The Revised Chinese Maritime Code – FAQs

Part 1: Cargo

1. What is an “actual carrier”?

   The amended Article 44 clarifies that an “actual carrier” includes any party that physically handles all or part of the cargo transportation on behalf of the carrier. This can include tasks such as receiving, loading, moving, stowing, carrying, safeguarding, unloading, and delivering goods. Due to the broad nature of the definition, companies such as port operators may, under certain conditions, be treated as “actual carriers”, in which case they may benefit from the same legal protections as the carrier, including exemptions from liability and limits on damages.

2. When will the duty of seaworthiness for domestic carriages apply?

   Article 48 clarifies that the duty of seaworthiness for carriers engaged in domestic carriage of goods by sea is explicitly stated to apply not only before and at the beginning of the voyage but also "during the voyage", and Article 49 explicitly imposes on the carrier the obligation to properly and carefully "receive" and "deliver" the goods, making the carrier's liability system more complete.

3. Any new requirements concerning deck cargo?

   The amended Article 54 concerns the carriage of cargoes on deck. It stipulates that if goods are carried on deck pursuant to an agreement between the shipper and the carrier, this must be stated on the bill of lading.

   On the other hand, carrying containers on the deck of a purpose-built container vessel is normally considered a long-standing, universally accepted, and necessary operational practice. This is normally referred to as “custom of the trade". Therefore, where a liner company's right to carry containers on deck of container vessels is based on this “custom of the trade”, it is generally not necessary to reach a specific "agreement" with the shipper for each shipment.

   However, if the specific nature of the containerised cargo makes it unsuitable for on-deck stowage, then stowing it on deck would not conform with the proper shipping practice of safely caring for that cargo. In such cases, if the carrier still wishes to stow it on deck, the shipper's explicit agreement needs to be obtained and a remark on the bill of lading made.

4. How will damages for cargo claims be assessed?

   The revised Article 56 deals with the calculation of damages relating to cargo claims. It establishes that when calculating the “actual value of goods”, this value should primarily be based on the market price at the place and time of delivery. If that market price cannot be established, the CIF price (cost, insurance, and freight) at the time of shipment will serve as the standar

5. Any adjustments in rights and obligations of shippers?

   Article 67 contains an adjustment of the Shipper's Rights and Obligations, providing that the shipper must deliver the goods to the carrier and must ensure that the goods are suitable for the agreed carriage.

6. Who should take delivery of the goods under different types of transport documents?

   The updated Article 87 specifies exactly who should take delivery under different types of transport documents, such as straight bills of lading, order bills of lading, bearer bills of lading, and negotiable electronic transport records.

7. Who should bear the costs and risks when goods are not collected at the discharge port?

   Article 93 shifts responsibility for costs and risks when goods are not collected at the port of discharge from the consignee to the shipper, with the carrier required to notify the shipper promptly. If the consignee has already exercised rights under the contract of carriage, however, those costs and risks fall on the consignee instead.

8. Can the port of discharge or the identity of consignee be changed even after the goods are in the carrier’s custody?

   Article 96 stipulates that during the period when the carrier is responsible for the goods, the shipper may submit a written request to change either the port of discharge or the consignee. The shipper must, however, compensate the carrier for any losses resulting from such changes. The law also outlines specific circumstances in which the carrier may refuse the request.

9. When will Chinese law apply to cargo claims?

   Article 295 provides that Chapter 4 of PRC Maritime Code will apply to international contracts of carriage by sea when the port of loading and/or the port of discharge are located in China.  

   In fact, prior to the revision of the Maritime Code, although there were no express provisions mandating the application of Chinese law to disputes where either the port of loading or discharge was in China, in practice, almost all disputes resolved in Chinese courts were effectively settled under Chinese law. Therefore, this amendment may be better seen as a codification of a long-standing judicial practice.

   It is now clear that Chinese law will apply even where it is stipulated in the contract of carriage that a foreign law (such as English law) applies, or even where the consignee is located outside China and expects that the local law at the port of discharge will apply.

Part 2: Pollution

Amongst the major changes to the Code is the addition of a dedicated chapter on oil pollution liability, namely Chapter XII: Liability for Oil Pollution Damage from Ships (Articles 225 – 239). The new chapter significantly strengthens pollution provisions by integrating international conventions into domestic law, enhancing the "polluter pays" principle.

The new provisions and amendments to the Code reflect a strengthening of the protection of the marine environment. Shipowners need to ensure the comprehensive and effective implementation of ship safety and pollution prevention management systems, must establish specialised training, standardise the retention of environmental compliance records and reduce the risk of pollution liability arising from improper operations.

1. Is pollution liability a strict liability?

   Unless an exemption applies, strict liability applies to shipowners and claimants are relieved of the burden of proving the shipowner's fault. Where two or more ships jointly cause pollution damage, they shall bear joint and several liability for the damage that cannot be reasonably separated.

2. Compulsory insurance for pollution liability?  Any direct right to claim against the insurers?

   Article 229 stipulates that a compulsory insurance system is required for oil pollution damage and explicitly grants claimants the direct right to claim compensation from the liability insurer or financial guarantor of the shipowner.

   According to the revised Code, shipowners of vessels carrying persistent oil in bulk (oil tankers) and shipowners of any vessel with a gross tonnage (GT) exceeding a certain threshold (typically 1,000 GT for bunker oil pollution) are required to maintain valid insurance or other financial security to cover their potential liability for oil pollution damage.  Vessels must carry on board a valid "Certificate of Insurance or Other Financial Security in Respect of Civil Liability for Oil Pollution Damage. The Maritime Safety Administration (MSA) will check these certificates during routine PSC inspections.

