China's maritime liability limitation system and its recent development
Peng Xianwei
DeHeng Law Offices, Beijing
Legal framework of limitation of liability for maritime claims in China
China's legal system on limitation of liability is mainly based on the Convention on Limitation of Liability for Maritime Claims, 1976, and, in terms of its domestic law, it can be mainly divided into the following four aspects.
First, chapter XI of the Maritime Law of the People's Republic of China (the 'Maritime Law') contains systematic and detailed provisions on limitation of liability for maritime claims. It mainly specifies the persons entitled to limit liability, the conditions for liability limitation, the scope of limitable and non-limitable claims, the calculation method of limitation and the establishment of the limitation fund, and other core substantive issues.
Second, China has the Special Maritime Procedure Law of the People's Republic of China (the 'Special Maritime Procedure Law'), and chapter IX relates to the procedure for the establishment of the limitation fund (Articles 101–110). It includes provisions regarding the application for establishing the fund, the court's review and acceptance, the public announcement of the fund to interested parties, the registration of the claims against the fund, the handling of interested parties' objections, the distribution of the fund and other key links.
Third, on 15 September 2010, the Supreme People's Court issued Several Provisions of the Supreme People's Court on the Trial of Cases on Disputes over Limitation of Liability for Maritime Claims. On the basis of the Maritime Law and Special Maritime Procedure Law, it addresses the key issues in trial practice and provides greater detail for the court's handling of maritime liability limitation cases. There are also some other judicial interpretations that are not centred on limitation of maritime liability, but their content also involves or has an impact on the limitation system. For example, the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Cases Involving Disputes over Compensation for Vessel-induced Oil Pollution Damage and other judicial interpretations, while regulating specific types of maritime disputes (eg, oil pollution damages), also provide rules on the key issue of limitation in a specific area.
Fourth, Article 211 of the Maritime Law provides that for vessels of less than 300 tons gross engaging in transport between ports within the territory of the People's Republic of China and vessels engaging in coastal operations, their amount of liability limitation shall be determined by the government departments in charge of communications under the State Council, and implementation shall occur after approval by the State Council. According to this article, the Ministry of Transportation (the former Ministry of Communications) promulgated the Provisions on Limitation of Liability for Maritime Claims for Ships of Less Than 300 Gross Tons and Ships Engaged in Coastal Transportation and Coastal Operations for such vessels' liability limitation.
Key points of the maritime liability limitation system and its recent development in China
Persons entitled to limit liability
First, as per the Maritime Law, persons entitled to limit liability include the shipowner and salvor. The 'shipowner' includes the ship's charterer and ship operator. However, there is some dispute in judicial practice regarding whether the voyage charterer belongs to persons entitled to limit liability. In June 2017, Judge Wang Shumei (the former Vice Division Chief Judge of the Fourth Civil Trial Division of the Supreme People's Court) pointed out the following in her concluding speech at the National Symposium on Maritime Trial Practice:Maritime Trial Practice:
The Maritime Law gives the ship owner, operator, charterer, etc. the right to enjoy limitation of liability for maritime claims, which is mainly for the purpose of special protection to the shipping industry in view of the risks it faces at sea. The voyage charterer does not own the ship, has no control over the operation of the ship, and does not bear the risk of the ship's operation. The voyage charterer is engaging the operation of transportation rather than the operation of the ship. Treating voyage charterers as persons entitled to limit liability is inconsistent with the purpose and development trend of maritime liability limitation. Therefore, the charterer stipulated in Article 204 of the Maritime Law does not include the voyage charterer.'
Second, the shipowner, salvor's employee or agent can also enjoy limitation of liability under specific conditions. When the maritime claim is not made against the shipowner or salvor itself, but against its employees or agents, in view of the fact that the legal effect of the act of the agent is attributed to the principal, as long as these persons act within the scope of employment or entrustment, they can enjoy the same limitation of liability as the shipowner or salvor.
Third, where an assured may limit its liability, the insurer shall be entitled to the same limitation as the assured. Article 12 of the Several Provisions of the Supreme People's Court on Trial of Cases on Disputes over Limitation of Liability for Maritime Claims stipulates the following: 'Ship operators as prescribed in Article 204 of the Maritime Law shall refer to the registered ship operators or persons who accept the entrustment of shipowners to actually use and control a ship and bear liabilities for the ship, but shall not include non-vessel operating common carriers'.
As such, in China, Non-Vessel Operating Common Carriers cannot enjoy the right of limitation of liability.
Fourth, according to Article 71 of the Minutes of Proceedings of the Work Conference of the National Courts on the Maritime Trial of Foreign-related Commercial Matters (issued on 24 January 2022), the owners of inland waterway ships cannot enjoy the right of limitation. The identification of sea-going vessels shall be based on the navigational capacity and permitted navigation area as recorded in the ship's certificates instead of on the basis of its actual navigation area.
Conditions for limitation
As per Article 209 of the Maritime Law, if it is proved that the loss giving rise to the claim was caused by the responsible person's own 'intentional act' or 'reckless act or omission in the knowledge that the loss might be caused', the responsible person will not have the right to limit liability. Similar to courts in other jurisdictions, Chinese courts rarely break the shipowner's limitation. In judicial practice, Chinese courts have refused to grant the right of limitation in very few cases. Most of these involve inland or coastal transport vessels (which may not be maintained in good technical condition or may be insufficiently manned), and there is no reported case in which Chinese courts have refused to grant the right of limitation for international transport vessels.
Claims subject to limitation and claims excluded from limitation
Article 207 of the Maritime Law lists claims subject to limitation and Article 208 sets out claims excluded from limitation. In China's judicial practice, it may not be easy to distinguish claims subject to limitation and claims excluded from limitation.
