages
Registration of Mortgages
A mortgage secured over a ship registered in Hong Kong should be registered in Hong Kong by the Registrar of Shipping at the Hong Kong Shipping Registry, Marine Department.
If the mortgage is granted by a Hong Kong-incorporated company or a non-Hong Kong company registered under Part 16 of the CO, the mortgage and any other document(s) containing a registrable charge in relation to the ship (eg, the deed of covenant) shall also be filed with the Hong Kong Companies Registry for registration within one month of the date of its creation (Sections 335 and 336 of the CO).
Documentary Requirements for Registration of a Mortgage
The following documents shall be submitted to the Registrar of Shipping for registration.
- One original form "Hong Kong Ship Mortgage" (Form No RS/M1) (Section 44(2) of the MSRO) – the prescribed mortgage form can be obtained from the Marine Department Homepage on the internet.
- It must be submitted in A3 size; and
- it must be executed either:
- under seal; or
- by a lawful attorney-in-fact empowered by a power of attorney granted by the mortgagor (POA).
- If the mortgage is executed under seal:
- individual mortgagors should seal their mortgages in the presence of a witness, who must attest the signature of the mortgagor by signing their name and stating their address and occupation legibly;
- corporate mortgagors should execute under common seal in accordance with their constitutional documents. If a corporate mortgagor does not possess a common seal, the mortgage should be executed under the hand and seal of a person purporting to be authorised by the mortgagor to execute on its behalf (ie, a director or the secretary) and that person is required to make a declaration that the corporate mortgagor does not possess a common seal (Section 19(4) of the MSRO). If the declaration is made outside Hong Kong, the declaration should be made before a notary public practising in that jurisdiction. An original of that declaration shall be submitted to the Registrar; if the mortgage is executed by an attorney-in-fact, the POA must be executed under seal and witnessed by a named witness and one original POA (or a copy certified as true by a solicitor or a notary public) shall be produced to the Registrar. If the POA is executed outside Hong Kong, it must be certified by a notary public practising in the country in which the power is given.
- If the ship is provisionally registered, one original confirmation by the mortgagee dated the same day on which the mortgage is presented to the Registrar, and:
- it should be executed by the mortgagee or its solicitor;
- in a specified form "Confirmation by Mortgagee" obtained from the Marine Department Homepage on the internet; and
- the purpose of the confirmation is to confirm that the mortgagee knows that the original title document will not be produced to the Registrar at the time of provisional registration and that the original title document is now held by the mortgagee or on its behalf.
- If there are already mortgages registered over the ship, original written consent(s) from all the holders of those mortgages.
The following documents shall be submitted to the Hong Kong Companies Registry for registration:
- a copy of each of the mortgage form No RS/M1 and any other security document containing a registrable charge, in each case certified as true by a director, the secretary or an authorised representative of the mortgagor or the mortgagee; and
- one original-form NM1 (Statement of Particulars of Charge), a form that can be obtained from the Hong Kong Companies Registry home page on the internet, in respect of each registrable charge and signed by a director, the secretary or an authorised representative of the mortgagor or the mortgagee.
1.7 Ship Ownership and Mortgages Registry
The basic information (eg, ship name, official number, IMO number, gross tonnage, net tonnage, call sign, ship type and title-registration status) regarding a Hong Kong-registered ship can be obtained by anyone via the Electronic Business System (eBS) services on the Marine Department Homepage on the internet.
To obtain fuller details (eg, the registered ship-owner's details and mortgage registration details) of a Hong Kong-registered ship, anyone can request a transcript of the register by completing a transcript request form, downloadable from the Marine Department Homepage on the internet and return it to the Marine Department or fax it to 2541-8842. The "Transcript of Register" will be issued to the applicant upon payment.
