Maritime injunctions and pre-injunction hearings

The PRC Maritime Litigation Special Procedures Law establishes a maritime injunction system that borrows from Mareva injunctions in the English and US legal systems and saisie conservatoire in the civil law system.

A maritime court may, pursuant to the application of a maritime claimant, issue a maritime injunction ordering the respondent to act or refrain from acting, so as to prevent the claimant’s lawful rights and interests from being infringed.

Common injunctions include injunctions ordering carriers to release cargo to holders of bills of lading, injunctions ordering bareboat charterers to release the vessels to the ship owners, injunctions ordering carriers to issue bills of lading to shippers, and injunctions prohibiting the transfer, mortgage or leasing of vessels.

Preventing abuse

Injunctions can effectively and quickly compel a respondent to act or refrain from acting immediately, thereby protecting the applicant’s interests in a timely way. However, they are generally issued pursuant to a unilateral application by the applicant.

Accordingly, if great care is not taken, abuse can arise, causing respondents to incur losses.

The following damages case concerning a wrongful injunction application illustrates this potential for abuse. The defendant was the buyer in an international goods sales contract. It obtained the bill of lading after payment using a letter of credit. However, when attempting to take delivery of the goods on the strength of the bill of lading, the claimant (the carrier) refused to release the cargo on the grounds that it was not the issuer of the bill of lading.

The defendant applied to the court for an injunction demanding that the carrier release the cargo on the grounds that it held the original of the bill of lading, and provided corresponding security.

Following its review, the court issued an injunction, compelling the carrier to release the cargo. The carrier subsequently applied to the court for reconsideration, but its application was rejected.

After releasing the cargo, the carrier commenced a damages suit at the court on the grounds of tort, directed at the defendant’s wrongful injunction application. The claimant alleged that it executed a voyage charter party with the seller in the international goods sales contract and, pursuant to the charter party it could have, in the event that the seller failed to pay the hire, placed a lien on the cargo. This, however, was frustrated by the defendant’s wrongful application for an injunction. This ultimately resulted in its being unable to accept the hire.

Through the trial, the court held that the bill of lading obtained by the defendant could not be used as a basis to demand that the claimant release the cargo and that pursuant to the charter party the claimant had the right to place a lien on the cargo that it had carried. Furthermore, the defendant’s obtaining of the cargo by virtue of the injunction frustrated the claimant’s objective of placing a lien on the cargo to ensure its receipt of the hire. Accordingly, the court rendered a judgment ordering the defendant to compensate for the claimant’s loss in the amount of US$300,000.

In fact, shortly after the Maritime Litigation Special Procedures Law came into effect, Li Guoguang, who was then serving as a vice-president of the Supreme People’s Court, stated, “An application by a party for a maritime injunction is limited to situations where the act or failure to act by the respondent clearly violates a law or regulation, or the provisions of the contract. The maritime court needs strictly to review the party’s application so as to prevent it from abusing its rights.”

Pre-injunction hearings

A strict review of an application for an injunction includes both a procedural review and a review of the merits. In current practice, some courts will conduct a “pre-injunction hearing” before issuing an injunction, in which they arrange for the parties to appear so that a merit review of the evidence and the facts can be carried out. Doing so has produced quite good results.

Although some people feel that such pre-injunction hearings may delay procedures, may result in the other party using improper means to harm the interests of the applicant and lack the necessary legal procedure to follow, the advantages of such hearings outweigh the disadvantages and are worth promoting more widely.

The Maritime Litigation Special Procedures Law specifies that once a court receives an application for an injunction, it should render its ruling within 48 hours. If the court is worried as to whether the hearing can be completed within that period of time, it can consider arranging for the hearing before it receives the application. Furthermore, the Civil Procedure Law specifies that, “The People’s Court shall have the right to investigate and take evidence from the relevant entities and individuals, and such entities and individuals may not refuse.” Accordingly, a pre-injunction hearing may also be a means by which the court investigates and takes evidence. Therefore, it can be said that pre-injunction hearings have a legal basis.

Post-injunction review

Although the Maritime Litigation Special Procedures Law provides for a post-injunction review procedure, there is little doubt that pre-injunction hearings are preferable to post-injunction reconsideration procedures. Pre-injunction hearings are conducive to ascertaining the facts in a case, easing the conflict between the parties and ultimately resolving the dispute, and permit the court to play a guiding role. Notwithstanding the fact that a post-injunction review procedure can provide relief, its shortcomings are also glaring: in general, a review procedure is presided over by the judge that issued the injunction, who may be prejudiced by certain pre-conceptions; and a review procedure does not stay the execution of the injunction so, if the review procedure overturns the original injunction after the injunction has already been executed, the respondent has already suffered a loss.

Preventing the abuse of injunctions in advance is more likely to result in the effective protection of the interests of parties concerned.

Yu Feng is a partner at LC & Co

Li Jun is a judge at Qingdao Maritime Court