For example, in the MV CMA CGM Florida case , the Shanghai Salvage Bureau of the Ministry of Transport raised a claim for costs related to the emergency response to a collision involving the MV CMA CGM Florida and another vessel. This includes salvage fees and pollution prevention and cleanup expenses. The Supreme People's Court made a key determination as to whether these pollution prevention and cleanup expenses fell under claims subject to limitation ([2018] ZGFMZ No 368, Civil Judgment of the Supreme People's Court): claims related to the lifting, removal, dismantling or rendering harmless of sunken, stranded, abandoned or wrecked vessels (including any objects on such vessels), and claims related to the removal, dismantling or rendering harmless of cargo on board are non-limitable.
However, if the involved vessel does not meet the criteria of being 'sunken, stranded, abandoned or wrecked', claims related to its lifting, removal, dismantling or rendering harmless cannot be included in the non-limitable claims.
In this case, although the vessel in question faced certain dangers after the collision, it was still capable of self-propulsion and did not sink or become stranded, and was not abandoned. It also did not suffer damage or destruction severe enough to be considered as a wrecked vessel. Therefore, the claim for pollution prevention and cleanup expenses arising from this incident falls under limitable maritime claims.
Priority claims within the maritime liability limitation fund
Article 209 of the Maritime Law provides that: '… (IV) In circumstances not affecting compensation claims for personnel injured or killed as prescribed in item (III), compensation claims arising from damage to harbor facilities, harbor pools, fairways and navigational installations shall be ranked in order, with priority being given to other compensation claims as prescribed in item (II)'.
As such, within the maritime liability limitation fund, claims arising from damage to harbor facilities, harbor pools, fairways and navigational installations shall take priority over other types of property damage claims. However, such losses may include direct loss (eg, repair fees) and indirect loss (eg, loss of profits during the shutdown for repairs), and judicial practice shows that different maritime courts have different views on whether indirect losses should be included in priority claims.
Some argue that the essence of the maritime liability limitation system is to balance the interests of stakeholders and responsible parties, and giving priority to indirect losses might result in other stakeholders receiving no compensation from the fund.
In the case of MV Tian Mou 18 (Guiding Case No 233, released by the Supreme Court in November 2024), the vessel collided with the wharf of Changzhou XX Petrochemical Storage Co, Ltd, causing part of the wharf to collapse. Pipelines were thus broken and an explosion was caused due to liquefied natural gas (LNG) leakage. The accident resulted in repair costs of approximately RMB 69,247,776.87 and loss of profits (indirect loss) of about RMB 65,844,974 for the wharf during its shutdown period for repair. The wharf owner requested priority compensation from the maritime liability limitation fund established by the shipowner (amounting to just 2,442,041 special drawing rights (SDR)) for both the repair costs and operational losses.
Ultimately, the court decided that, while claims for damages to port projects, harbours, channels and navigational aids can take priority over other property damage claims, such priority loss refers only to direct property damage caused by the accident. Therefore, the wharf owner's claim for the repair costs can take priority for compensation from the limitation fund over other property losses, but the claim for loss of profits caused by the accident cannot.
Principle of Single Accident
China also recognises the Principle of Single Accident: 'one accident, one limit'. If multiple accidents occur during a single event, multiple liability limits must be calculated.
Regarding how to determine whether it is one accident or multiple accidents, in Guiding Case No 112 released by the Supreme People's Court on 25 February 2019, the court held that the crew of the vessel set the route into an aquaculture area and first entered the aquaculture area operated by Guo Jinwu. The accident occurred at noon, without any visual obstacles. If the crew had carefully performed their lookout and navigation duties, they would have noticed the floating balls used for aquaculture on the sea surface. Subsequently, the vessel entered Liu Haizhong's aquaculture area. Because the aquaculture areas of Guo Jinwu and Liu Haizhong are adjacent, about 500 metres apart, due to the inertia of the ship, the vessel could not take reasonable measures to avoid entering Liu Haizhong's aquaculture area.
Analysing the cause, the two damage actions (damage to the aquaculture areas of Guo Jinwu and Liu Haizhong belong to the same cause, and the causal chain has not been interrupted, so the two infringement actions should be recognised as one accident. After leaving Liu Haizhong's aquaculture area and entering open waters, the vessel sailed about 9,000 metres, taking approximately half an hour before entering Li Weiguo's aquaculture area, causing another accident. At this time, the crew should have had sufficient time to correct their error of navigation, and given that they were aware there were still aquaculture areas ahead, they should have strengthened their lookout duties to avoid causing further damage. The vessel clearly failed to fulfil its duty of careful navigation, resulting in the occurrence of the second accident causing damage to Li Weiguo's aquaculture area. There is no relationship between the two accidents, either in terms of time sequence or subjective state. The occurrence of the second accident was not a natural continuation of the first accident, and there is no causal relationship between the two accidents. According to the principle of 'one accident, one limit', the vessel's owner should establish two limitation funds for the two accidents.
Conclusion
China's maritime liability limitation system balances the high risks of shipping with fairness and justice through statutory limits. It has established a multi-layered legal framework centred on the Maritime Law, supported by the Special Maritime Procedure Law, and supplemented by judicial interpretations issued by the Supreme Court and regulations from the Ministry of Transport. Although this legal framework is relatively comprehensive, it still faces challenges in specific applications. Judicial practice shows that there are significant disputes in key issues such as the persons entitled to limit liability, conditions for breaking the limitation and distinguishing the nature of specific claims regarding whether they are limitable. Currently, China's Maritime Law is in the process of revision by legislators and the provisions related to maritime liability limitation will be further improved with the revision of the law.