2. Marine Casualties and Owners' Liability
2.1 International Conventions: Pollution and Wreck Removal
The applicable international conventions are as follows:
- the 1973 International Convention for the Prevention of Pollution from Ships (known as the MARPOL Convention) and its 1978 Protocol and subsequent amendments are applied in Hong Kong by the Merchant Shipping (Prevention and Control of Pollution) Ordinance (Cap. 413) and its associated Regulations;
- the International Convention on Civil Liability for Oil Pollution Damage, and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992 are applied in Hong Kong by the Merchant Shipping (Liability and Compensation for Oil Pollution) Ordinance (Cap. 414) and its associated Regulations;
- the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, is applied in Hong Kong by the Bunker Oil Pollution (Liability and Compensation) Ordinance (Cap. 605);
- the Nairobi International Convention on Removal of Wrecks has not yet been applied to Hong Kong. Statutory provisions governing the Marine Department's powers to direct the removal of wrecks and to impose penalties for non-compliance are to be found in the Shipping & Port Control Ordinance (Cap. 313).
2.2 International Conventions: Collision and Salvage
The Collision Regulations, formally known as the International Regulations for Preventing Collisions at Sea 1972 (as amended), are applied in Hong Kong pursuant to the Merchant Shipping (Safety) (Signals of Distress and Prevention of Collisions) Regulations (Cap. 369N).
Provisions of the Brussels Collision Convention 1910, as well as the International Convention on Salvage 1989, are enacted in Hong Kong by the Merchant Shipping (Collision Damage Liability and Salvage) Ordinance (Cap. 508).
2.3 1976 Convention on Limitation of Liability for Maritime Claims
The London Convention, ie, the 1976 Convention on Limitation of Liability for Maritime Claims together with the 1996 Protocol (LLMC) is applied in Hong Kong by the Merchant Shipping (Limitation of Ship-owners Liability) Ordinance (Cap. 434).
2.4 Procedure and Requirements for Establishing a Limitation Fund
Limitation under the LLMC is available to salvors and "ship-owners", who are defined as the owner, charterer, manager or operator of the ship.
In order to establish a limitation fund and to obtain a decree limiting their liability, a plaintiff must commence a limitation action in the Admiralty list of the High Court by issuing and serving a writ on a named defendant, one of the persons with claims against the plaintiff in respect of the casualty.
Following the issue by the court of a decree, the plaintiff must constitute the fund by payment into court in accordance with the provisions in the schedule to Cap. 434 (as above) by reference to a fixed formula related to the tonnage of the ship and Special Drawing Rights (SDRs).
3. Cargo Claims
3.1 Bills of Lading
The Hague-Visby Rules are given statutory effect in Hong Kong by the Carriage of Goods by Sea Ordinance (Cap. 462). Neither the Hamburg nor the Rotterdam Rules have been applied to Hong Kong.
3.2 Title to Sue on a Bill of Lading
Title to sue vests in the lawful holder of the bill of lading (section 4 of the Bills of Lading and Analogous Shipping Documents Ordinance (Cap. 440)).
3.3 Ship-Owners' Liability and Limitation of Liability for Cargo Damages
A carrier will not become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 SDRs per package or unit or two SDRs per kilogramme of gross weight of the goods lost or damaged, whichever is the higher (Article IV r.5 of the Hague-Visby Rules).
The Hague-Visby Rules can apply mandatorily under section 3 of Cap. 462 or voluntarily by virtue of incorporation of a clause paramount in the contract of carriage. A ship-owner sued as the actual, as opposed to contractual, carrier would be expected to obtain the benefit of package limitation as a bailee on terms.
3.4 Misdeclaration of Cargo
The shipper is deemed to have guaranteed the accuracy of the information which they have supplied regarding the nature and details of their cargo. In the event of misdescription, the shipper is obliged to indemnify the carrier for loss or damage resulting from inaccuracies in the shipper's description of the goods. The relevant provision of the Hague-Visby Rules is Article III r.5.
