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Legal Risk Analysis of Shipping Enterprises in the Process of Work Resumption

Affected by COVID-19, after Spring Festival holiday, the shipping industry’s seasonal economic downturn was even worsened. Those shipping enterprises have suffered a lot. After more than a month’s anti-epidemic campaign, the situation was gradually improved and under control. On February 12, at the Standing Committee of the Political Bureau of the CPC Central Committee, general secretary Xi Jinping pointed out that for those less affected or non-affected areas, the anti-epidemic work should be differentiated and classified, we should strike a balance between epidemic-prevention-and-control and recovery of economy and restoration of social orders. On February 18, the leading group of COVID-19 prevention-and-control-work in Jiangsu province announced Proposals on Strengthening Scientific Prevention and Control, Precise Implementation of Policies, Firmly Winning the Battle of Epidemic Prevention and Control, and Overall Promotion of Economic and Social Development. On the one hand, the epidemic prevention and control measures have been strictly implemented; on the other hand, the unreasonable restrictions on economic development also abolished, which, vigorously and orderly, pushed the work resumption of enterprises forward. While, under such special situation, in the process of work resumption, what legal risks might shipping enterprises encounter? This article aims to sort out those legal risks and help shipping enterprises realize work resumption smoothly by putting forward constructive suggestions.

1 The risk of being investigated for legal responsibility due to failure to strictly implement prevention and control measures

Article 12 of the law of the People's Republic of China on the Prevention and Control of Infectious Diseases stipulates that all units and individuals within the territory of the people's Republic of China must accept the prevention and control measures of infectious diseases, such as investigation, examination, sample collection, isolation treatment, etc. by disease prevention and control institutions and medical institutions, and provide relevant information truthfully. Article 31 stipulates that when any unit or individual discovers an infectious disease patient or a suspected infectious disease patient, it shall promptly report it to the nearby disease prevention and control institution or medical institution. Article 77 stipulates that any unit or individual who violates the provisions of this Law and causes the spread and spread of infectious diseases and causes damage to the person and property of others shall bear civil liability according to law. Therefore, if an enterprise violates the regulations, does not cooperate with the investigation and inspection, implements the prevention and control measures, or conceals or falsely reports the epidemic information, which leads to the spread of the epidemic situation, it will be investigated for civil liability. Meanwhile, based on the provisions of article 330 (4) of the People's Republic of China Criminal Law, those who refuse to implement the prevention and control measures proposed by the health and epidemic prevention agencies in accordance with the law on the prevention and control of infectious diseases, which will lead to the spread of COVID-19 or serious risk of transmission, will be investigated for criminal responsibility according to the law of preventing and controlling infectious diseases.

Suggestions: After work resumption, shipping enterprises should continue to do a good job in epidemic prevention and control, establish epidemic prevention and control mechanism according to the epidemic prevention requirements of relevant departments, and strictly implement various prevention and control measures, including epidemic prevention goods and materials reserve, ship monitoring, investigation and early warning, ship epidemic prevention guidance and supervision, crew rotation system adjustment, etc. It is necessary to carefully verify the flow and physical condition of the crew members, and report the epidemic information truthfully, so as to avoid being held legally liable for concealing or falsely reporting the epidemic information due to improper implementation of prevention and control measures.

2 The risk of shippers terminating the contract on the ground that the epidemic situation constitutes force majeure in the carriage of goods by sea

Article 94 of the Contract Law of the People's Republic of China stipulates that the parties may terminate the contract under any of the following circumstances: (1) the purpose of the contract cannot be realized due to force majeure. Affected by the epidemic situation, the demand for bulk cargo has dropped sharply. In order to reduce the trade loss, the shipper may take the initiative to ask for the termination of the signed shipping contract and ask the carrier to refund the freight.

