Introduction

It is quite common that property preservation application may be made by the plaintiff to the court so as to ensure that a judgment about the substantial proceedings to be granted in favor of the plaintiff in the future may be satisfied. But what if it turns out that the plaintiff lose the case at the end of the day? What will be the consequences?

So far as the shipping industry is concerned, it is a quite usual means worldwide for a party against the owner of a ship to arrest the ship to acquire security before they file a lawsuit with the court about the merits of the case. In the common law system, it is generally accepted that no damages will be awarded to the owner where it turns out that the arrest is wrongful unless it can be proved that there is malice on the part of the arresting party. A different approach however has been adopted in the PRC jurisdiction. It is unaware that any case on this respect has ever been reported. Nonetheless a case regarding the wrongful preservation of the bank accounts may serve to shed some light on how the PRC courts determine whether the arrest is wrongful and what the consequences will be.

The case to be introduced with reference number [2012] GHFCZ No. 169 in relation to the wrongful preservation of the bank accounts is published on official website on 11 January 2013 whilst actually it was made on 5 July 2012[1].

The Facts and the Judgment

On 10 February 2012, the Plaintiff filed lawsuit with Guangzhou Maritime Court against the Defendant, suing for damages arising out of an alleged wrongful preservation of the fund in the Plaintiff’s bank account by the Defendant for 4.29 years.

It is found by the Court that on 6 June 2007, the Defendant of the present case applied to Guangzhou Maritime Court to freeze the fund in the bank account of the Plaintiff for disputes arising out of an agency agreement of cargo transportation. On 19 June 2007, the Defendant filed lawsuit with the Court about the merits of the case, suing for cargo damages and property preservation fees. On 17 November 2008, the Court handed down the judgment in favor of the Defendant, which had been appealed to the Superior Court of Guangdong by the Plaintiff. On 28 July 2011, the Superior Court made final judgment, setting aside the first instance judgment and dismissing the Defendant’s claims. Then at the application of the Plaintiff, the Guangzhou Maritime Court made an award on 20 September 2011, ordering the release of the fund which had been freezed for more than four years and the award was enforced the following day.

The Court recognized that according to the Civil Procedural Law of PRC [Article 105], the Applicant shall compensate the loss of the Respondent if it turns out that the preservation of property is wrongful. And the Court were of the view that since the Defendant’s claim against the Plaintiff had been dismissed by the final judgment made by the Superior Court of Guangdong, the Plaintiff were not liable for the damages claimed by the Defendant and it follows that the preservation of property by the Defendant was wrongful. It was also accepted by the Court that the Plaintiff suffered loss because their rights to deploy the fund in the trading had been deprived at the material times despite the fund in the current account still earning interests in any event. Finally, based on the evidence available the Court awarded the Plaintiff damages by reference to the differential between the loan interests of the freezed period and the interests actually earned.

Conclusion

Although PRC is not a jurisdiction where reported judgments handed down by one maritime court may have binding effect as authority to guide other maritime courts in future trial, such reported cases do have persuasive effect. In this sense, analogy may be drawn between the wrongful arrest of ship and the wrongful preservation of bank account so far as how to determine what “wrongful” means is concerned, especially bearing in mind that both of them are means to obtain security for an underlying dispute.

It is worth noting that in the above mentioned case, so far as the underlying dispute is concerned, the arresting party won the case in the first instance but lost at the appeal stage, inference therefore may be drawn that there was a genuine dispute between the parties. By analogy, the likely implication is that the arrest will be accepted as wrongful if the party arresting the ship finally lose the case in the substantial proceedings, irrespective whether there is malice on their part, in which circumstances the ship owner may file a separate lawsuit against the arresting party, claiming damages including loss of earning, expenses for maintaining the ship under arrest and costs for posting security for the release of the ship etc.