A main source of Hong Kong law is the common law and rules of equity, as derived from the judgments of courts in Hong Kong and other common-law jurisdictions. Hong Kong's constitution, which is known as The Basic Law, provides at Article 84 that Hong Kong courts may refer to and apply case-law precedents from other common-law jurisdictions. As a result, the Hong Kong courts will often refer to and apply English case law in disputes concerning bills of lading and other maritime matters.
3.5 Time Bar for Filing Claims for Damaged or Lost Cargo
Where the Hague-Visby Rules apply, the carrier is discharged from all liability in respect of the goods, unless suit is brought within one year of their delivery or the date when they should have been delivered. This time limit may be extended by agreement of the parties.
4. Maritime Liens and Ship Arrests
4.1 Ship Arrests
Provisions of the 1952 Arrest Convention are applicable to Hong Kong by virtue of sections 12A-12E of the High Court Ordinance, which statute governs ship arrests in Hong Kong.
4.2 Maritime Liens
For details of the maritime and statutory liens recognised in Hong Kong, see 1.1 Domestic Laws Establishing the Authorities of the Maritime and Shipping Courts.
4.3 Liability in Personam for Owners or Demise Charterers
Where there is a "traditional" maritime (as opposed to purely statutory) lien on a ship for the amount claimed, an action in rem may be brought in the Court of First Instance against that ship. The maritime lien survives any private sale of the ship, and so can be enforced by way of arrest, even if the current owners or demise charterers of the ship have no in personam liability for the claim.
As regards the statutory liens for claims in respect of cargo, charterparty, repairs, supplies, etc (as described in section 12A(2)(e) to (q) of the High Court Ordinance), the right to arrest is subject to satisfying the criteria set out as follows.
- Where the claim arises in connection with a ship, and the person who would be liable on the claim in an action in personam (the relevant person) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship, an action in rem may be brought in the Court of First Instance against:
- that ship, if at the time when the action is brought, the relevant person is either the beneficial owner of that ship in respect of all the shares in it or the charterer of it under a charter by demise; or
- any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner in respect of all the shares in it.
A protective in rem writ may be issued, which preserves the statutory lien against any future private sale or change of ownership of the vessel. As a result, an innocent purchaser or demise charterer may find their vessel arrested in respect of earlier claims for which they have no in personam liability.
4.4 Unpaid Bunkers
Bunker suppliers can arrest a ship in respect of unpaid bunkers, provided that, at the time when they issue their in rem writ, the person liable to them in personam is either the owner of that ship or the charterer of it under a charter by demise. This means that a bunker supplier can only arrest a ship if it contracted with the ship-owner or bareboat-charterer. As a result, if the only party liable for the unpaid bunkers is merely a time-charterer of the vessel, the right of arrest does not arise.
4.5 Arresting a Vessel
There are few formalities required in order to arrest a vessel: there is no need for a power of attorney, nor notarised or apostilled documents, nor translations.
All the arresting party need do is file with the writ an affidavit setting out the basis of its right of arrest, pursuant to the High Court Ordinance and exhibiting the supporting documents, together with an undertaking to pay the bailiff's costs of arrest and preservation of the vessel. A search should also be made for any caveats against arrest which may have been filed at court.
Significantly, there is no need to provide a deposit or other counter-security in respect of any potential claim for wrongful arrest.
4.6 Arresting Bunkers and Freight
The maritime lien for salvage attaches not only to the ship but also to cargo, bunkers and freight, so that all the salvaged property may be arrested. Bunkers and freight may not otherwise be arrested, although they may be frozen by way of a Mareva injunction (see 4.8 Other Ways of Obtaining Attachment Orders).
4.7 Sister-Ship Arrest
Sister-ship arrest is possible in Hong Kong, but not associated-ship arrest. So, where the party liable in personam on the claim owns a number of ships, the claimant can decide which one of those ships to arrest. It should be noted that, whilst the claimant can name the entire fleet in its in rem writ, it is only permitted to arrest one of the vessels in respect of the claim.