Suggestions: After receiving shipper’s notice of terminating the contract, shipping enterprises should deal with it according to whether the ship is sailing or not. If the ship has not yet sailed, the carrier shall carefully examine the provisions of the contract concerning the termination of the contract. If there is a COVID-19 outbreak that causes the contract to fail to perform and there is no other agreement under the contract, the contract can be terminated and the freight can be refunded according to Article 90 of the Maritime Law of the People's Republic of China. If the goods have been loaded on board, the shipper may be required to bear the handling costs and return the bill of landing. If it is found through examination that there is no causal relationship between the new epidemic situation and the non-performance of the contract, the carrier shall promptly reply to refuse the shipper's request for termination of the contract. If the shipper insists on terminating the contract, the carrier may require the shipper to pay half of the agreed freight in accordance with Article 89 of the Maritime Law of the People's Republic of China. If the goods have been loaded on board, the shipper may be required to bear the loading, unloading and other related expenses.

If the ship has already sailed, whether the epidemic situation can reach the extent that the purpose of the contract cannot be realized needs to be fully proved by the shipper. Under normal circumstances, although the epidemic prevention and control measures may cause the carrier's delay in transportation and the consignee's failure to pick up the goods in time, it does not necessarily lead to the impossibility of performance of the contract or the failure to achieve the purpose of the contract. The carrier may refuse to terminate the contract until the shipper has fully proved it.

3 The risk of delayed delivery and cargo damage due to the strict epidemic prevention and control measures at ports at home and abroad

Article 50 of the Maritime Law of the People's Republic of China stipulates that if the goods are not delivered at the agreed port of discharge within the specified time, it shall be deemed as delay in delivery. At present, most countries and regions have put forward strict health declaration and quarantine requirements. Strict preventive measures make the berthing operation of ships in relevant ports more complicated, the non-productive berthing time of ships is prolonged, and even some ports of destination directly refuse to dock and unload, resulting in the risk of delay in delivery and cargo damage and cargo shortage. Although the law working committee of the Standing Committee of the National People's Congress has cleared that the COVID-19 for which the contract is not able to be performed constitutes a force majeure, and China Council for the Promotion of International Trade has also announced that it can issue evidence of force majeure, but this is the interpretation of applicable Chinese law. Foreign laws are usually applied in foreign trade transportation, especially the Anglo American law system. However, the establishment of the defense of "force majeure" is very strict under the Anglo American law system. In some countries, the proof of "force majeure" may not be able to fulfill the function as the proof of "force majeure" and then exempt from liability.

Suggestions: In the process of performing the contract after work resumption, shipping enterprises should first sort out the contract terms, comprehensively understand the prevention and control policies of COVID-19 at the port of destination, and reasonably estimate the impact of the epidemic situation on the performance of the on-time delivery obligation. Through full communication between shipping agency and port, quarantine, berthing, unloading and other procedures shall be arranged in advance, and the delivery task shall be completed as far as possible according to the contract. Under the condition that the port of destination explicitly refuses to dock and unload due to epidemic prevention and control, shipping enterprises should timely negotiate with the consignee to unload the goods at a safe port or place adjacent to the port of destination, and inform the consignor or the consignee in time, so as to minimize the loss. At the same time, when the performance of the contract is hindered, it is necessary to contact the shipper in time, inform him of the impact of the epidemic situation and actively negotiate with him. Meanwhile, the contract terms and applicable laws, especially the force majeure clause, should be carefully reviewed. If the negotiation fails and the defense of force majeure is decided to start, it is necessary to correctly perform the obligation of notification, properly preserve the evidence, and prepare for disputes.

4 The risk of the goods detention at the port of destination due to the consignee's rejection of the goods

The epidemic situation is still severe, and foreign buyers are still likely to cancel orders or reject goods due to local government inspection restrictions or market factors, which will lead to the risk of cargo being detained, destroyed or returned at the destination port for ships that have already left or arrived at the port of destination and the carrier may not be able to recover the freight (in the case of freight forward). It may also be necessary to pay for the overdue use of containers due to long-term occupation of containers, as well as the storage fees caused by the storage of goods in warehouses and yards.

Suggestions: After receiving the rejection notice from the consignor, shipping enterprises should contact the shipper in time. If the goods are still in transit, they should continue to sail, change the route or return according to the instructions of the shipper, and the increased voyage expenses shall be borne by the shipper. If the goods have arrived at the port, the carrier may, in accordance with Article 86 of the Maritime Law of the People's Republic of China, unload the goods in a warehouse or other appropriate place, and the expenses and risks arising therefrom shall be borne by the consignee. Or in accordance with the provisions of article 316 of the Contract Law of the People's Republic of China, the goods shall be deposited based on the laws of the port of destination. If the consignor refuses to pay the above fees, the carrier may detain the goods. After a certain period of time, the carrier can sell off and auction the goods according to law, and therefore have priority to be paid.

