The Covid-19 epidemic and Chinese maritime courts' guiding judicial opinions - Maritime and Transport Law Committee, July 2020

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Peng Xianwei
Beijing DeHeng Law Offices, Beijing
pengxw@dehenglaw.com

Chinese maritime judicial practice in epidemics

As a civil law country, force majeure is one of the statutory reasons in Chinese law exempting non-performance of contracts. As per Article 180 of General Rules on the Civil Law of the People's Republic of China (2017), force majeure is defined as unforeseeable, unavoidable and insurmountable objective conditions. In maritime judicial practice, Chinese courts have dealt with many cases relating to force majeure. Generally speaking, Chinese maritime courts will hold a strict review of the parties' defence of force majeure (even in time of epidemics) and it is not easy to persuade the court to accept the same.

For example, in year 2003, Dongjiang Company rented cruise ships from the Yangtze River Overseas Company to operate the Three Gorges tourism business. Due to the SARS outbreak, the cruise ships operations were suspended for several months and Dongjiang Company sued to terminate the ship charter contracts. Hubei Provincial High People's Court found in judgement [2007]EMSZZ no. 47 that the purpose of the charter contract was to make commercial profits from passenger tourist voyages. The average percentage of the period during which each cruise ship was affected by the SARS epidemic compared to the average charter period of each cruise ship was at most about 45 per cent, and the percentage of the remaining days of operation of the cruise ship under charter was at most about 50 per cent. As such, the Court decided that ‘although the SARS epidemic had a significant impact on the performance of the charter contract, this impact had not yet reached such a level as to render the purpose of the contract unreachable’. Finally, Hubei Provincial High People's Court determined that Dongjiang Company was not entitled to terminate the contracts, but was exempt from part of the unpaid rental hire and its liability for breach of contract.

In 2017, this case was included in the book Collection of Exemplary Maritime Trial Judgements edited by the Presiding Judge of the No. IV Civil Trial Division of the Supreme People’s Court (SPC), which means that the SPC is satisfied about the content of this judgement. Although this judgement is not a SPC judgement, it can represent the SPC's opinion to some extent that SARS or similar epidemics will not easily be viewed as force majeure, but it may relieve part of the parties' liabilities. 

Chinese maritime courts' guiding opinions regarding the Covid-19 epidemic

After the outbreak of the Covid-19 epidemic, Chinese courts of different levels have issued many ‘guiding opinions’ regarding how to handle trials of related cases and most of these opinions have focused attention on the force majeure issue, which is one of the most widely discussed legal issues in the past several months amongst Chinese legal practitioners. Meanwhile, maritime courts, such as Dalian Maritime Court, Nanjing Maritime Court and Ningbo Maritime Court etc, have issued specific guiding opinionsrelating to handling of maritime disputes. On 20 April, 2020 and 19 May, 2020, the SPC issued Guiding Opinions (I)^[1] and Guiding Opinions (II)^[2] respectively regarding handling civil cases related to the Covid-19 epidemic. As such, in terms of maritime cases, the SPC Guiding Opinions and the specific guidance of the related maritime courts should both be taken into consideration. In brief, the guiding opinions relating to maritime cases can be summarised as follows:

1. The issue of seaworthiness of vessels in time of the Covid-19 epidemic

Traditionally, owners should make sure the vessel is in a seaworthy condition before commencing a voyage. However, crews may have contracted the Covid-19 virus and this raises the issue whether such ships are seaworthy. On this matter, Nanjing Maritime Court said in its ‘Ten Q&A Regarding Maritime Legal Issues in Covid-19 Epidemic’^[3] that:

Article 47 of the Chinese Maritime Code provides that the carrier shall take care to keep the ship in a seaworthy condition and properly crewed before and at the time the ship sets sail.

If the prevention and control measures for Covid-19 virus have already started before and at the time of sailing, and the carrier has not reasonably examined whether the crew members are Covid-19 patients, suspected patients or close contacts at time of crewing, resulting in the isolation of the entire crew of the ship by the government, it can be considered that the carrier has not handled the ship carefully before and at the time of sailing and has not properly crewed the ship, and should be held liable for the loss of or damage to the cargo caused by this.

