At 1231hrs on 20 October 2016, a flash explosion and fire broke out in the engine room of M/V “Feng Sheng You 8” owned by Dongguan Fenghai Shipping Co., Ltd. (hereafter “Fenghai”) when she was loading naphtha at Basuo Port, Dongfang, Hainan Province. Two more explosions took place at 1250hrs and 1300hrs. At the time of the accident, about 3,400 tons of naphtha purchased from Sinopec Yangzi Petrochemical Co., Ltd. (hereafter “Yangzi Petrochemical”) had been loaded into the holds of the ship. After the accident, Dongfang municipal authorities set up an emergency command centre, and the provincial government dispatched an emergency response team to Basuo Port to direct the emergency response. The emergency command centre mobilized several parties to participate in the salvage of the ship at different stages and evacuate people to safe areas. Through joint efforts of these parties, the fire on M/V “Feng Sheng You 8” was extinguished at 0900hrs of 17 November. Operations were taken to transfer the naphtha loaded on board, and the transfer was completed on 6 December. The total salved value of the ship and the cargo on board was RMB16,745,804, which included RMB5,685,000 for the salved ship and RMB11,060,804 for the salved cargo. The salvage operations also effectively prevented pollution of the surrounding environment by the naphtha loaded on board. On 16 December, Ping An Property & Casualty Insurance Company of China, Ltd. Donguan Branch (hereafter “Dongguan Ping An”) issued a Letter of Guarantee to assure the payment of compensation to be borne by the owner/bareboat charterer of M/V “Feng Sheng You 8” as a result of the accident (not exceeding RMB3 million). In addition, at the time of the accident, Dongguan Ping An had underwritten the “all risk hull insurance for ships engaged in coastal and inland river transportation” and the “shipowner protection and indemnity insurance for ships engaged in coastal and inland river transportation” for M/V “Feng Sheng You 8” for compensations (limits of liability) in the sum of RMB40 million and RMB48 million respectively.
After the accident, 9 entities engaged in the salvage operation brought actions before Haikou Maritime Court in respect of disputes over the salvage. Information on the cases is shown in the table below:
Information of the Cases
1. Reasoning (summary of the nine cases)
M/V “Feng Sheng You 8” and the dangerous cargo carried on board were at risk after a flash explosion and fire broke out in her engine room. The government authorities took emergency response to the accident and mobilized multiple forces for the salvage operations. The 9 parties engaged in the operations were thus bound by a “No Cure, No Pay” salvage legal relationship with the salved party or parties under the Maritime Law. One of the claimants, Nanhai Rescue Bureau, claimed that the salvage services it provided were both on “No Cure, No Pay” basis and under a salvage contract; such claim was groundless as it had not reached consensus with Fenghai on a salvage contract. If the ship interests (Defendant 1), at the later stage of the salvage operations and without the prior consent of the cargo interests (Defendant 2), had entered into a salvage contract with certain salvor (the above claimant) and incorporated the agreed remuneration into the “No Cure, No Pay” salvage reward or simply agreed on it as salvage reward payable by the cargo interests, it would have caused unfavourable results on the other salvors and the cargo interests. This would go against the principle of privity of contract as well as the fundamental spirit of the salvage law. The salvage reward incurred at the second stage in the sum of RMB242,476 claimed by one of the claimants, i.e. Hainan Xiagang Tugboat Co., Ltd., were agreed on by the ship interests Fenghai and Xiagang without the consent of the cargo interests and after the urgent basis for “No Cure, No Pay” salvage operations had been eliminated. Therefore, such reward should not be taken as the “No Cure, No Pay” salvage reward for apportionment. Instead, it shall be solely borne by Fenghai. Yangzi Petrochemical alleged that the amounts of salvage reward should be reduced as the salvors had taken salvage actions in excess of the needs or were at fault in carrying out the salvage operations. This Court dismissed such allegation as no evidence was provided to support it.