5 The risk of increased voyage cost due to crew infection and forced deviation

Since COVID-19 has not been cured yet, it is still possible to be infected for the crew returning to work. Once there is crew infected, the captain should immediately isolate the crew and arrange treatment as soon as possible. If the disease occurs on the high seas, the ship will deviate and lead to the risk of increased voyage cost and delay of voyage.

Suggestions: Shipping enterprises should strictly implement the isolation observation system when they organize the crew to return to work. Only the crew members who have successfully passed the isolation observation period can board the ship and sail, so as to minimize the risk of COVID-19 infection during navigation. On this basis, in case of forced deviation due to crew infection, Section 2 of Article 49 of Maritime Law of the People's Republic of China can be invoked to claim that the deviation is a reasonable action for the purpose of saving human life, which does not violate the provisions of the transport contract, and the carrier may be exempted from liability for the risks of loss, damage of goods or delay of voyage. As for the increased voyage cost, it should be borne by the shipowner in the ordinary way.

6 The risk of navigation safety caused by traffic congestion due to rising freight demand

During the epidemic period, the shipping activities of the major shipping companies in the world have been reduced, and the original route plans have been canceled one after another. After the epidemic situation is under control, the freight demand will rise sharply and the navigation congestion will also appear. After work resumption, shipping enterprises should pay close attention to the navigation safety risks caused by navigation congestion.

Suggestions: Shipping enterprises should strictly implement the ship management responsibility after work resumption, and completely eradicate the paralysis, slack and fluke psychology caused by the rise of freight demand. First, in terms of ship maintenance, the ship and her equipment should be inspected and effectively maintained before sailing, and key machinery and equipment should be tested according to the relevant management provisions of complex waters (congested waters) so as to ensure that the ship is in seaworthy state. Second, in terms of manning, enough qualified crew members should be provided to avoid fatigue driving. At the same time, the seafarers’ training in navigation skills and safety knowledge should be strengthened so as to improve their awareness to comply with navigation regulations and the ability to deal with complex situations, such as navigation congestion. Third, in terms of shore based support, it is necessary for the relevant authorities to do a good job in monitoring and reminding the ships of safe navigation in complex waters (congested waters) so as to prevent collision accidents as far as possible.

7 The risk of delivery without bill of lading due to the delay of bill of lading caused by epidemic situation

The bill of lading is a document indicating ownership of goods. Affected by the epidemic situation, many countries have stopped flights to China. The time for the bill of lading to be transferred from Chinese enterprises to foreign buyers may be prolonged. As a result, it may cause the situation that the goods have arrived at the port of destination while the buyer has not received the bill of lading. In this case, the consignor may issue a telex release guarantee to the carrier and require the carrier to release the goods, or the consignor requires the carrier to release the goods by the duplicate bill of lading and the letter of guarantee, but the carrier will face the risk of delivery without the original bill of lading.

Suggestion: In the case of delay of bill of lading, it is very common for the consignor to adopt the method of "telex releases", but there are still some risks in the operation process. Because once the third party holding the original bill of lading brings a lawsuit to the carrier, the carrier cannot exempt itself from the liability by the shipper's request, but can claim compensation from the shipper by the telex release guarantee. Therefore, after receiving the telex release guarantee from the consignor, the carrier should take a cautious attitude, carefully distinguish the subject identity requiring the telex release, and accept the release request only after confirming that the consignor who issued the telex release instruction is the consignor of the goods under the promissory note. At the same time, the carrier should also confirm that the shipping agency has received a complete set of original bills of lading, and the goods can be released without the risk of the original bill of lading circulating outside.

