Provisions of the Supreme People’s Court on Several Issues Concerning Application of Law to Arrest and Auction Sale of Vessels

Updated : 2016-10-26

Fa Shi [2015] No.6

Provisions of the Supreme People’s Court on Several Issues Concerning Application of Law to Arrest and Auction Sale of Vessels has been adopted in the 1631st meeting of the Judicial Committee of the Supreme People’s Court on 8 December 2014. It is hereby announced and it shall take effect as of 1 March 2015.

The Supreme People’s Court

28 February 2015

 

In order to normalize arrest and auction sale of vessels in maritime litigations, pursuant to Civil Procedure Law of PRC, Special Maritime Procedure Law of PRC and other laws, and in combination with judicial practice, this Provisions is enacted.

Article 1 Where a maritime claimant applies for restraining disposal[1] or mortgage and other preservation measures against a vessel, relevant maritime court may render a ruling to approve such application and notify relevant vessel registration authority to provide assistance for enforcement pursuant to provisions of Civil Procedure Law of PRC.

Preservation measures prescribed in the preceding Paragraph shall not affect the applications by other maritime claimants for arrest of the vessel.

Article 2 A maritime court may, under the applications by different maritime claimants, take measures to arrest a vessel that has already been arrested by itself or by other maritime courts.

Where the maritime claimant who is the first to apply for arrest of a vessel does not apply for auction sale of the vessel, a subsequent maritime claimant who applies for arrest of the vessel may, in accordance with Article 29 of Special Maritime Procedure Law of PRC, apply with maritime court that approves the arrest application for auction sale of the vessel.

Article 3 Where a vessel is arrested because the bareboat charterer is liable for the maritime claim in question, and if the maritime claimant applies for auction sale of the vessel to repay relevant debts incurred by the bareboat charterer for operating the vessel as per Article 29 of Special Maritime Procedure Law, competent maritime court shall uphold the application filed by the maritime claimant.

Article 4 Where a maritime claimant applies for arrest of a vessel, the relevant maritime court shall order the maritime claimant to provide guarantee. However, if the maritime claimant applies for arrest of the vessel due to disputes over crew labor contracts or compensation for personal injuries suffered at sea or in sea-connecting waters, and the facts are clear and the relationship of parties' rights and obligations are evident, the maritime claimant may not be required to provide guarantee.

Article 5 For the purpose of Paragraph 2 of Article 76 of Special Maritime Procedure Law of PRC, the specific amount of guarantee to be provided by a maritime claimant shall be equal to the various maintenance costs and expenses that may arise during the arrest period of the vessel in question, the losses for use due to the arrest, and the expenses incurred by the respondent for the guarantee provided to lift the arrest of the vessel.

After a vessel is arrested, if the guarantee provided by the maritime claimant is not sufficient to cover the losses that may be caused to the respondent, the maritime court shall order the maritime claimant to increase guarantee.

Article 6 After conclusion of trial of the case, if the relevant maritime claimant applies for returning the guarantee, the maritime court shall inform the respondent of the said application. In case the respondent does not file any related lawsuit for compensation within 30 days, the maritime court may approve the said application filed by the maritime claimant.

Where the respondent agrees to the return the guarantee, or the respondent is found liable by a binding legal document, and the amount of compensation or payment is almost the same as the amount of guarantee that the respondent is required to provide by the maritime claimant, the maritime court may directly approve the application filed by the maritime claimant for returning the guarantee.

Article 7 During the period of arrest of vessel, the shipowner or the bareboat charterer shall be responsible for the management of the said vessel.

Where the shipowner or the bareboat charterer fails to perform the obligations for managing the arrested vessel, the maritime court may entrust a third party or the maritime claimant to manage the said vessel. The expenses incurred therefrom shall be borne by the shipowner or the bareboat charterer, or be reimbursed in priority from the sales proceeds obtained from the auction sale of the vessel.

Article 8 After the vessel is arrested, where the maritime claimant brings a lawsuit to another competent maritime court pursuant to Article 19 of Special Maritime Procedure Law of PRC, the maritime court that arrests the vessel may continue to execute the preservation measures.

Article 9 Before enforcement of the ruling on arrest of the vessel, if a maritime claimant withdraws the application for arrest of the vessel, the maritime court shall render a ruling to approve the withdrawal and terminate the enforcement of the ruling on arrest of the vessel.

After the maritime court's issuing of the ruling on arrest of the vessel, if the said ruling is unable to be enforced due to objective reasons, the said maritime court shall render a ruling to terminate the enforcement thereof.   

Article 10 Where an auction sale of a vessel fails to reach any deal and the vessel needs to be auctioned off again, the 7 days announcement period as provided in Article 45 of the Auction Law of PRC shall be applied.

Article 11 The auction sale of a vessel shall be carried out by a vessel auction sale committee. Maritime courts shall not entrust any other agency to carry out the auction sale.

