Guiding Case No. 233 Changzhou Hong [REDACTED] Petrochemical Warehousing Co. Ltd. et al. v. Ningbo Tian [REDACTED] Shipping Co. Ltd.
(Limitation Fund Priority Dispute - Allision Damage)

Keywords: civil; allision liability; limitation fund; restricted claims; consequential operating loss; compensation priority

Key Points of Judgment

With respect to claims for damage to property on a quay, quay operating loss resulting therefrom, and other corresponding loss, the person liable may limit his liability in accordance with the provisions of item (1) in paragraph 1 of Article 207 of the Maritime Law of the People's Republic of China. Among the aforesaid claims, in accordance with the provisions of item (4) in paragraph 1 of Article 210 of the Maritime Law, priority applies solely to direct physical damage to quay structures under Art 210(1)(iv), excluding consequential operating losses.

Basic Facts

At about 20: 00 on July 5, 2017, "Bulk carrier MV Tian[REDACTED] 18" operated by Ningbo Tian[REDACTED] Shipping Co., Ltd. (hereinafter referred to as "Ningbo Tian[REDACTED] Shipping Company") set sail from the Jingtang Port in Hebei Province for the Changzhou Port in Jiangsu Province, carrying 48,810 tons of water slag. At about 10: 00 on July 9, 2017, the bow of "Bulk carrier MV Tian[REDACTED] 18" collided with the middle and rear parts of the starboard of Moored vessel MV Shuang[REDACTED]hai at the No. 3 berth on the Changzhou [REDACTED]run Yangtze River Quay (hereinafter referred to as the "[REDACTED]run Quay"). Squeezed down by the ship "Shuang[REDACTED]hai," some parts of the [REDACTED]run Quay owned by Changzhou Hong[REDACTED] Petrochemical Warehousing Co., Ltd. (hereinafter referred to as "Changzhou Hong[REDACTED] Warehousing Company") collapsed, pipelines were torn, and gas and liquid in the pipelines got leaked and ignited. On December 25, 2017, the Maritime Safety Administration of Changzhou City issued an Investigation Conclusion on an Water Traffic Accident, determining that "Bulk carrier MV Tian[REDACTED] 18" was fully liable for the accident. Due to the ship collision accident, Changzhou Hong[REDACTED] Warehousing Company paid the quay repair expense in an amount of RMB 69,247,776.87 Yuan (the same currency below), the quay operating loss amounted to RMB 65,844,974 Yuan, and it also paid the emergency rescue expense.

After the accident occurred, Jiangsu Branch of Hua[REDACTED] Property & Casualty Insurance Co., Ltd. (hereinafter referred to as "Jiangsu Branch of Hua[REDACTED] Property Insurance Company"), the insurer of the quay involved successively paid insurance indemnity of RMB 55,380,000 Yuan to Changzhou Hong[REDACTED] Warehousing Company. Afterwards, Changzhou Hong[REDACTED] Warehousing Company agreed to transfer all rights and interests in the subject matter of insurance, of which the insurance indemnity has been received, to Jiangsu Branch of Hua[REDACTED] Property Insurance Company.

On July 31, 2017, Ningbo Tian[REDACTED] Shipping Company filed an application with the Wuhan Maritime Court for establishing a fund of limitation of liability for maritime claims. On September 28, 2017, Changzhou Hong[REDACTED] Warehousing Company filed an application with the Wuhan Maritime Court for registering the claim involved. On December 27, 2017, the Wuhan Maritime Court entered a civil ruling (No. 39 [2017], Special, Civil Division, 72, Hubei), in which Ningbo Tian[REDACTED] Shipping Company was approved to establish a fund of limitation of liability for maritime claims with special drawing rights (SDR) in an amount of RMB 2,442,041 Yuan and the interest. Changzhou Hong[REDACTED] Warehousing Company refused to accept the civil ruling and appealed. On May 7, 2018, the High People's Court of Hubei Province entered a civil ruling (No. 619 [2018], Final, Civil Division, Hubei) to affirm the civil ruling entered by the Wuhan Maritime Court. Afterwards, Ningbo Tian[REDACTED] Shipping Company established a fund of limitation of liability for maritime claims in accordance with the law in the Wuhan Maritime Court by means of providing cash and guarantee. On July 27, 2018, the Wuhan Maritime Court entered a civil ruling (Ⅱ) (No. 59 [2017], Special, Civil Division, 72, Hubei) that the application for registering the claim involved filed by Changzhou Hong[REDACTED] Warehousing Company shall be approved.

