Recently, the Supreme People’s Court published the typical maritime cases tried in 2019. A case of ship mortgage contract dispute lodged by BNP Paribas against Brightoil Gem Tanker Ltd., which was tried by Haikou Maritime Court, was also on the list.

The typical cases of the year represented the capacity of China’s maritime judiciaries in providing international oriented, law-based and enabling judicial services, as well as the increasing international influence and credibility of maritime justice of China. These cases were the result of the continued efforts of the people’s courts in strengthening the trial of maritime administrative cases and their resolution to maintain the fair competition of the marketplace, to protect the country’s marine ecological environment and to safeguard the safety of navigation at sea.

BNP PARIBAS v. BRIGHTOIL GEM TANKER LTD. for Ship Mortgage Contract Dispute

First-instance Case No.: (2019) Qiong 72 Min Chu No.22

Basic Facts

On 28 October 2016, BNP Paribas (hereinafter “BNP”) and Brightoil Gem Tanker Ltd. (hereinafter “Brightoil”) entered into a loan contract, which agreed that BNP provided a loan to Brightoil with an amount of not more than USD52 million, and if Brightoil failed to repay within the contractual term, it shall pay a default interest and compound interest for the delayed payment, and that Brightoil Petroleum Holding Ltd. shall be one of the guarantors for the loan. On 1 November 2016, the parties signed a mortgage contract, by which it was agreed that Brightoil pledged its ship M.T. BRIGHTOIL GEM as guarantee for all the debts payable under the aforesaid loan contract, and that the Hong Kong court shall be the most appropriate and convenient forum in case of any disputes arising from this contract, but BNP had the right to sue before any courts with jurisdiction. Brightoil registered the mortgage with the Hong Kong Shipping Register (the registration authority for the vessel) and the Companies Registry. On the same day, BNP provided a loan of USD45.5 million upon the withdrawal request of Brightoil. On 3 October 2017, Brightoil Petroleum Holding Ltd., one of the guarantors, was suspended from trading on Hong Kong Stock Exchange and the suspension lasted for more than 5 days. On 22 December 2017, BNP sent a notice of acceleration to Brightoil, alleging that the suspension event constituted a breach of the loan contract. Thereafter, Brightoil paid a small amount of the capital, interest and penalty interest to BNP by installment, the majority of the debts left outstanding.

On 4 January 2019, BNP applied with Haikou Maritime Court for pre-trial preservation of maritime claims and the arrest of M.T. BRIGHTOIL GEM owed by Brightoil for its failure to pay the loan as agreed. Haikou Maritime Court made the Civil Ruling [(2019) Qiong 72 Cai Bao No.1] and an arrest order, by which the vessel was arrested at Yangpu Port, Hainan. On 28 January 2019, BNP lodged a lawsuit before Haikou Maritime Court, requesting that Brightoil shall undertake the mortgage liability for the debts payable to BNP under the loan contract to the extent covered by the value of M.T. BRIGHTOIL GEM, and that Brightoil shall pay the interest on the overdue sum and default interest at the rate as agreed under the master loan contract, as well as other litigation requests.

During the litigation, BNP applied to auction off the vessel as Brightoil did not provide further guarantee and the vessel had been detained in the tropical sea for a long time and was faced with the risk of loss that might be brought by the frequent visits of typhoon. On 6 August 2019, Haikou Maritime Court made the Civil Ruling [(2019) Qiong 72 Min Chu No.22], which approved the auction of M.T. BRIGHTOIL GEM to be carried out on the online platform for judicial sale, and the proceeds of the sale would be kept in the custody account of the Court after deducting all the costs and expenses incurred for the arrest and auction of the ship.

Judgment

The parties reached a settlement agreement upon the mediation arranged by the Court, the main content of which included: the parties confirmed the capital and interest of the loan; Brightoil undertook the costs and expenses incurred by BNP for the realization of its creditor’s right and the exercise of the mortgage right; the said amounts shall be paid to BNP from the proceeds of the sale of M.T. BRIGHTOIL GEM in compliance with the due process and priority of compensation; BNP warranted that upon the receipt of the said payment it would not make further claims against Brightoil and the manager and operator of the vessel in respect of the loan contract and mortgage contract in question. Haikou Maritime Court rendered a civil mediation statement to review and confirm the settlement agreement by law.

At ten o’clock of 20 November 2019, M.T. BRIGHTOIL GEM was taken by the Greek buyer MERLIN Co., Ltd. in the auction sale on the judicial sale platform of Taobao.com at a price of RMB403.3 million. On November 28, Haikou Maritime Court released M.T. BRIGHTOIL GEM and handed it over to the buyer on December 3. At present, all the litigation cases concerning the registration of creditor’s rights and confirmation of rights arising from the auction of the vessel had been concluded, and the proceeds of the sale had been apportioned.

Significance

The proper handling of the case in a fair and efficient manner was a vigorous response to the commitment of Haikou Maritime Court to the implementation of the spirit of the speech of General Secretary Xi Jinping dated 13 April 2018, and to the construction of the building of a law-based, international-oriented and enabling business environment for Hainan Free Trade Zone (Port). While the parties had made open-end jurisdiction clause, which entitled BNP to sue before any court in any countries or regions around the world, why BNP chose Haikou Maritime Court as the forum to make its complaint heard? The answer was the international credibility and influence of maritime justice of China in the world. After rounds of mediation arranged by the Court, the defendant Brightoil finally agreed to pay the outstanding debts with the proceeds of the sale of M.T. BRIGHTOIL GEM. To ensure a smooth auction, Haikou Maritime Court promoted the sale through network media and traditional media alike, including pushing sale information on website, Weibo and WeChat, and publishing notices in respect of the auction and registration of creditor’s rights on newspapers and channels such as the China Daily (Global Edition), People’s Court Daily, Lloyd’s and Tradewind. To ensure better access to the details of the vessel for buyers coming from both home and abroad, Haikou Maritime Court opened a 24-hour hotline and arranged four visits for potential buyers to board the ship for a check. After 32 rounds of competitive bidding, the vessel was finally auctioned off at RMB403.3 million, setting a new record for the hammer price of ships ever since the launch of the judicial sale platform of Taobao.com, a successful try of judicial auction online.