Author: Li Rongcun, Zheng Xiaochen

Background

In recent years, the Xiamen Maritime Court, which has jurisdiction over maritime cases in Fujian Province, where our office mainly practices, has handled several cases related to ocean vessels accidentally entering illegal fish farms: 

# “HL106/FX169/BHJ117” case: In March 2021, the three vessels accidentally entered an oyster farm in Pingtan, Fuzhou, and the fish farmers claimed RMB 16 million for compensation. The defendants successfully defended that the oyster farm was illegally operated due to lack of licenses for the use of sea area and the farming activities. Consequently, the court only supported about RMB 1.36 million of the farmers’ claim, which was upheld by the appeal court.

# “HCE” case: In April 2023, the vessel entered an illegal abalone farm in Luoyuan Bay, Fuzhou, and was demanded for a cash security of RMB 15 million. As the fish farmers used various means to hinder the vessel’s departure, the shipowners had no choice but to provide the required cash security after over 30 days of delay. However, the subsequent accident investigation report by the MSA found faults on both parties and thus both should bear equivalent liability. It is estimated that the cash security provided by the shipowners exceeded 50% of the fish farmers’ losses.

# “DL” case: In November 2023, the HK-flagged vessel similarly entered an illegal abalone farm in Luoyuan Bay and was demanded for a cash security of RMB 13 million. After 10 days of delay, during the negotiation period, the vessel caught the fish farmers off guard and “escaped”, leading the fish farmers to lower their claim expectations and finally accept a cash security of RMB 5 million. As the vessel departed without the MSA’s approval, the MSA imposed penalty on the vessel. 

Risk Analysis

Based on the aforementioned cases, it is apparent that when a vessel inadvertently enters an illegal fish farm, shipowners are exposed to the following risks:

Illegal and Obstructive Actions by the Fish Farmers:

Illegal fish farms are not marked on sea charts and there are normally no warning beacons around the farms to alert the passing vessels. As a result, vessels will not realize that they have accidentally entered a fish farm until abnormalities occur (e.g., entangled by aquaculture facilities or trapped by fishing nets after contacting therewith). However, such entry will be noticed by the fish farmers in short and they will take actions immediately (e.g., boarding the vessel without authorization or using small boats to intercept/besiege the vessel to prevent the vessel from leaving) to force the shipowners to accept their unreasonable demands (e.g., a huge amount of cash security or a quick settlement at the site). This is exactly what happened in both the “HL106/FX169/BHJ117” case and the “HCE” case.

Exorbitant and Extravagant Claims by the Fish Farmers:

In China’s judicial practice, on the premise of legal aquaculture, courts would support claims for loss of income/indirect losses (e.g., loss of profits, etc.) while in the event of illegal aquaculture, courts would not support loss of income/indirect losses to the aquaculture areas incurred by the vessel. Under the circumstance, fish farmers engaged in illegal aquaculture would often demand exorbitant (or even false) and extravagant claims in the attempt to remedy the “loss of income/indirect losses” from the accidents. In the “HL106/FX169/BHJ117” case, for instance, the fish farmers claimed as high as around RMB 16 million. Yet, based on the evidence submitted by the parties and the court’s investigation, it was found that most of the aquaculture products had already been harvested and sold before the accident, and thus only RMB 1.36 million (9% of the initial claim) was supported by the court.

Difficult and Challenging to Recover the Overpaid Cash Security:

Even if the subsequent MSA investigation or court judgment might hold that the liability to be borne by the shipowners is less than the fish farmers’ losses, recovering the overpayments can be extremely challenging once the high cash security is paid since most of the fish farmers engaged in the illegal farming activities are natural persons (not companies) whose capacity to refund is limited.

MSA Penalties for Unapproved Departures:

In the “DL” case, the vessel managed to get the cash security demand reduced from RMB 13 million to RMB 5 million by way of “escaping”. Nonetheless, the shipowners received a penalty decision from the MSA due to the unapproved departure, though the penalty amount is said to be not large given that the shipowners have taken good remedial measures after the escape.

According to the relevant laws and regulations, subject to the gravity of such “escape”, the shipowner, operator, or manager of the vessel will be fined RMB 100,000 ~ RMB 500,000; the captain and the crew member liable will be fined RMB 5,000 ~ RMB 50,000, whose certificates of competency will be permanently suspended (if the certificates were issued by a Chinese authority).

Comments

When fish farmers illegally operate fish farms without a legal license for the use of sea area or their farming activities, they tend to take various actions to hinder the vessel from departing the accident site in the attempt to force shipowners to provide a large amount of cash security or to accept a quick settlement at the site. Considering the great difficulty in recovering any overpaid amounts from fish farmers (even through legal proceedings) and the different consequences of the “HCE” case and the “DL” case in terms of cash security, opting for an “escape” strategy and accepting the MSA penalties seem more economical for shipowners.

However, before proceeding with such an “unconventional” strategy, it is advisable to assess the potential outcomes i.e., the liability to be borne by the shipowner, operator, manager, captain and/or crew member liable. It is also crucial to well prepare remedial measures to deal with any penalty or punishment imposed by the MSA.