However, it cannot be stated conclusively that the shipowner in a time
charterparty is not subject to any reasonable requirements. Whether such a shipowner is governed by Articles 87 and 88 is dependent on its role, that is, whether he
is the actual carrier or contractual carrier.
96 If it is the former, he does not issue the
bill of lading but is in possession of the cargo, and is entitled to a lien under
Chapter 18 of the Property Law of P. R. China. As such, the reasonable requirements
of CMC Articles 87 and 88 will not apply. But, if the shipowner is the contractual
carrier who issues the bill of lading, then Chapter 4 of the CMC will apply, including
the lien provided for in Article 78 in that chapter. The reasonable requirements in
Articles 87 and 88 will apply concomitantly. However, the question arises as to the
content and standard of “reasonable requirements”. As these are not clearly stated in
Articles 87 and 88, the courts are at liberty to apply different principles at their
discretion. In the main, there are two; namely, the mitigation and fairness principles.
6.4 The Mitigation Principle
As mentioned above, the mitigation principle is the first approach to examine that
whether “reasonable requirements” are satisfied. This principle arising from the good
faith principle is provided in Article 119 of the Contract Law of P.R. China (CLoC),
where a party is in breach of a contract, the other party shall take appropriate
measures to prevent the loss from increasing. Where his failure to do so results in
additional losses, he cannot demand compensation for the additional losses. The
duty of mitigation is to encourage the innocent party to exercise his rights a way that
promotes the economic interests of the society.
97 A point that needs to be made
contextually is that whereas in English law, mitigation requires the innocent party
facing a breach of contract to mitigate his losses, in Chinese law, mitigation only
applies to further losses suffered by the innocent party.
98 Therefore, the rule is also
known as the “no-increase-in loss rule” in China.
99 Having said that, in the opinion
of the present authors, there is no fundamental difference in the two legal systems
96 Under a chain of charterparties, it is possible that a shipowner in a time charterparty is simply a
disponent owner, that is, neither an actual carrier nor a contractual carrier. For example, A is a
shipowner who time charters the vessel to B; B time charters the vessel to C; C again voyage
charters to D. In this chain of charterparties, A is the actual shipowner; B and C through their
respective charterparties, act as disponent shipowners. A issues a bill of lading to D. B is a
shipowner in a time charterparty who is neither an actual carrier nor a contractual carrier. In this
context, the rights and obligations of B are simply subject to the sub-time charterparty between B
and C. In Chinese law, B is not entitled to exercise the cargo lien, because he does not possess the
cargo physically. An analytical discussion of this complex hypothetical scenario is beyond the
scope of this Chapter.
97 Han (1997).
98 Article 119, Contract Law of the P.R. China (1999).
99 Wang (2003), p. 660; Fang (1999), p. 200.
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charterparty is not subject to any reasonable requirements. Whether such a shipowner is governed by Articles 87 and 88 is dependent on its role, that is, whether he
is the actual carrier or contractual carrier.
96 If it is the former, he does not issue the
bill of lading but is in possession of the cargo, and is entitled to a lien under
Chapter 18 of the Property Law of P. R. China. As such, the reasonable requirements
of CMC Articles 87 and 88 will not apply. But, if the shipowner is the contractual
carrier who issues the bill of lading, then Chapter 4 of the CMC will apply, including
the lien provided for in Article 78 in that chapter. The reasonable requirements in
Articles 87 and 88 will apply concomitantly. However, the question arises as to the
content and standard of “reasonable requirements”. As these are not clearly stated in
Articles 87 and 88, the courts are at liberty to apply different principles at their
discretion. In the main, there are two; namely, the mitigation and fairness principles.
6.4 The Mitigation Principle
As mentioned above, the mitigation principle is the first approach to examine that
whether “reasonable requirements” are satisfied. This principle arising from the good
faith principle is provided in Article 119 of the Contract Law of P.R. China (CLoC),
where a party is in breach of a contract, the other party shall take appropriate
measures to prevent the loss from increasing. Where his failure to do so results in
additional losses, he cannot demand compensation for the additional losses. The
duty of mitigation is to encourage the innocent party to exercise his rights a way that
promotes the economic interests of the society.
97 A point that needs to be made
contextually is that whereas in English law, mitigation requires the innocent party
facing a breach of contract to mitigate his losses, in Chinese law, mitigation only
applies to further losses suffered by the innocent party.
98 Therefore, the rule is also
known as the “no-increase-in loss rule” in China.
99 Having said that, in the opinion
of the present authors, there is no fundamental difference in the two legal systems
96 Under a chain of charterparties, it is possible that a shipowner in a time charterparty is simply a
disponent owner, that is, neither an actual carrier nor a contractual carrier. For example, A is a
shipowner who time charters the vessel to B; B time charters the vessel to C; C again voyage
charters to D. In this chain of charterparties, A is the actual shipowner; B and C through their
respective charterparties, act as disponent shipowners. A issues a bill of lading to D. B is a
shipowner in a time charterparty who is neither an actual carrier nor a contractual carrier. In this
context, the rights and obligations of B are simply subject to the sub-time charterparty between B
and C. In Chinese law, B is not entitled to exercise the cargo lien, because he does not possess the
cargo physically. An analytical discussion of this complex hypothetical scenario is beyond the
scope of this Chapter.
97 Han (1997).
98 Article 119, Contract Law of the P.R. China (1999).
99 Wang (2003), p. 660; Fang (1999), p. 200.
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