Given that the salvage operations lasted for a long time, involved many salvors, generated high costs and yielded useful results, the aggregate salvage reward was determined in the sum of RMB7,535,611.87, i.e. 45% of the total value of the salved property. Fenghai and Yangzi Petrochemical should pay the salvage reward in proportion to their respective salved property (namely 33.95% and 66.05%). The apportionment of the salvage reward among the 9 salvors was determined (see the Schedule of Judgments) based on comprehensive consideration of the whole salvage process and the skills and efforts put in by each salvor in preventing or mitigating pollution of the environment, results achieved, natures and extents of risks run by, time spent, costs and losses incurred, timeliness of services provided, as well as backup conditions, efficiency and values of equipment used by each salvor.
The salvage operations were carried out for a ship which by itself or its cargo posed threats to the environment as set out in Article 182 of the Maritime Law. Some of the claimants who rendered services and earned a reward less than the special compensation equivalent to the salvage costs, according to Article 182 of the Maritime Law, shall be entitled to claim special compensation from the shipowner equivalent to the difference between the reward and the costs of the salvage operations.
After the accident, Dongguan Ping An provided a guarantee of RMB3 million on behalf of the owner of the salved ship, i.e. Fenghai, according to the relevant provisions of the Maritime Law. Dongguan Ping An had also underwritten for the shipowner P & I insurance and hull insurance for the salved ship. Fenghai as the insured of the above insurances omitted to request the insurer to pay the insurance compensation. Accordingly, in the cases brought by the salvors in respect of salvage disputes, the salvors were entitled to directly request Dongguan Ping An to be jointly and severally liable for the compensation payable by the shipowner Fenghai.
Schedule of judgements
First, the 9 cases initiated out of the salvage operations touched almost all important mechanisms related to marine salvage under the Maritime Law of China. Up to 13 legal provisions and judicial interpretations were applied in the trial of the cases.
Second, the proportions of salvage reward to the salved property were determined based on considerations to and balance between the rights and interests of both the salvors and the salved parties. The Maritime Law has no specific provisions on the proportions of salvage reward to the salved property. Roughly speaking, the proportion in judicial practise is about 10%. This Court determined that the total salvage reward should be 45% of the value of the salved property, taking into account of the fact that the salvage operations lasted for as long as 48 days and other factors such as the participation of many salvors as well as the high costs and useful results of the operations. None of the parties to the 9 cases filed an appeal. The proportion was high but accepted by all parties involved. Thus, it was obvious that it was fair and reasonable. This case can serve as a good precedent in judicial practice.
Third, salvage operations on a “No Cure, No Pay” basis under the Maritime Law are in nature salvage actions encouraged and promoted by law rather than commercial activities. Accordingly, “costs of salvage” shall be costs and expenses incurred or payable, including direct loss suffered. Costs of salvage are an important factor in the apportionment of salvage reward among salvors. However, the apportionment of salvage reward among salvors shall not be simply based on the proportion of costs of salvage each salvor has incurred. Where multiple salvors participate in the salvage operations for a same marine accident, the apportionment of salvage reward between the salvors shall be reasonably determined subject to Article 180 of the Maritime Law based on comprehensive consideration of the whole salvage process and the skills and efforts put in by each salvor in preventing or mitigating pollution of the environment, results achieved, natures and extents of risks run by, time spent, costs and losses incurred, timeliness of services provided, as well as backup conditions, efficiency and values of equipment used by each salvor. Accordingly, some salvors may earn a salvage reward in excess of the costs of salvage they have incurred, while some may earn a reward falling short of the costs. Both happened in the 9 cases as a result of comprehensive consideration of different factors in the salvage services rendered by the salvors.
Fourth, one of the defendants, Dongguan Ping An, issued a Letter of Guarantee for the accident to assure the payment of compensation to be borne by the owner/bareboat charterer of M/V “Feng Sheng You 8” as a result of the accident (not exceeding RMB3 million), and it also underwrote the relevant insurances for the ship, with the total insurance exceeding the liabilities to be borne by Fenghai, i.e. the guaranteed (insured). Fenghai omitted to request the insurer to pay the insurance compensation, and it was possible that Fenghai might settle with the insurer by giving up some of its rights under the insurances which would prejudice the rights and interest of third parties, namely the claimants in these cases. In view of these, this Court directly ordered Dongguan Ping An to be jointly and severally liable for the salvage reward and special compensation payable by Fenghai. Such decision was in compliance with the insurance law and reduced the trouble of litigation for the parties involved.