HiHonor acting for foreign ship owner - successfully Released vessel from being used as a Floating Warehouse- being selected by PR China Supreme Court as Top Ten Typical Maritime Cases of Year 2022

KEY ISSUE - HOW TO PREVENT VESSEL FROM BEING USED AS A FLOATING WAREHOUSE

On 30 June. 2023 PR China Supreme Court released Ten Typical Maritime Cases in year 2022, the Seventh Case was filed by HiHonor on behalf of Plaintiff STO CHARTERING KOREA CORPORATION, bareboat charterer of MV STO Azalea, VS. the B/L shipper WILMAR Trading ASIA, notify party View Sino, receiver Petro China as three Co-Defendants, and VS. Charterer WILMAR Trading Pte Ltd, as 3rd Party.

The plaintiff claimed for demurrage, loss arising from loss/cancelation of vessel next business, and related fees/costs/expenses arising therefrom.

BACKGROUND

Subject Vessel loaded a totality cargo of palm acid oil (POME/PAO) 7,149.542mt from loadport PASIR GUDANG of Malaysia on 09 July 2022, respectively 3,998.470mt POME cargo under Bs/L No. SAZ112201 for discharge at 1st disport Shanghai, and 3,149.988mt PAO cargo under Bs/L No. SAZ112202 for discharge at 2nd disport Lianyungang (LYG), China.

The vessel arrived at 1st discharge port Shanghai on 16 July 2022, commenced discharge till 14:45LT on 25/07 & completed cargo discharge 11:15LT 26/07. Vessel sailed from Shanghai 12:00LT on 26/07, arrived at her 2nd disport Lianyungang (LYG) and tendered NOR 17:30LT on 27/07/2022, and has since then waiting for berth, but received NO any progress from the Charterer and cargo side.

Shipper/seller of Singapore and Receiver (sub-buyer) Petro-China associated company are both Fortune Global 500, the same Receiver already discharged POME cargo at 1st disport Shanghai, but firmly rejected to discharge PAO cargo at 2nd disport LYG nor to apply for Customs Clearance.   Receiver alleged that cargo to be discharged at LYG was “WASTE”, not “POME” cargo but was lack of any supporting evidence. In the absence of cargo clearance or discharging the cargo to a bonded warehouse /shore facility, the vessel’s berthing and sailing remains unavailable.

Following HiHonor being instructed in late Aug.2022, via various checking, downturn market seems crucial reason for receiver rejected cargo. We sent several WP letters to all the defendants/cargo side and charterer, outlined along following:

a)       Charterer and cargo side CANNOT use good vessel as floating warehouse, for alleged dispute under the chain of sale contract. All cargo side and Charterer are obliged to expedite vessel discharge by exploring every and all possible means.

b)       Undoubtedly the Vessel was in every aspect suitable for discharging cargo upon her arrival at the 1st disport and 2nd disport, NOR were validly tendered and accepted by Charterer at the two disports. Charterer’s failure to have vessel berthed timely, was in breach of c/p contract and shall be fully liable for all losses suffered by Owner.

c)       In line with terms of the Charter Party /RECAP and general principles of applicable law, Charterer and all cargo interests are obliged to take positive measures to minimize losses.

If no shore tank available in LYG, cargo side/charterer should explore alternative disport; if it is not possible to discharge alleged “WASTE” cargo, should arrange cargo Shipped Back to country of origin or to have cargo discharged at alternative Asian port, so as to minimize vessel’s losses.

d)       Under the PRC Customs law and related regulations, cargo importer/receiver are obliged to implement cargo customs clearance within 14 days from the vessel entry inbound clearance date. It has been over 20 days since vessel arrival at the 2nd disport Lianyungang till our 1st W/P letter was sent on 18/08/2022. Cargo side have been in breach of PRC Customs law/regulation, failing to produce the Customs/CIQ inspection certificates for alleged “WASTE” cargo.

Regardless of our persistent chasing and various W/P letters sent to charterer and cargo side, there remained no positive response. We have no alternative but to progress PRC court proceeding.

