The Archangelos Gabriel was an oil tanker owned by the defendant. On its way from Hong Kong to Qinzhou China, the vessel ran aground at Qiongzhou Strait. The Nanhai Rescue Bureau was called upon by the defendant’s representative office in Shanghai to arrange rescue tugboats to conduct salvage operations. Three rescue vessels were deployed for towing operations together with a team of divers to conduct bottom sighting as requested by the defendant. The first instance court found that the defendant had agreed with the plaintiff’s quotation in regard to the rate to be charged for its salvage vessels and divers.

The cargo on board, which belonged to China National United Oil Co-op, was also successfully discharged and transshipped to the destination port.

The salvage operation generated charges of RMB 7, 240, 998.24 which the defendant failed to pay. The plaintiff lodged a lawsuit at Guangzhou Maritime Court for the salvage charges together with interest.

The first instance court held that, according to art 175.1 of the Chinese Maritime Code, there was a lawful and effective salvage contract between the plaintiff and the defendant. The grounding endangered both the vessel and the cargo on board which might have caused a maritime pollution accident. Therefore, the plaintiff’s salvage operations were necessary and successful. However, after a close examination of the salvage process, the Guangzhou Maritime Court held that the total payable amount by the defendant should be RMB 6,592,913.58 plus interest.

The defendant appealed to the Guangdong Higher People’s Court on the ground that the portion of the saved value of the vessel only consisted of 38.85% of the total saved value. Therefore, the defendant was only under the obligation to pay 38.85% of the whole salvage charges.

The second instance court confirmed the validity of the salvage contract and concluded that it was a salvage contract based on a fixed rate. Therefore, the defendant was obliged to pay the salvage charges regardless of the outcome. The defendant was entitled to limit its payment to 38.85% of the whole amount (RMB 2,561,346.93) according to art 183 of the Chinese Maritime Code which states that: 'The salvage reward shall be paid by the owners of the salved ship and other property in accordance with the respective proportions which the salved values of the ship and other property bear to the total salved value'.

The plaintiff applied for a retrial to the Supreme People’s Court on two grounds. First, the second instance court was wrong to rule that the defendant only needed to pay 38.85% of the salvage charges. This decision contradicted principles of privity of contract and the defendant’s contractual obligation to pay. Second, such deduction of salvage charges is inconsistent with the purpose of encouraging maritime salvage operations as provided for by International Convention on Salvage 1989 (Salvage Convention 1989).

Held: Plaintiff’s appeal allowed and first instance court’s judgment  maintained.

Articles 12 and 13 of the Salvage Convention 1989 concern the rules of paying salvage charges on the basis of 'no cure no pay'. Besides this 'no cure no pay' salvage contract, the Salvage Convention 1989 also allows contractual parties to reach an agreement on determining the salvage reward. Such agreement in the view of Supreme People’s Court is an employment salvage contract. This so-called employment salvage contract is not a 'no cure no pay' salvage contract as provided for by the Salvage Convention 1989 and the Chinese Maritime Code. Therefore, both of these instruments cannot be applied in this case.  

Instead, this case should be determined according to the relevant provisions of the Chinese Contract Law. Therefore, according to arts 8 and 107 of the Chinese Contract Law 1999, the defendant is under a duty to perform its own obligations in accordance with the terms of the contract otherwise it shall incur liability for breach of contract.