Gard Maritime & Energy Ltd v China National Chartering Co. Ltd

A state-owned enterprise that restructures as a limited liability company under the applicable Chinese registration machinery continues as the same legal entity in a different corporate form. Its existing contractual rights and obligations therefore pass to the restructured company. The repeal or amendment of provisions in the later Companies Law does not, without more, require the enterprise to be dissolved and a new company established where the registration authorities continue to operate the existing restructuring process. The statutory treatment of obligations and the underlying continuity of the enterprise support the conclusion that contractual rights pass with the restructuring.

The claimant sought damages and/or an indemnity from China National Chartering Co. Ltd in respect of the loss of a vessel. The defendant had formerly operated as China National Chartering Corporation and had chartered the vessel before being re-registered as a state-owned limited liability company.

The defendant brought Part 20 proceedings against the third party, Daiichi Chuo Kisen Kaisha, under a sub-time charterparty. A preliminary issue was ordered concerning whether the defendant was entitled, as a matter of Chinese law, to bring that claim. The issue depended on whether the re-registration created a new company or continued the former enterprise with its contractual rights.

1. Preliminary issue answered yes. The defendant was entitled under Chinese law to bring its claim against the third party.
2. The court accepted that, before and after the 2005 Companies Law, a state-owned enterprise could restructure as a limited liability company by registering a change of company type under Part Five of the 1994 Regulations. The continued and routine use of that machinery by the State Administration for Industry and Commerce was highly significant.
3. The re-registration process did not involve the demise of the applicant and the creation of an entirely new company. The scheme operated uniformly for changes to registered matters, including company type. A change of company name or legal representative would not create a new entity, and the same applied to a change from state-owned enterprise to limited liability company.
4. Article 9 of the 2005 Companies Law was an avoidance-of-doubt provision. It did not establish that a company resulting from state enterprise restructuring lacked the former enterprise’s contractual rights.
5. The explanatory material accompanying the Fa Shi 2003 treated the restructured company as the continuation of the former state-owned enterprise, with the former enterprise’s assets, rights and obligations taken over as a whole. Although directed principally to obligations, that reasoning applied equally to contractual rights.
6. The commercial consequences supported the same conclusion. It would make little commercial sense for obligations to pass to the restructured company while closely connected contractual rights did not.