The Legal Status and Responsibilities of the Ship Manager under PRC Law

September 2006

On 10 February 2000, 1,500 tons of Peruvian fish meal were loaded on board the vessel "Progreso I" at Chimbote, Peru, for discharge in Shanghai. A clean bill of lading was issued by agents on behalf of the master. The vessel was owned by Grand Fleet Navigation Limited ("Grand Fleet") and Allied Maritime Inc. ("Allied") was said to be the vessel's manager. The cargo was insured by PICC Shanghai Branch ("PICC").

On 31 March 2000, the goods arrived at Shanghai. Inspection by Wusong Inspection and Quarantine Bureau showed that the goods had been damaged through overheating and there was a shortage. As a result, PICC paid RMB 1 million to the cargo owners under the policy and obtained the letter of subrogation.

In the absence of any clear definition of "Manager" in Chinese Law, the Shanghai Maritime Court looked at the definition in Black's Law Dictionary which defines manager as a person who: (a) directs or controls the operations of a company, or the branch office or a department of that company, and the person is generally given the power to act or decide independently; or (b) a person selected or appointed to handle, direct or manage affairs of another person or company. The Court considered that Allied was a professional management and care-taking body with extensive power in operating and managing the vessel on behalf of Grand Fleet.

As Allied was unable to provide evidence showing a specific division of labour with Grand Fleet regarding the management and operation of the vessel, by applying this definition of "Manager" it was presumed that Allied was actually involved in the carriage of the cargo and performed the function of an actual carrier.

According to Articles 47, 48 and 51 of the PRC Maritime Code, the carrier is liable for damage to cargo unless it can establish the exercise of due diligence and a relevant defence in a manner similar to that which applies under the Hague and Hague-Visby Rules. Allied, relying on Article 51, tried to argue that the damage to the fishmeal was caused by self-heating and spontaneous combustion and claimed that the crew had performed the due diligence required. However, neither Grand Fleet nor Allied could produce evidence during the trial to convince the Court that their duty had been properly discharged. The Court therefore held that both Allied and Grand Fleet were liable for the cargo damage.

Article 61 of the PRC Maritime Code provides that the responsibility of a carrier under the Code shall also apply to an actual carrier, and Article 63 says that liability as between a contractual carrier and actual carrier shall be joint and several. The Chinese commentator on the case points out that in a considerable number of cases involving disputes over cargo damage under a contract of carriage of goods by sea, the ship owner, the carrier (i.e. the contractual carrier) and the actual carrier are, can all potentially be held liable for the damage. This is quite different to the position under English law, where the identity of a single carrier under the bill of lading can be crucial. As to the position of a charterer under the Maritime Code, when the charterer signs a contract of carriage with the shipper and issues the bill of lading in its own name, or when the charterer has accepted some or all of the responsibilities of the carrier under the Hague Rules or Hague-Visby Rules, it may be sued in disputes over cargo damage.

Ship managers need to be aware that if they cannot provide evidence of the specific management responsibilities they undertake and the division of labour in managing the vessel between themselves and the owners, under Chinese Law they may well be regarded as an actual carrier and be liable for cargo damage in the same manner as an owner or contractual carrier.

PICC Shanghai Branch v Grand Fleet Navigation Ltd. And Others in Selected Cases of Maritime International: Judgments and Comments, Shanghai Maritime Court, 2003, p. 295