Our client, a company registered in The Commonwealth of Dominica, via instruction of Korean counsel, approached HiHonor Law Firm in early April 2024 for arrest of Russian owners’ vessel in China. Following advice of HiHonor lawyers, client applied to Qingdao Maritime Court of PRC (QMC) to arrest MV "Fxx Mxx" one sister ship owned by the same Russian Owner, for the Russian owner failed to pay outstanding huge claims over US$5.68 million arising from ship repair and general services contracts performed in Busan of Korea.

Lawsuit filed in Korea Court
Prior to approaching HiHonor Law Firm for potential ship arrest, our client had already filed lawsuit against the Russian owners in Seoul Central District Court on 15th March 2024 according to the exclusive jurisdiction as agreed in the ship repair and supply contracts between our client and the Russian owners, and the service process of Korea court onto the Russian owners was underway.

Although main proceedings were filed in Korea court, ship repair and general service contracts were performed in Korea and contractual parties were not related to PR China, it is possible to arrest ship in China, according to Article 21 of the Special Maritime Procedure Law of PRC (SMPL), which provides that

“in case a foreign court or foreign arbitral tribunal already entertained the case of maritime claims when related assets to be attached are within the territory of PR China, and if a party applied to PRC court where concerned asset is located, for purpose of preservation/attachment for maritime claims, the maritime court of PRC shall entertain such application”.

In practice, it is popular to arrest ship in China for obtaining security to secure enforcement of foreign arbitral award. Nevertheless, there is no reported cases in past 40 years’ PRC maritime trial practice that a foreign party applies to PRC court for arrest of ship for obtaining security to secure enforcement of pending foreign court judgment, especially when the foreign court has seized jurisdiction based on the exclusive foreign jurisdiction clause.

Risk Assessment

Under the above circumstances, related issues and risk have to be considered well in advance, including - whether the parallel proceedings in Korea court would have any impact on the ship arrest in China? whether the respondent/Russian owners are entitled to raise objection to the PRC court ship arrest based on the exclusive jurisdiction clause of Korea court as agreed in the ship repair and general services contracts? Whether the Claimant are required to commence another main action in PRC court, so as to maintain the ship arrest by QMC? If so, whether PRC court would refuse to entertain such lawsuit filed in China according to the doctrine of Forum Non-Convenience?

After several rounds of discussion and risk assessment, the claimant finally determined to proceed ship arrest in China.

Ship Arrest by QMC court on Friday Evening

HiHonor lawyers learned that after completion discharge of fish cargo, MV "Fxx Mxx" berthed at Dagang of Qingdao port on 12/04/2024 and was likely to leave over the weekends. However, notarization and apostille of POA documents and counter-security for ship arrest and translation of claims documents had not been completed until it was approaching16:00hrs LT on Friday. When HiHonor lawyers submitted the client’s Application to QMC court for ship arrest, it was approaching end of the court office hour. HiHonor lawyers explained the desperation and urgency of arresting the vessel on a Friday, QMC court immediately conducted review of the materials and considered that the Application was in line with the PRC law and should be granted. The signature for granting ship arrest was also approved by competent court leader as a matter of urgency. Court staff rushed to MSA Qingdao (Maritime Safety Administration) on Friday evening, the ship was arrested around 20:00hrs LT on 12/4/2024. From our submission of ship arrest application to successful arrest of the ship, it took less than four hours.

Post Ship Arrest

After the vessel was arrested by PRC court on 12/04/2024, the Russian owners did not provide security in the 1st two weeks.

In accordance with Art.28-29 of the Special Maritime Procedure Law of PRC (SMPL) , ship arrest period is 30 days for preservation of maritime claims, if the respondent fails to provide security and it is not appropriate to keep the ship under arrest after the expiry of the time limit, the claimant/applicant, who has brought an action or applied for arbitration, may apply to the court for auction of the ship.

To apply for Judicial Sale of Vessel

As the max. ship arrest period of 30 days was fast approaching while the Respondent /Russian owners kept failing to provide sufficient security as ordered by PRC court, to exert more pressure onto the Owner side, our client submitted Application for Judaical Sale of vessel to Qingdao Maritime Court, with supporting evidence of the Korea court case-registry certificate (case filing on 15/3/2024 in Seoul Central District Court), trying to convince QMC to proceed for judicial sale of the ship. In addition, as per the SMPL of PRC, once arbitration or court proceeding is commenced/filed, arrest period shall not be subject to the max. 30 days, it can be exceeding 30 days. Hence, given proceedings were already filed in court, the vessel under arrest should not be released even after the expiry of 30 days (on 12/05/2024).

Ship arrest by PRC court exerted much pressure onto the Russian Owners, the owners had no choice but to resume negotiation with the Claimant, and reluctantly furnished cash security USD3.6 mil, to release the vessel from arrest by PRC court.[1]

Ship Release was utmost Efficient

The continuous ship arrest by PRC court forced the Russian Owners to resume negotiation with the Claimant, settlement was finally reached on May 22, 2024. In the morning of May 22, 2024, after receiving the Application for release of ship, QMC court immediately issued court order for Releasing Ship from Arrest. Judges and staff gave up lunch break, served documents of ship release soonest to authority MSA and relevant parties, it took less than one hour from the submission of Application for ship release to QMC lifted the ship arrest.

Letter of Appreciation