4.8 Other Ways of Obtaining Attachment Orders
Security for a claim can also be obtained by way of the Mareva or freezing injunction, although this does not confer any priority over other creditors in respect of the asset. The main criteria to be satisfied by the plaintiff are:
- they have an arguable case;
- the court has jurisdiction in the matter;
- there is a real risk that the defendant will remove or dissipate the assets.
Another method of attaching the vessel is by way of a warrant of execution, which may be issued where there is a final judgment given by, or an arbitration award or foreign judgment registered at, the High Court.
4.9 Releasing an Arrested Vessel
Security for the release of an arrested vessel is usually given contractually by way of a Protection and Indemnity (P&I) Club letter of undertaking or a bank guarantee. The methods of security regulated by the Rules of the High Court are the bail bond and also the payment into court of money, although these are encountered relatively rarely in practice.
4.10 Procedure for the Judicial Sale of Arrested Ships
An application for the judicial sale of the vessel may be made on the basis that the vessel is a wasting asset, because its value is being continually reduced by the costs and expenses of its arrest and maintenance, such that the judgment to be obtained may not be fully satisfied. In that regard, the plaintiff's solicitors must at the time of arrest provide to the court an undertaking to pay the bailiff's costs of arrest and maintenance of the vessel. The court's usual mode of sale is public invitation to tender: in other words, sealed bids.
Whilst the order of priority of claims is within the discretion of the court, the usual ranking and distribution of the court sale proceeds of the vessel is as follows:
- bailiff's costs of arrest and maintenance (including the bailiff's 1% commission on the sale price);
- recoverable legal costs of the arresting party;
- maritime liens;
- statutory liens; and
- non-maritime debts.
4.11 Insolvency Laws Applied by Maritime Courts
Hong Kong has no statutory equivalent of the United States' Chapter 11 or the UK's Administration Order process for the restructuring of companies.
Foreign insolvency and restructuring proceedings do not, under Hong Kong law, result in an automatic stay of any Hong Kong action against the company in question. As a result, warrants for arrest and judicial orders for the sale of vessels may be granted by the Hong Kong Admiralty Court in respect of vessels which are owned by companies subject to overseas insolvency proceedings.
As regards Hong Kong insolvency law, the courts have jurisdiction to wind up not only companies which are registered in Hong Kong but also overseas-registered companies where there is, amongst other criteria, a sufficient connection to Hong Kong. The presence of the overseas-registered ship-owning company's vessel within Hong Kong waters would provide the basis for such jurisdiction.
When a winding-up order has been made or a provisional liquidator appointed, no action shall be proceeded with against the company except with leave of the court (section 186 of the Companies Ordinance, Cap. 32). The court will, however, grant leave to continue the proceedings to secured creditors, eg, mortgagees, maritime lienors, and statutory lienors whose in rem writ was issued prior to the date of the winding-up order.
4.12 Damages in the Event of Wrongful Arrest of a Vessel
The ship-owner will only be able to recover its losses due to a wrongful arrest where it can prove that the arresting party or its solicitor acted in bad faith or was grossly negligent. This is a high threshold to cross.
5. Passenger Claims
5.1 Laws and Conventions Applicable to the Resolution of Passenger Claims
The 1974 Athens Convention concerning the Carriage of Passengers and their Luggage by Sea is given effect in Hong Kong by the Merchant Shipping (Limitation of Ship-owners Liability) Ordinance, Cap. 434. Any action for damages arising out of the death of or personal injury to a passenger or for the loss of or damage to luggage is time-barred after a period of two years. The Convention applies to international, not domestic Hong Kong, carriage.
The London Convention, ie, the 1976 Convention on Limitation of Liability for Maritime Claims together with the 1996 Protocol (LLMC) is applied in Hong Kong by the Merchant Shipping (Limitation of Ship-owners Liability) Ordinance (Cap. 434). The LLMC provides for limitation by reference to the vessel's tonnage, which may be relevant in the event of a serious casualty.
It should also be noted that the Control of Exemption Clauses Ordinance (Cap. 71) prohibits the carrier from excluding or restricting its liability for death or personal injury resulting from its negligence.
