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Ship arrest in China, by Weidong Chen, Dacheng Law Offices LLP



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1. Please give an overview of ship arrest practice in your country.

China is one of the major maritime jurisdictions in the world.  It is certainly not a ship arrest haven, but it is a convenient place to arrest a ship at reasonable costs and relatively rapid speed.
A ship can be arrested either for the enforcement of a judgment or arbitral award, or far more frequently, for obtaining security for a maritime claim.  The application can be made either before an action on merits has been commenced or thereafter.  A Chinese maritime court has jurisdiction to arrest a ship which is located within its jurisdiction even if the parties have agreed to refer the substantive claim to a foreign court or arbitral tribunal.
The law governing the arrest of ships is mainly the Maritime Procedure Law, 2000 (“MPL”).   According to the MPL, to obtain an arrest order, the claimant shall file with the relevant maritime court a written application together with supporting documents and a prima facie maritime claim has to be made out.  More importantly, counter security will usually be required.  It can be cash deposit, or guarantees issued by local banks or insurance companies.  The amount of the counter security is at the discretion of the court and may vary from court to court: it can be 30 days hire of the ship to be arrested or a certain percentage of the claim amount (up to the full amount).
The courts will immediately release the ship when security is posed by the respondent which can likewise be in cash deposit or guarantees issued by local banks or insurance companies or in other forms acceptable to the claimant.

2. Which International Convention applies to arrest of ships in your country?

China is not a party to the 1952 or 1999 Arrest Convention.  However, Chinese law on the arrest of ships is generally in line with the provisions of the 1999 Arrest Convention.

3. Is there any other way to arrest a ship in your jurisdiction?

A ship may also be arrested for a non-maritime claim, however, such an arrest will be granted only after the claimant has obtained a final and enforceable judgment or arbitral award.  Furthermore, although the application for arrest may be filed with an ordinary court, the arrest shall normally be executed through a maritime court (or its superior court in appropriate cases).

4. Are there alternatives e.g. saisie conservatoire or freezing order?

Arrest of a ship is a special type of property preservation measures.  Other measures include the attachment of other properties (tangible or intangible) and the freezing of bank accounts etc.  These measures can be applied for alternatively or in addition to the arrest of a ship if the value of the ship to be arrested is insufficient to secure the claim.

5. For which types of claims can you arrest a ship?

The MPL lists 22 types of maritime claims which are qualified for arrest of a ship.  These 22 types of claims correspond almost identically to the 22 categories of maritime claims defined in Article 1.1 of the 1999 Arrest Convention as to which arrest of ship is permissible.  This list has probably included almost all kinds of maritime claims that may be encountered in real life.

6. Can you arrest a ship irrespectively of her flag?

Yes.  What flag a ship flies is immaterial and as long as the relevant conditions for arrest are met the ship can be arrested.

7. Can you arrest a ship irrespectively of the debtor?

Basically, a ship can only be arrested if her owner is the debtor of a maritime claim.  There are essentially two exceptions:
The first is related to the arrest of a ship under a bareboat charter — such a ship can be arrested if the bareboat charterer of the ship is liable for the maritime claim and is the bareboat charterer of the ship when the arrest is effected.
The second exception is related to maritime liens.  In respect of claims which enjoy maritime liens, e.g. claims for crew wages, port charges, salvage, loss of life or personal injury or other claims in tort (e.g. loss of or damage to property arising from a ship collision), the ship which gave rise to the maritime liens can be arrested even if she has changed hands (i.e. in the hands of an innocent party).

8. What is the position as regards sister ships and ships in associated ownership?

Sister ships can be arrested.  A “sister ship” means any ship (other than the particular ship giving rise to the maritime claim) which is owned by the ship-owner, bareboat charterer, time charterer or voyage charterer who is liable for the maritime claim.  However, the arrest of sister ships is not available to claims with respect to ownership or possession of a ship.
The arrest of associated ships is not allowed, unless in the very extraordinary cases where the court is prepared to pierce the corporate veil and to find that the relevant companies have lost their separate corporate personalities (i.e. they are in effect one entity).

9. What is the position as regards Bareboat and Time-Chartered vessels?

As to ships under bareboat charters, please see the comments under Question 7.  Time chartered ships are normally not subject to arrest.

10. Do your Courts require counter-security in order to arrest a ship?

The MPL provides that the courts may request the claimant to provide counter security for the arrest application.  In practical terms, however, the courts almost invariably require a proper counter security to be submitted for the application (counter security may be dispensed with in some exceptional cases, e.g. in claims for crew wages or loss of life/ personal injury).
The acceptable forms of counter security include cash deposit, guarantees issued by first class local banks (including local branches of foreign banks) or letters of undertaking issued by first class local insurance companies.  Letters of undertakings of a P&I club (other than China P&I Club) will normally not be accepted.
The amount of counter security is at the discretion of the courts.  The MPL provides that the amount shall be such as to secure the possible loss that may be caused by a wrongful application for arrest.  In practice, the courts will normally require a sum up to 30 days hire of the ship to be arrested.