On August 24, 2017, Changzhou Hong[REDACTED] Warehousing Company et al. filed a lawsuit with the Wuhan Maritime Court, requesting the Court to rule that Ningbo Tian[REDACTED] Shipping Company should compensate for various losses arising from the accident involved; and the repair expense of the damaged quay and the quay operating loss shall enjoy the priority of compensation from the Limitation Fund of liability for maritime claims established by Ningbo Tian[REDACTED] Shipping Company compared over other claims other than those for loss of life and personal injury. Jiangsu branch of Hua[REDACTED] Property Insurance Company applied for participating in the litigation of this case as a co-plaintiff and requested that Ningbo Tian[REDACTED] Shipping Company should be ordered to compensate for the quay repair expense of RMB 55,380,000 Yuan and the interest thereof; and the aforesaid claim should enjoy the priority of compensation from the Limitation Fund of liability for maritime claims established by Ningbo Tian[REDACTED] Shipping Company over other claims other than those for loss of life and personal injury.

Judgment

On July 29, 2020, the Wuhan Maritime Court entered a civil judgment (No. 1563 [2017], First, Civil Division, 72, Hubei) that (1) Ningbo Tian[REDACTED] Shipping Company shall compensate Changzhou Hong[REDACTED] Warehousing Company for the quay repair expense of RMB 13,867,776.87 Yuan and the interest thereof; (2) Ningbo Tian[REDACTED] Shipping Company shall compensate Jiangsu Branch of Hua[REDACTED] Property Insurance Company for the quay repair expense of RMB 55,380,000 Yuan and the interest thereof; and (3) Ningbo Tian[REDACTED] Shipping Company shall compensate Changzhou Hong[REDACTED] Warehousing Company for the salvage payment of RMB 1,468,480 Yuan and the interest thereof; (4) Ningbo Tian[REDACTED] Shipping Company shall compensate Jiangsu Branch of Hua[REDACTED] Property Insurance Company for the salvage payment of RMB 3,700,000 Yuan and the interest thereof; (5) Other claims of Changzhou Hong[REDACTED] Warehousing Company shall be dismissed; and (6) Other claims of Jiangsu Branch of Hua[REDACTED] Property Insurance Company shall be dismissed. The aforesaid compensations shall be paid in a lump sum within ten days after this judgment takes effect and allocated from the limitation fund of liability for maritime claims established by Ningbo Tian[REDACTED] Shipping Company. In particular, the compensations in items (1) and (2) shall enjoy the priority of compensation during allocation of the fund.

After the judgment of first instance was pronounced, Changzhou Hong[REDACTED] Warehousing Company refused to accept it and appealed. It requested that the judgment of first instance should be set aside in accordance with the law, Ningbo Tian[REDACTED] Shipping Company should be ordered to compensate Changzhou Hong[REDACTED] Warehousing Company for the quay operating loss in an amount of RMB 65,844,974 Yuan and the interest thereof, and such claim should enjoy the priority of compensation from the limitation fund of liability for maritime claims established by Ningbo Tian[REDACTED] Shipping Company. Upon trial, the High People's Court of Hubei Province held that the claim of Changzhou Hong[REDACTED] Warehousing Company for quay operating loss and the interest thereof had factual and legal basis and should be upheld; however, the claim that such compensation should enjoy the priority of compensation from the fund of limitation of liability for maritime claims lacked legal basis and should not be upheld. In view of this, the High People's Court of Hubei Province entered a civil judgment (No. 15 [2021], Final, Civil Division, Hubei) that (1) the civil judgment (No. 1563 [2017], First, Civil Division, 72, Hubei) entered by the Wuhan Maritime Court shall be set aside; (2) Ningbo Tian[REDACTED] Shipping Company shall compensate Changzhou Hong[REDACTED] Warehousing Company for the quay repair expense of RMB 13,867,776.87 Yuan and the interest thereof; (3) Ningbo Tian[REDACTED] Shipping Company shall compensate Jiangsu Branch of Hua[REDACTED] Property Insurance Company for the quay repair expense of RMB 55,380,000 Yuan and the interest thereof; (4) Ningbo Tian[REDACTED] Shipping Company shall compensate Changzhou Hong[REDACTED] Warehousing Company for the salvage payment of RMB 1,468,480 Yuan and the interest thereof; (5) Ningbo Tian[REDACTED] Shipping Company shall compensate Jiangsu Branch of Hua[REDACTED] Property Insurance Company for the salvage payment of RMB 3,700,000 Yuan and the interest thereof; (6) Ningbo Tian[REDACTED] Shipping Company shall compensate Changzhou Hong[REDACTED] Warehousing Company for the quay operating loss of RMB 65,844,974 Yuan and the interest thereof; (7) Other claims of Changzhou Hong[REDACTED] Warehousing Company shall be dismissed; and (8) Other claims of Jiangsu Branch of Hua[REDACTED] Property Insurance Company shall be dismissed. The aforesaid compensations shall be allocated from the fund of limitation of liability for maritime claims established by Ningbo Tian[REDACTED] Shipping Company. In particular, the compensations in items (2) and (3) shall enjoy the priority of compensation during the allocation of the fund.

