Chinese law update
Background
China has recently promulgated the Regulation of the People’s Republic of China on the Prevention and Control of Marine Pollution from Ships (hereinafter the Regulation), which repeals the old one (1983 Regulation of the People’s Republic of China on the Prevention and Control of Marine Pollution from Ships). The new Regulation will take effect on March 1, 2010.
Intention of the Regulation
It intends to build up a systematic structure for ship-induced pollution response in China in order to control and prevent marine pollution from ships. It is an administrative regulation in essence, which regulates a wide range of issues including oil pollution response planning, oil spill clean-up arrangements, supervision of the loading, lightening and discharging of the polluting and hazardous cargos, investigation and compensation of pollution incidents, establishment of domestic compensation Fund and punishment for contravening any of the requirements of the Regulation etc.
Significant developments with the Regulation
The most significant development in this Regulation is that according to the Article 33, the operators of the ships carrying polluting and hazardous liquid in bulk, and other ships of above 10,000 GT, must conclude a pollution cleanup operation contract with approved pollution cleanup companies before entry of the port in order to specify the rights and responsibilities of all concerned parties in case of a pollution accident. The cleanup companies can then conduct cleanup operations immediately after such accident. This resembles the OPA 1990. Each port will have one or more pollution response companies and they must be approved by the China MSA.
Dealing with clean up costs
With regard to dealing with clean up costs one of the most significant developments is probably the provisions on the claim for clean-up costs, that is, the cleanup costs of emergency response action will be compensated in priority from the oil pollution compensation. Article 55 reads “After the pollution accident, the necessary expenses spent in the emergency response and cleanup operation by those units as organized by the government shall be compensated in priority from oil pollution compensation.”
It is not yet clear from the Regulation itself whether the MSA will take such action with its own resources (i.e. to mobilise its own cleanup equipment and personnel) or whether it will use owners’ pre-contracted response team instead. Nevertheless, this Article is controversial in terms of the priority as it seems to contradict with article 22 of the Chinese Maritime Code. Article 22 provides for the priority of certain maritime claims but cleanup costs are not one of them. In theory the effect of the law should supersede the regulation if in contradiction in China. However it can be argued that instead of being in contradiction with the Article 22 of the Chinese Maritime Code, the Article 55 of Regulation only functions as an addendum and is therefore valid. Nevertheless, before Chinese maritime courts render their interpretation, the question of priority will remain vague and may lead to disputes.
Compulsory Insurance
It is worth noting that the Regulations require all ships (with exception of ships below 1000GT carrying non-oil cargo) trading within China territorial waters to have compulsory insurance or financial security satisfying the requirements of the Chinese Maritime Code or the applicable liability Conventions, as so-called blue card for P&I clubs. So far so good. However, we understand that the Ministry of Transport is currently drafting another regulation (Draft Regulation of the People’s Republic of China on the Implementation of the Civil Liability Insurance for Ship Oil Pollution), which provides for the qualification of the oil pollution liability provider. Article 8 of the draft Regulation provides that “The insurers that undertake the oil pollution civil liability insurance of the ships of Chinese nationality shall conform to the following requirements:…4. have good service reputation and no record of bad behavior in the compensation…”
The phrase “good service reputation and no record of bad behavior...” is vague enough to cause concern. There are concerns that Article 8 might be misused and could lead to difficulties with interpretation where Clubs have legitimate concerns over the amount of rates being charged for clean up costs. Could this type of dispute be deemed “bad behavior...” such that the P&I Club would not be deemed a sufficient provider within the scope of Article 8.
Lastly, China has not acceded to the Fund Convention, and the Chinese government we understand is likely to set up its own domestic fund. In the first draft the Regulation (Article 56) provides that the cargo owner or his agent who receive the persistent oil shall contribute to the Ship Oil Compensation Fund.The collection and management of the Ship Oil Compensation Fund will be developed by the State transport and finance authorities. An Administration Commission, established by the State, and comprising relevant government officials and representatives of the main cargo owning contributors, will be responsible for the administration of the Fund.
Anyone who is interested in reading the English version of the whole Regulation please feel free to contact Skuld Hong Kong.