Covid-19 legal risks faced by maritime and foreign trade enterprises

By Xie Ming, ETR Law Firm
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While the impact of the covid-19 pandemic remains foreseeable for some time, the 1992 Maritime Law contains some provisions on the legal risks that an epidemic may give rise to. The legal consequence directly caused by the inability to realise the objective of a contract of carriage by sea, more commonly seen in cases at present, is contract termination.

Xie Ming, ETR Law Firm
Xie Ming
Partner
ETR Law Firm

In this respect, articles 89, 90 and 91, section 6, chapter 4 of the law describe the circumstances under which a contract of carriage by sea can be terminated. These provisions can be divided into two categories, namely, at-fault termination (article 89) and no-fault termination (articles 90 and 91).

One would assume that when this legislation was being drafted, the provisions of the maritime laws of various countries were drawn upon. In human history, ancient maritime law has gone through periods of pestilence such as the Black Death in medieval Europe and the Spanish Flu, showing the necessity of convergence between the “circle of friends” of China’s Maritime Law and international law.

Articles 12 and 13 of the Guiding Opinions of the Supreme People’s Court on Several Issues Concerning the Lawful and Due Handling of Enforcement Cases Involving the Covid-19 Pandemic (3) improve the above-mentioned articles 90 and 91 of China’s Maritime Law and add two highlights.

Reflection and direct application of the doctrine of rebus sic stantibus (things thus standing)

(1) Pursuant to a petition by the shipper, the court may consider revising the demurrage, which is reflected in article 14 of the opinions; and (2) where a ship repair enterprise requests an extension in the vessel delivery period, or an increase in costs and expenses, the court may consider revising the same, which is reflected in article 16 of the Opinions.

The author argues that in the past, when applying article 26 of the Judicial Interpretations for the Company Law (2), the courts usually took a cautious attitude, whereas article 533 of the Civil Code provides for the rebus sic stantibus system, which was not reflected in statutory law in the past, making the opinions an early trailblazer in having specific provisions and providing clear guidance for the speedy resolution of disputes.

The upper limit on the amount of demurrage is reflected in statutory law for the first time

There have always been slight differences in how maritime courts in different regions calculate the amount of demurrage. In a decision of the Guangzhou Maritime Court, in which the author was involved, the calculation was made based on the “replacement price for the same type of container, serving as the upper limit for determining the amount of demurrage”. In the opinions, the Supreme People’s Court addresses the issue for the first time in the form of judicial interpretations, which will unify the adjudication criteria.

Legal risks, preventive measures

Accurately grasping the denotation and connotation of force majeure. The understanding of force majeure varies from country to country, such that a force majeure provision in extraterritorial law cannot ipso facto be understood based on similar provisions in Chinese law. For this purpose, it is necessary to review whether the contract expressly sets out its denotation and connotation, and, should there be no such express provisions, it is necessary to fully understand the applicable law governing the carriage by sea, or foreign trade contract, and ascertain the defined provisions on force majeure.

Obligation of prompt notification of termination of contract, or delayed performance, due to force majeure, and careful consideration of interests of the other party to the contract. For example, article 91 of the Maritime Law and article 13 of the opinions.

Exemption or reduction of liability associated with force majeure or requirement of prompt adducement of evidence for rebus sic stantibus under the applicable law. The Charter of the China Council for the Promotion of International Trade (CCPIT), approved by the State Council, specifies that the council can issue certificates of force majeure. With a view to helping enterprises effectively respond to the adverse effects caused by the pandemic, the council issued a statement on 30 January 2020, confirming that China was providing force majeure certificates to local companies that were unable to perform their international contractual obligations due to the coronavirus outbreak, and issued the first such certificate on 1 February, two days later.

However, from reviewing the latest cases, the author understands that the statement under common law that the force majeure certificates of the CCPIT only serve as supplemental proof, and cannot substitute for factual evidence, is similar to the criterion for assessing witness testimony under the rules of evidence in mainland China, meaning that it is difficult to be successfully exempted from liability, or have liability reduced solely on the basis of witness testimony without other relevant underlying factual evidence.

Domestic enterprises need to submit other relevant substantive evidence, such as a certificate/ announcement issued by the government, or an agency of the place where the enterprise is located, or a notice/certificate of sailing delay, flight delay, cancellation, etc., from the carrier before it can achieve its objective of providing proof.

No exemption from liability if force majeure occurs after delayed contract performance. Article 590 of the Civil Code specifies that, “where force majeure occurs after delayed performance by a party, such party shall not be exempted from liability for breach of contract”. Accordingly, one should examine the contract to determine whether breach due to delayed performance is provided for.

Baltic and International Maritime Council (BIMCO) clauses address application of Hong Kong law. For the first time, the clauses issued by BIMCO list Hong Kong alongside London, New York and Singapore in its uniform standard law and arbitration clauses. Although there is no causal relationship with the pandemic, the author still recommends that mainland companies elect on a priority basis to apply Hong Kong law. This is because, if application of Hong Kong law is opted for, and there is an error in application of the law, it is possible to appeal to the Hong Kong courts, meaning that there are still remedies for the rights. However, if application of English law is opted for, and there is an error in application of the law, the arbitration will be final, with no chance of appeal.

Xie Ming is a partner at ETR Law Firm and deputy director of the maritime and aviation committee of Guangzhou Lawyers Association

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