Article 12 Maritime courts shall determine the reserve price of a vessel based on its assessed value when auctioning off the vessel. The reserve price shall not be disclosed.

During the first auction sale, the reserve price shall not be less than 80% of the assessed value. Where a new auction sale is necessary because the previous auction sale is aborted, the maritime court may appropriately reduce the reserve price, provided that the amount reduced for each new auction sale shall not exceed 20% of the reserve price of the previous auction sale.

Article 13 A vessel may be sold off after two auctions have been aborted. The selling off price shall not be less than 50% of the vessel’s assessed value.

Article 14 In the event that a vessel remains unsold after it is offered for sale as per Article 13 herein, the vessel may be put up for sale at a price lower than 50% of its assessed value upon the consent of creditors holding at least two-thirds of the creditors’ rights that have been accepted for registration. If the vessel still remains unsold, maritime courts may lift the arrest of the vessel.

Article 15 Once a vessel is auctioned off or sold by relevant maritime court, all other preservation measures already taken against the vessel shall no longer be valid.

Article 16 For the purpose of Article 111 of Special Maritime Procedure Law of PRC, the date of expiry of the application period for registration of creditors’ rights shall be the 60th day after the last day of publication of vessel auction sale announcement.

For the purpose of the preceding paragraph, the announcement shall refer to the announcement for the first auction sale.

Article 17 Upon acceptance of an application for registration of creditors’ rights, a maritime court shall render a ruling on whether to approve the said application in accordance with Article 114 of Special Maritime Procedure Law of PRC after relevant vessel is successfully auctioned or sold off.

Article 18 In case a maritime claimant that applies for the auction sale of a vessel has not completed the registration of creditors’ rights, but directly requires to participate in the distribution of the sale proceeds obtained from the auction sale of vessel, maritime court shall approve the application.

Article 19 Where a maritime court rules to terminate the auction sale of a vessel, it shall, at the same time, rules to terminate the procedures for registration and repayment of creditors’ rights. The application fees already paid by the parties concerned for registration of creditors’ rights shall be refunded.

Article 20 Where a party concerned has filed a lawsuit in respect of relevant creditors’ rights before registration of the creditors’ rights, Article 116.2 of Special Maritime Procedure Law of PRC shall not apply, and the party concerned may appeal against the judgment or ruling rendered by the competent maritime court according to provisions of law.

Article 21 After a creditor files a lawsuit to affirm its rights in accordance with Article 116.1 of Special Maritime Procedure Law of PRC, if the proportion and extent of fault of the vessel in collision needs to be judged, the parties concerned may appeal against the judgment or ruling rendered by relevant maritime court according to provisions of law.

Article 22 The sale proceeds obtained from the auction sale or sale off of a vessel by a maritime court and the interest thereof shall first be used to pay the expenses prescribed by Article 119.2 of Special Maritime Procedure Law of PRC, and the remaining amount shall be distributed in the following sequence according to provisions of law:

(1) Maritime claims in nature of maritime liens;

(2) Maritime claims secured by a possessory lien; 

(3) Maritime claims secured by vessel mortgage; and

(4) Other maritime claims related to the vessel auctioned or sold off.

In case a maritime claimant that applies for arrest of a vessel pursuant to Article 23.2 of Special Maritime Procedure Law of PRC applies for auction sale of the vessel, it shall participate in the distribution of the sale proceeds of the vessel after the maritime claims prescribed in the preceding paragraph have been paid off.

The remaining sale proceeds after distribution pursuant to the preceding paragraph shall be disposed as per Civil Procedure Law of PRC and relevant judicial interpretations.

Article 23 Where a party concerned applies for the auction sale of a vessel to realize the security interest on the vessel in accordance with Section 7 of Chapter 15 of Civil Procedure Law of PRC, the maritime court at the location or the port of registry of the vessel shall have jurisdiction over the said application, and the application shall be handled as per Special Maritime Procedure Law of PRC and the provisions herein on vessel auction sale and repayment procedures.

Article 24 This Provisions shall apply to the arrest and auction sale of vessels by maritime courts' superior people’s courts.

This Provisions shall be applicable to auction sale of arrested vessels during enforcement proceedings to repay debts.

Article 25 Where the arrest and auction of a vessel has been carried out prior to implementation of this Provisions, and if a party concerned applies for reconsideration after implementation of this Provisions, this Provisions shall not apply to such application.

After this Provisions is implemented, Provisions on Auction Sale of Arrested Vessels by Maritime Courts for Debt Settlement (Fa Fa [1994] No.14) adopted by the Supreme People's Court on 6 July 1994 shall be simultaneously abolished. In the event of any inconsistency between previous judicial interpretations promulgated by the Supreme People’s Court and normative documents and this Provisions, this Provisions shall prevail.

[1] Editors' note: as per Art. 39 of Property Law of PRC (2007), owners of immovables or movables shall be entitled to possess, use, benefit from and dispose of the immovables or movables according to law. The so called restraining "disposal" there mainly means transfer/sell the involved ship.