If the Covid-19 virus prevention and control measures have not been initiated prior to and at the time of the vessel's sailing, and the carrier was not aware of and should not have been informed of the outbreak prevention and control measures, the carrier is not liable for failure to exercise care and to properly crew the vessel.

As such, owners may need to screen seafarers when crewing the vessel. Otherwise, it is possible that the vessel may be held to be unseaworthy and owners may be liable for related losses due to quarantine isolation of the entire vessel.

2. Performance of related carriage contracts in time of the Covid-19 epidemic

As a whole, Chinese maritime courts do not simply say that the Covid-19 epidemic is force majeure or not and will not give the party a sweeping right of excusing contract non-performance. Chinese maritime courts may take into consideration, in combination, all related facts, for example, degree of labour shortage in ports, vessel delay and waiting time in port, etc, to assess the specific influence of the Covid-19 epidemic to maritime business. On this basis, a maritime court may accordingly make a judgement regarding whether the parties' contractual obligations can be exempted or relieved partly, or whether the contract can be re-negotiated.

For example, in ‘30 Tips Regarding Maritime Legal Risks in Covid-19 Epidemic’ issued by Ningbo Maritime Court,^[4] it is said that:

The shipper's failure to prepare the cargo as contracted for a short period of time due to the epidemic control, which resulted in the ship's waiting for cargo in the anchorage, is not force majeure rendering the performance of the contract impossible. In principle, the carrier cannot terminate the contract, but the shipper is required to prepare the goods as soon as possible. The parties may also renegotiate a change in the performance of the contract.

In the absence of an agreement, if loading and unloading delays have occurred prior to the outbreak of the Covid-19 Epidemic, the charterer shall be liable for the number of hours of port congestion caused by outbreak control; if the port is congested due to the epidemic control and the contracted laytime is due, the parties may renegotiate to change the relevant contents by agreement.

Regarding time charters, if the epidemic only causes delays in the loading and unloading of goods at the designated ports and does not result in the contract not able to be performed, the owners who refuses to go to the port designated by the charterer on grounds of force majeure will face legal risks, unless expressly agreed in the term charter contract.

3. Shipbuilding contracts in time of the Covid-19 epidemic

Plainly, shipbuilding may also be impacted due to the epidemic control measures, eg, shipyard may face labor shortage or shortage of supplies etc. As to this issue, in ‘20 Guiding Opinions’ issued by Dalian Maritime Court,^[5] it is said that the court will ‘make proper consideration of ship construction contract cases. Reasonably determine the reasons for shipbuilding enterprises' inability to resume work in a timely manner, determine the responsibility for delayed ship delivery in accordance with the law, and safeguard the legitimate rights and interests of shipbuilding enterprises’. In other words, Dalian Maritime Court will not simply view the Covid-19 epidemic as force majeure and excuse shipyards' delay of shipbuilding.

Regarding this matter, a judge of Nanjing Maritime Court explained that:^[6] under Chinese law, the Covid-19 epidemic can be viewed as force majeure. However, a shipbuilding contract may have a choice of English law clauses and this matter should then be considered in the context of English law and the contract clauses. The judge also noted that the buyer may also not be obliged to perform some contractual obligations, such as providing buyer's supplies etc. As such, some of the delays may be caused by the buyer, in which event the seller/shipyard may accordingly extend the time of delivering the vessel. In addition, the judge noted that force majeure is in principle not applicable to the pecuniary obligation of payment, but if the bank payment system is indeed impacted by the Covid-19 epidemic, this may also constitute force majeureand excuse non-performance of contract.

Conclusion

In conclusion, the Covid-19 pandemic may cause a series of new legal problems during the period of trying to control the impact of the epidemic and traditional maritime legal concepts (eg seaworthiness of vessel, etc) and legal rules may also need to be reconsidered and reconstructed. Chinese maritime courts' guiding opinions may, to some extent, unify the application of laws in China's maritime judicial practice. Although it may still be a case-by-case issue, Chinese maritime courts' guiding opinions can be a good tool for the related parties to assess the legal issues and take actions accordingly in China.

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