Case Registry was NOT Easy

Due to there existed arbitration clause in Bs/L, it takes time to have subject B/L dispute registered in court, NMC did not accept the case until formal acceptance on 1st Sept. 2022.

B/L Arbitration Clause – Receiver’s Objection on PRC Jurisdiction

3rd Defendant receiver Petro China indeed raised Objection on court jurisdiction, given that Bs/L both sides contain foreign arbitration clause, C/P also includes foreign Arbitration clause.

We acting for the Plaintiff carrier expressed our view that,  even if NMC court eventually held having NO jurisdiction to try this case, China as a member state of the 1950 New York Convention, even for B/L or C/P disputes subject to foreign arbitration, under PRC law and practice, our client as B/L carrier /owner of CP, are still entitled to apply to PRC court for compulsory measures / preservation /attachment for obtaining security for enforcement of outstanding claims.

Thoughts on the Arbitration Clause

For protecting Bs/L carrier/owners’ interests, Arbitration Clause (font and/or reverse side) may be deleted if future voyage is relating to PR China port, otherwise, it would be difficult to convince PRC court to entertain such Bs/L claim.  Moreover, opponent parties are likely to rely on the existence of Arbitration Clause to raise objection on PRC court jurisdiction.

Preliminary Online Hearing

At the time of online hearing, court service remained NOT completed onto foreign parties including shipper and 3rd party. The Judge explained that - Today’s preliminary hearing was for court to know about rights/obligation of parties concerned, to know each party’s intention/will for cargo discharge/disposal; any party’s attendance of today’s hearing does not affect each party’s rights and defense under law and contract, nor affects right of raising objection on court jurisdiction by any party.

Wise Judge raised good questions such as whereabout of Original Bs/L, on what basis did receiver allege cargo was “WASTE”?

It was found out from such hearing, only few days prior to online hearing that receiver sent Original B/L back to seller office in Singapore, in order to cut off/shift liability as being lawful B/L holder; cargo side being threatened by good progress of court proceeding, shipper/seller etc. have been exploring substitution discharge port, to avoid risk of cargo being preserved/judicial sale and potential liability of PRC action.

PRC Action promoted the Chance and Process of reaching Amicable Settlement.

Since successful case registry 1st Sept. 2022, PRC court served notice/ had various telecom checking with party concerned.  Good vessel eventually completed cargo discharge at Nansha port of south China on 27/09/2022, sailed off Nansha port 28/09/2022, for brand new voyage, which means cargo was NOT WASTE.  Prior to vessel departure from LYG port 20/09/2022 night, owner received payment of majority claims around USD400,000.

HiHonor lawyers received appreciation from owner clients as well as other service providers involved in this matter.

HiHonor lawyers are however much impressed by the conscience and great responsibility of NMC Judge team. It was NMC judge who urged cargo side to promote understanding of good vessel /carrier’s innocent position and huge losses suffered from alleged cargo quality dispute under sale contracts, calling shipper/seller, buyer/notify party and sub-buyer/ receiver, to solve the matter under the chain of sale contract; to well assess risk/liabilities.

HiHonor lawyer expressed sincere thanks in letter of appreciation to NMC for the handling judge team hard-working, wisdom to clarify the legal issues and unbiased mind to recognize the true facts.  NMC court’s responsibility and courage to entertain this matter, and judge team’s wise, logical progressing the matter, certainly have served good propaganda of the professionalism and justice of PRC maritime trial, PRC NMC court judge team, deserving respect and appreciation from all parties concerned.

If you would like further information in this update, please contact:

E-mail: xinwei.zhao@hihonorlaw.com

Mobile:  +86 137 0642 0263

Tel:     +86 532 8082 1123 (DDI)

Fax:    +86 532 8082 1136

Huanying LIU

E-mail: huanying.liu@hihonorlaw.com

Mobile:  +86 185 6151 7061

Tel:     +86 532 8082 1133

Fax:     +86 532 8082 1136