The carrier should be more cautious if the consignor requests to release the goods by the duplicate bill of lading and the letter of guarantee. Although the delivery without bill of lading can solve the carriers’ problems like the detention at the port and the arrangement of the shipping date due to no delivery of the goods, the delivery letter of guarantee is actually a kind of compensation agreement that the carrier transfers the risk to the consignor, and it only takes effect between the carrier, the guarantor and the consignor. When the third party holding the original bill of lading appears, the letter of guarantee cannot be the evidence against the third party, and the carrier still has to bear the responsibility of releasing the goods without the bill of lading, but after bearing the responsibility, it can claim compensation from the consignor and the guarantor with the letter of guarantee. Moreover, the validity of the letter of guarantee needs to be confirmed by the court. Only the good faith guarantee letter is valid, and the malicious guarantee letter is invalid. Therefore, if the carrier decides to accept the delivery guarantee, it should be based on a high degree of trust in the consignor, and strictly examine and approve the credit status of the guarantor. It is better to accept the letter of guarantee issued by the national bank or financial institutions, avoid accepting the letter of guarantee issued by the consignor or a third-party company as far as possible, and take back the original bill of lading as soon as possible.

8 The risk of late payment of freight on the excuse of COVID-19 by the shipper.

It is the contractual obligation for the shipper to pay the freight to the carrier. Article 69 of the Maritime Law of the People's Republic of China stipulates that the shipper shall pay the freight to the carrier according to the agreement. The shipper and the carrier may agree that the freight shall be paid by the consignee; however, such agreement shall be stated in the transport document. However, affected by COVID-19, shippers may have difficulties in capital turnover or other reasons to fail to pay the freight on time.

Suggestion: Generally speaking, COVID-19 does not affect financial institutions' business, such as payment and liquidation, accounts settlement and so on. Therefore, shipper's obligation to fulfill payment is not susceptible to COVID-19. If the shipper delays the payment of freight without reasonable accounts and fails to provide appropriate guarantee, the carrier may retain the consignor's goods within a reasonable limit according to the Articles 87 and 88 of the Maritime Law of the People's Republic of China, and apply to the court for auction as the case may be, therefore, have priority in compensation. However, if the shipper is delayed in payment due to epidemic prevention and control measures or compliance with relevant provisions on delayed resumption, the carrier may extend the payment period and require the shipper to pay the freight immediately after the relevant special circumstances are lifted.

9 The risk of crew’s labor disputes due to epidemic prevention and control arrangements

With the gradual resumption of work and production of enterprises, the labor disputes may also emerge. The disputes involved may mainly include the following 3 aspects: first, for those related crew members, whether they can enjoy the normal payments and/or benefits for company’s delayed work resumption arrangements; second, after work resumption, for those related crew members, how will they be treated financially for being unable to provide normal labor during legitimate isolation period; third, after work resumption, for some related crew members, whether they can enjoy workers compensation after having been COVID-19-infected ?

Suggestion: For the first case, according to the relevant Proposal of the Ministry of Human Resources and Social Security, for employees who cannot provide normal labor after using up all kinds of paid leave or other employees who cannot provide normal labor during the period of delayed work resumption affected by COVID-19, enterprises can negotiate with employees according to the relevant provisions of the state on wage payment during the shutdown period. Within a wage payment cycle, the wage shall be paid according to the standard stipulated in the labor contract, if more wage payment cycles involved, at least, the living expenses shall be paid according to the relevant provisions, the crew members who do not return to work during the period of delayed work resumption may be paid by referring to the proposal above.

For the second case, according to the relevant Proposal of the Ministry of Human Resources and Social Security, enterprises shall not terminate the labor contract with employees restricted by relevant arrangements thus unable to provide normal labor or return the dispatched workers during the period of epidemic prevention and control, but pay them normal wages as usual; for employees who still need rest for treatment, they will be paid fairly according to the relevant provisions of the medical period, the crew members who cannot provide normal labor due to legitimate isolation after work resumption should be paid normally as usual.

For the third case, according to the Notice on Guarantees of Medical and Related Staff Who Infect COVID-19 Due to Performance Duties (Human Society Department Letter [2020] No. 11), medical and related staff who catch COVID-19 or die of COVID-19 for fulfilling their duties in the COVID-19 prevention and treatment work should be categorized as work-relatedly injured staff and enjoy workers compensation according to the law. This is a special policy targeted at medical and related staff who are in high risk of exposure to COVID-19 and engaged in prevention and treatment work during the battle against the epidemic, reflecting the care from the party and the state about medical and related staff, COVID-19-infected crew members can never be considered work-relatedly injured staff and never enjoy workers compensation.