6. Enforcement of Law and Jurisdiction and Arbitration Clauses
6.1 Enforcement of Law and Jurisdiction Clauses Stated in Bills of Lading
For a bill of lading, as for any maritime commercial contract, the Hong Kong courts will uphold a choice-of-law clause.
Exclusive jurisdiction clauses will similarly be given effect unless there are strong reasons or exceptional circumstances for departing from them. A party who contests the appropriateness of the named forum has a heavy burden to prove that the interests of justice are such that the contractually agreed choice of jurisdiction should be overridden.
6.2 Enforcement of Law and Arbitration Clauses Incorporated into a Bill of Lading
For a charterparty arbitration clause to be incorporated into the relevant bill of lading, Hong Kong law requires that the bill of lading make specific reference to the arbitration clause to be incorporated. This requirement under Hong Kong law for specific words of incorporation also applies in the case of jurisdiction clauses.
6.3 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Hong Kong is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Section 87 of the Arbitration Ordinance (Cap. 609) provides for the enforcement within Hong Kong of Convention arbitral awards.
6.4 Arrest of Vessels Subject to Foreign Arbitration or Jurisdiction
It is possible to arrest a ship in Hong Kong in respect of a claim which is subject to a foreign arbitration clause, although the in rem proceedings will be subject to a mandatory stay. Section 20(6) of the Arbitration Ordinance (Cap. 609) stipulates that the vessel, or the bail or security given for its release from arrest, shall be retained as security for the satisfaction of any award made in the arbitration.
Where a plaintiff sues in Hong Kong in respect of a contract which provides that all disputes are subject to the jurisdiction of a foreign court, the Hong Kong courts will usually exercise their discretion to stay the proceedings, unless strong reasons for not doing so are shown.
6.5 Domestic Arbitration Institutes
The Hong Kong Maritime Arbitration Group (HKMAG) has the specific aim of the promotion of maritime arbitration in Hong Kong. The majority of disputes are resolved by HKMAG member arbitrators on an ad hoc basis under the HKMAG Terms 2021, which are substantially based on the London Maritime Arbitrators Association(LMAA) Terms 2021.
In some cases, the parties agree to have the resolution of their dispute administered by the arbitral organisation, especially if application to the Mainland Courts for interim measures is likely to be taken under the "Arrangement Concerning Mutual Assistance in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong SAR". The HKMAG is a qualified arbitral institution under the Arrangement.
6.6 Remedies where Proceedings are Commenced in Breach of Foreign Jurisdiction or Arbitration Clauses
Section 20 of the Arbitration Ordinance (Cap. 609) provides that, where court proceedings are brought in a matter which is the subject of an arbitration agreement, the court shall, where the defendant "so requests not later than submitting his first statement on the substance of the dispute" refer the parties to arbitration.
Similarly, a defendant may apply under Order 12 rule 8 of the Rules of the High Court to stay any proceedings brought in breach of a foreign jurisdiction clause, provided that any such application is made within the time limited for service of the Defence.
7. Ship-Owner's Income Tax Relief
7.1 Exemptions or Tax Reliefs on the Income of a Ship-Owner's Companies
Fiscally, Hong Kong is regarded as tax-benign. Ship-owners operating ocean-going Hong Kong-flag vessels are exempted from paying tax on their shipping income. Withholding tax has been abolished. There is no tax payable on dividend income, nor are capital gains taxed. Stamp duty is restricted to land and stock transfers.
See 9.1 Other Jurisdiction-Specific Shipping and Maritime Issues with regard to certain tax concessions for ship lessors and ship-leasing managers.
8. Implications of the Coronavirus Pandemic
8.1 COVID-19-Related Restrictions on Maritime Activities
Only vessels calling at Hong Kong for cargo operations are permitted to change crew. Such vessels are also exempt from quarantine provided that they comply with the medical surveillance, vaccination and testing requirements.
