HONG KONG SAR, CHINA Law and Practice Contributed by: Christopher Andrew Potts, Crump & Co
While Hong Kong does not have “tonnage tax” or accelerated depreciation, many ship-owners achieve an effective 0% Hong Kong profits tax rate in practice. 9. Implications of Non-Performance, IMO 2020, Trade Sanctions and International Conflict 9.1 Force Majeure and Frustration Performance of a shipping contract, such as late delivery, non-arrival of a chartered vessel, or slow ratio of loading or discharging is very rarely excused. Force Majeure Force majeure is purely contractual; it is not recog - nised as a free-standing doctrine. A party can only rely on it if the contract contains an express force majeure clause. Non-performance may only be excused when the event falls within the wording of the clause – eg, “Acts of God” (natural disasters), war, embargoes or govern - ment actions. The non-performing party must demon - strate that they fulfilled the mitigation requirements. Frustration When no force majeure clause is applicable to cover the event, frustration discharges the contract when a supervening event occurs after the contract is formed, without the fault of either party, which was unforeseen and fundamentally changes the nature of the contract. However, the threshold for frustration is very high. The event must render performance impossible, or trans - form the obligation into something radically different from what was agreed. Mere late delivery/slow load - ing, increased cost or non-arrival due to operational or commercial reasons does not frustrate a shipping contract. 9.2 Enforcement of the IMO 2020 Rule Limiting the Sulphur Content of Fuel Oil Hong Kong has implemented domestic regulations that align with, and in some respects preceded, IMO 2020. Under the Air Pollution Control (Fuel for Ves - sels) Regulation (Chapter 311AB), vessels sailing or at berth within Hong Kong waters must use fuel with a maximum sulphur content of 0.5% by weight, or
approved alternatives. Use of equivalent compliance methods such as scrubbers is permitted with approval from the authorities. In addition, the Merchant Shipping (Prevention of Air Pollution) Regulation (Chapter 413P) gives effect to MARPOL Annex VI, including the IMO “carriage ban” that prohibits the carriage of non-compliant fuel oil (sulphur content above 0.5%) for combustion pur - poses unless the vessel is fitted with an approved equivalent arrangement. Enforcement is carried out by the Environmental Pro - tection Department (EPD) through inspections, docu - ment checks and fuel sampling. Non-compliance may result in fines and imprisonment. 9.3 Trade Sanctions Hong Kong does not incorporate or recognise uni - lateral international trade sanctions imposed by for - eign governments such as the US, EU or UK. Only sanctions mandated by the United Nations Security Council (UNSC) are given domestic legal effect, imple - mented through subsidiary legislation under the Unit - ed Nations Sanctions Ordinance (Chapter 537) and related ordinances. Unilateral foreign sanctions have no legal force in Hong Kong, and Hong Kong courts and authorities do not enforce them as a matter of law. While the courts may take the practical commercial effects of foreign sanctions into account as facts, they do not treat such sanctions as legally binding within the jurisdiction. Hong Kong therefore has not imposed Russia-specific sanctions arising from the war in Ukraine, as no UNSC sanctions exist. The main impact on Hong Kong busi - nesses is indirect, stemming from the extraterritorial reach of foreign sanctions regimes. Limited licensing and exemption mechanisms exist under Hong Kong’s UN-based sanctions framework, administered by the relevant authorities, to authorise activities otherwise prohibited under domestic sanc - tions legislation.
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