Reasons for Judgment

Limitation of liability for maritime claims is one of the special legal systems in the maritime law. It refers to a compensation system in which, in the occurrence of a marine accident causing property damage or loss of life and personal injury of others, the ship owner, operator, and charterer may, as persons liable, limit their liability for such damage within a limit in accordance with the legal provisions. Article 207 of the Maritime Law explicitly provides for the scope of claims subject to limitation for which a person liable may limit his liability. According to the provisions of item (1) in paragraph 1 of Article 1 thereof, for claims in respect of loss of life or personal injury or loss of or damage to property including damage to harbour works, basins, waterways, and aids to navigation occurring on board or in direct connection with the operation of the ship or with salvage operations, as well as consequential damages resulting therefrom, the person liable may limit his liability. In this case, the ship collision accident involved caused loss to Changzhou Hong[REDACTED] Warehousing Company, which had the right to claim that the person liable should assume the liability. As the insurer of the quay involved, Jiangsu Branch of Hua[REDACTED] Property Insurance Company, had the right to claim that the person liable should assume the liability within the scope of insurance indemnity after it has performed the corresponding insurance indemnity obligation to Changzhou Hong[REDACTED] Warehousing Company. The claims raised by Changzhou Hong[REDACTED] Warehousing Company and Jiangsu Branch of Hua[REDACTED] Property Insurance Company included quay repair expense, emergency rescue expense, and quay operating loss caused by failure of normal operations due to serious damage to the quay, all of which were claims subject to limitation as prescribed in the aforesaid legal provisions. Therefore, the person liable, Ningbo Tian[REDACTED] Shipping Company, had the right to limit its liability in accordance with the provisions of the aforesaid Article of the Maritime Law.

The limitation of liability for maritime claims is the maximum amount of compensation made by a person liable for the claims for loss of life or personal injury, the claims other than those for loss of life or personal injury, and other claims subject to limitation. Article 210 of the Maritime Law provides for the calculation standards for limitation of liability for maritime claims and the order of compensation for various claims subject to limitation. According to the provisions of item (4) in paragraph 1 of the aforesaid Article, "without prejudice to the right of claims for loss of life or personal injury under item (3), claims in respect of damage to harbour works, basins, waterways, and aids to navigation shall have priority over other claims under item (2)." Subject to the aforesaid provisions, claims in respect of damage to harbour works, basins, waterways, and aids to navigation, which are subject to limitation other than those for loss of life or personal injury, shall enjoy the priority of compensation over other claims. The damage as referred to in this Article shall only mean direct property damage to the harbour works, basins, waterways, and aids to navigation due to an accident and shall not include other consequential loss caused by the accident. Accordingly, in this case, the claim for the quay repair expense caused by the accident involved may enjoy the priority of compensation, but the claim for quay operating loss caused by the accident involved cannot be compensated in priority.

In conclusion, the claim raised by Changzhou Hong[REDACTED] Warehousing Company for quay operating loss shall be compensated from the fund of limitation of liability for maritime claims established by Ningbo Tian[REDACTED] Shipping Company, but it shall not enjoy the priority of compensation over other claim other that for loss of life or personal injury.

Legal Provisions

Articles 207 and 210 of the Maritime Law of the People's Republic of China