11. Is there any difference in respect to arresting a ship for a maritime claim and a maritime lien?

The procedures for arresting a ship for an ordinary maritime claim and for a claim which enjoys maritime lien are identical.  One point to note is that the right of maritime lien must be exercised within one year counting from the date when that right arose.  This time limit is not subject to interruption or suspension.  There is no such restriction with regard to arrest for ordinary maritime claims (provided the arrest is filed within the time bar of the claim).

12. Does you country recognise maritime liens? Under which International Convention, if any?

Chinese law recognise maritime liens.  The provisions regarding maritime liens are contained in the MPL which are similar to those stipulated in the International Convention on Maritime Liens and Mortgages, 1993.

13. What lapse of time is required in order to arrest a ship since the moment the file arrives to your law firm?

Depending on the volume of documents involved for the purpose of understanding the merits and drafting the application for arrest, the time required for preparing the arrest documentation would vary.  In normal circumstances, it will take less than a day to complete the documentation work (including translation of the supporting documents which are in foreign languages).   How quickly the arrest order can be obtained will largely depend on how soon the claimant can prepare the counter security that may be required by the court.  Depending on the circumstances of each case, sometimes it may only take several hours but sometimes it will take days to obtain an arrest order.

14. Do you need to provide a POA, or any other documents of the claim to the Court?

POA is required for the arrest application.   Due to the urgency normally involved in a ship arrest, the courts will usually not insist on the submission of original copies of the POA or its notarisation and legalisation (apostille) at the time of application.  However, the courts will normally require them to be submitted within a time limit thereafter, e.g. within 2 months of the arrest.
An original copy of the application for arrest is usually required.  This document will be drafted by lawyers based on the documents received and it usually need be executed by the claimant.  Documentary evidence in support of the claim shall also be submitted.  Original copies are not normally required for the arrest.  Nor is it usually required to have them notarised or legalised for the purpose of the arrest application.

15. What original documents are required, what documents can be filed electronically, what documents require notarisation and/or apostille, and when are they needed?

As discussed under Question 14, an original copy of the application for arrest would usually be required.  In addition, if the counter security is issued in the form of a bank guarantee of letter of undertaking, the original copy is also required.  Otherwise, photocopies are normally acceptable.  So far, no electronic filing is acceptable to the courts.  As for the notarisation and apostille, please see the comments under Question 14.

16. Will your Courts accept jurisdiction over the substantive claim once a vessel has been arrested?

Yes.  The maritime court which has arrested the ship will accept jurisdiction over the substantive claim unless there is a valid jurisdiction or arbitration agreement between the parties to the contrary.

17. Which period of time will be granted by the Courts in order for the claimants to take legal action on the merits?

If a ship is arrested before the legal action on the substantive claim is commenced, the legal action shall be commenced within 30 days of the arrest or else the court will release the ship or return the security which has been posed by the respondent to release the ship.
The above time limit may be inapplicable where the claimant and respondent have subsequently agreed to discuss settlement or they have agreed upon the duration of the security posed for the release of the ship (It is however unclear whether and how the latter rule will apply to a security provided by a third party, e.g. an letter of undertaking issued by a P&I club).

18. Do the Courts of your country acknowledge wrongful arrest?

Yes, but the test for wrongful arrest has not been clearly laid down in the law or judicial practice.  If the arrest is found wrongful, the claimant will be ordered to compensate the respondent for the losses it has suffered, including loss of earning, expenses for maintaining the ship under arrest and costs for posing security, etc.

19. Do the Courts of your country acknowledge the piercing and lifting of the corporate veil?

Piercing corporate veil is a principle recognised by Chinese law but it is rare in practice, the main reason being that the burden of proof is hard to discharge, e.g. one of the main factors to be considered is whether the relevant parties have commingled assets and the evidence in this regard can be difficult to collect.

20. Is it possible to have a ship sold pendente lite; if so how long does it take?

When a ship has been kept under arrest for over 30 days (during which the respondent has failed to provide security to release her) and if it is not appropriate to allow the arrest to continue, e.g. because the maintenance expenses are to exceed the value of the ship, the court may at the request of the parties concerned order to sell the ship by means of auction.  Another condition to the application for sale of the ship is that the parties shall first have commenced the legal action on the substantive claim at a competent court or arbitration tribunal.   The time frame within which a court sale can be completed depends on the circumstances of each case; normally, it will take several months to complete such a sale.