Vessels which have visited countries other than China within the three weeks before their arrival at Hong Kong, and which call at Hong Kong for purposes other than cargo operations, will be subject to a compulsory 21-day quarantine.
8.2 Non-performance of a Shipping Contract
Hong Kong contract law does have the doctrine of frustration, but it does not have a free-standing principle of force majeure, the latter concept being dependent on there being an express provision in the contract.
If there is a force majeure clause in the contract, an affected party may rely on it by proving that specified circumstances beyond their control have prevented their performance of the contract. Typically, the clause would set out the consequences of the occurrence of the force majeure event, such as suspension or termination of the contract.
If the contract does not contain a force majeure clause, the affected party may consider whether the doctrine of "frustration" is applicable. Under Hong Kong law, a contract can be discharged by "frustration" when a supervening event (outside the parties' control and without the fault of either party) renders performance of the contract impossible or only possible in a radically different way from that originally contemplated. This is a very difficult test to satisfy. In the English case Salam Air SAOC v Latam Airlines Group SA  EWHC 2414 (Comm), an injunction was sought by a lessee of aircraft to restrain the lessor from making a demand under standby letters of credit. The court examined the question of whether the impact of the COVID-19 pandemic, ie, the regulations issued by the Public Authority for Civil Aviation which severely restricted air travel, was a frustrating event. Upon reviewing the terms of the contract, Mr Justice Foxton found that the lessee's case on frustration was weak, as it was clear from the terms in which the contract was drafted that the obligation to pay rent and the attendant risk fell on the lessee.
8.3 Enforcement of the "IMO 2020" Rule Relating to Limitation on the Sulphur Content of Fuel Oil
Pursuant to theAir Pollution Control (Fuel for Vessels) Regulation (Cap 311AB), all vessels are required to use "compliant fuel" within Hong Kong waters, irrespective of whether they are sailing or berthing. Compliant fuel required by the Regulation includes low-sulphur marine fuel with sulphur content not exceeding 0.5%, liquefied natural gas or any other fuel approved by the Director of Environmental Protection. If a vessel uses emission-reduction technology that can achieve the same or less emission of sulphur dioxide when compared with using low-sulphur marine fuel, it may be exempted from using compliant fuel.¬
8.4 Trade Sanctions
Since Hong Kong's return to China in 1997, the Hong Kong Government has, according to the principle of "one country, two systems", been implementing and enforcing sanctions imposed by the United Nations Security Council (UNSC) against places and organisations through local legislation, namely, the United Nations (Anti-Terrorism Measures) Ordinance (Cap.575) (UNATMO) and the United Nations Sanctions Ordinance (Cap. 537) (UNSO) as well as subsidiary regulations made under the UNSO by the Chief Executive of Hong Kong. Where a Committee of the UNSC imposes a prohibition on dealing with funds or assets of any designated person or entity, or with terrorist property, the Chief Executive will notify the designation through an extraordinary gazettal process which occurs within one working day. As of November 2021, there have not been any prosecutions in Hong Kong under the UNATMO or the UNSO.
9. Additional Maritime or Shipping Issues
9.1 Other Jurisdiction-Specific Shipping and Maritime Issues
On 19 June 2020, the Hong Kong government published the highly anticipated Inland Revenue (Amendment) (Ship Leasing Tax Concessions) Ordinance 2020, which contains profits tax concessions for qualifying ship lessors and ship-leasing managers.
In brief, profits derived from qualifying ship-leasing income are exempt from profits tax, whereas profits from qualifying ship-leasing management activities are either exempt from profits tax if the services are provided to affiliated companies, or taxed at the reduced profits tax rate of 8.25% if the services are provided to unaffiliated companies (the standard profits tax rate is 16.5%). The Ordinance, which incorporates anti-abuse provisions to safeguard the integrity of the tax system and comply with the latest international tax rules (the OECD's Base Erosion and Profit Shifting (BEPS) measures), came into effect from 1 April 2020.
Originally published by Chambers and Partners.
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