   The liability insurer or financial guarantor shall be liable for compensation within the statutory limitation of liability. Even if the shipowner loses the right to limit liability for maritime claims, this shall not affect the right of the liability insurer or financial guarantor to invoke the statutory limitation of liability as a defence.

   While China is already a party to international conventions (such as the 1992 CLC and the 2001 Bunker Convention), Article 229 of the new Maritime Code integrates and codifies these requirements into domestic law.

3. What kind of losses can be claimed for pollution liability?

   Under Article 225, the scope of compensation includes four categories: property loss, costs of preventive measures, loss of income, and expenses for ecological environment restoration.

   The shipowner shall be liable for ship-induced oil pollution damage. However, under Article 226, the shipowner will not be liable for compensation if it can prove that the oil pollution damage is entirely caused by any of the following circumstances and such damage is unavoidable even after reasonable and timely measures have been taken:

   1. War, armed conflict, terrorist activities, or unavoidable natural disasters;
   2. A third party has done it intentionally;
   3. Negligence or other wrongful acts committed by the department responsible for the administration of the beacons or other navigation aids in the performance of its duties.

4. How will the liability be apportioned if the pollution is partly caused by another party?

   Section 1 and 3 of Article 226 provide that if the shipowner proves that the oil pollution damage is caused in whole or in part by the fault of another party, the shipowner may be wholly or partly exempted from the liability for compensation to that party. However, the new law clarifies that even if a collision is caused by a third party, the oil-spilling ship is the primary liable party.

5. How will the liability for bunker oil pollution damage be limited?

   In terms of limiting liability for bunker oil pollution damage, the general rules on the limitation of liability for maritime claims as set out in Article 217 are applicable.

6. Can pollution liability be allowed under general average?

   Losses or expenses arising from pollutant leakage by the ship, cargo, or other property during the same maritime voyage shall not be allowed in general average under Article 202. Pollution-related losses and expenses must be borne by the responsible party and cannot be treated as an extraordinary sacrifice under a common danger to be shared among the beneficiaries. 

Part 3: Crew

1. Are crew employment contracts subject to MLC 2006?

   It is now expressly required under Article 36 that crew employment contracts should satisfy all relevant laws, regulations, and “International Convention to which PRC is a party”, which shall include Maritime Labor Convention 2006 (MLC 2006). 

2. Any express obligation of a ship’s master?

   The obligation of a master to prevent environmental pollution has been highlighted in Article 37. It is also worth noting that Article 40 now expressly requires the master to preserve the log book, engine log, oil record book, radio log, charts used during the voyage, and documents, as well as valuables, mail and cash, and more importantly, the master shall direct seafarers to close equipment such as oil tank valves to prevent or reduce pollution before leaving the vessel in the event of a casualty.  

   This imposes additional obligations on the master when dealing with casualties and may lead to an additional chain of enquiry when ascertaining a ship’s liability in pollution incidents.

Part 4: Passenger Liabilities

1. Any adjustment in limitation of passenger liabilities?

   The limitation for passenger liabilities has been drastically increased as follows:

2. What are the requirements for liability insurance, and any direct action by passengers against liability insurers?

   There is a new provision under Article 125 that requires the carrier or the actual carrier to obtain liability insurance (or corresponding financial guarantee) to cover any liability for death or injury of passengers.

   The new Article 126 provides for direct action against the liability insurer (or the provider of the financial guarantee) for any claim for death or injury of passengers.  

   However, even if the carrier or actual carrier has lost their right to cap their liability for claims due to reasons such as willful or reckless disregard of danger causing the incident, the liability insurer or the provider of the financial guarantee can still rely on the cap of liability.  The liability insurer or the provider of the financial guarantee can also use “willful conduct of the carrier or actual carrier” to defend the claim.

Part 5: Other Limitation of Liabilities and Time Bars

1. Any change in liability limitation amounts?

   The limitation amounts have been significantly increased as follows:

2. Any instances where the above limitations will not apply / other limitations will apply?

   Article 217 provides that the limitations of liabilities above do not apply to liabilities for pollution caused by ships carrying oil in bulk, which is governed by Section 2 of Chapter XII. The above limitations of liability do not apply to liabilities for wreck removal and rendering harmless of the wreck.

3. Any clarification on the applicable time bars?

   1. Cargo claims:

   The time limit for claims regarding carriage of goods by sea is one year.  

   For claims raised against carrier and actual carrier, the time limit shall run from the date of delivery of the goods or the date the goods ought to have been delivered.  However, for claims raised against the cargo interests by the carrier, the time limit would run from the date the carrier know or should have known their rights have been infringed.

   2. “Damage without collision” claims:

   Article 288 now clarifies that the 2 years’ time bar for collision claims also applies to claims and recourse claims for loss or damage without an actual collision.

   3. “Maximum 6-years’ time bar” for GA contribution claims:

   A new requirement has been introduced in Article 290 that the limitation period for claims concerning contribution to general average shall be one year, calculated from the date of completion of adjustment of general average; however, in no event shall it exceed six years from the date of the termination of the common voyage.

Conclusion

The above sets out the major revision of the Chinese Maritime Code with a particular focus on Members’ exposure to third-party liabilities (i.e. P&I related liabilities).  There are other revisions in the Code that are beyond the scope of this article.  The revisions have provided more clarity on some previously uncertain areas.  However, the increase in liability limits, the mandatory requirement to obtain insurance for various liabilities, and more importantly, the availability of direct action against liability insurers in some cases, may encourage claimants to pursue their claims more readily. It remains to be seen whether there will be an overall increase in liabilities exposure for vessels operating in China.

* With thanks to Mervyn Chen, Wintell & Co, for his assistance in reviewing this article.