Yard Repair Ruling Highlights Approach by Chinese Marine Courts

Monday, May 13, 2002
A recent ruling by a Chinese maritime court has been welcomed by The Swedish Club. The case concerned a member's vessel booked for damage repairs at a Chinese shipyard. The repairs took nearly eight times longer than quoted and the Guangzhou Maritime Court backed the owner's claim for loss of hire. Ruizong Wang, Deputy Managing Director at The Swedish Club's Hong Kong office, says: "Our member incurred a significant financial loss as a result of this extraordinary delay at the yard. The loss was nearly five times greater than the quoted cost of the repairs.

"This favorable ruling from the Guangzhou Maritime Court may provide reassurance of future Chinese commitment to principles of fairness and reasonableness in dealings between Chinese and non-Chinese interests. Also in part heralding a growing awareness of the need to apply international legal and commercial norms, following China's membership of the World Trade Organization last December. Enlightened rulings of this type may become the norm, rather than the exception, in the years ahead." The legal dispute concerned the product tanker Gonen. The repair contract was negotiated by fax between the owners and Guangzhou Weichong Shipyard. The repair period was estimated at nine days, to commence upon the vessel's arrival at the yard. The repairs, however, took 70 days; loss of hire was suffered as the Gonen was under time charter but the owner's claim was rejected by the yard and the matter went to court. The Court rejected the yard's reasons for the delay and ordered that it should meet the major proportion of the loss of hire claim. Ruizong Wang says: "The yard had claimed, inter alia, that it had not received the tender conditions attached to the fax and that the contract had no provision requiring them to pay a penalty if the quoted repair period was exceeded. The other reasons cited for the delay included variations in the scope of work and the materials to be used.

"All points put forward by the yard, but one, were rejected by the Court. The exception concerned the ship's drawings. The Court upheld the argument that repairs could not proceed in the absence of the drawings. Accordingly, the seven-day period which elapsed between the Gonen's arrival at the yard and the availability of the plans was deducted from the owner's claim. The Court held that the yard was responsible for 54.5 days of the loss of hire claim. The repair cost was $150,000 and the award for loss of hire was around $700,000." Another indication of growing Chinese recognition of international norms is an increasing willingness to adopt a more flexible attitude towards guarantees. Ruizong Wang comments: "The Chinese are more willing to recognize the role of the Club Letter. Past insistence on the arrangement of guarantees through local providers has eased. As a result, unnecessary costs and delays are avoided. These delays can be very serious. For example, one recent case involved damage to a fish farm. The problems faced in arranging security through Chinese interests cost our member seven days delay to his ship. A Club Letter, in contrast, can be made available in a couple of hours."

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