Sunil B. Naik vs Geowave Commander

HELD: 1.1 The charter party is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use. The Charter can be of two kinds-(i) Charter of demise; and (ii) Contract of affreightment. In the instant case, the concern is with the charter of demise by which the whole vessel is let to the charterer with the transfer to him of its entire command and possession and consequent control over its navigation. Such a charter is called a bareboat charter. A demised charterer, like RG, who is the owner for services stipulated, assumes in large measures the customary rights and liabilities of vessel owners in relation to third persons, who have dealt with him or with the ship, illustratively, repairs and supplies ordered for the vessel, wages of seamen, etc. [Para 14, 15] [484-H; 485-A-B; 486-G-H]

M.V. Elisabeth & Ors. v. Harwan Investment & Trading Pvt. Ltd. [1992] 1 SCR 1003 : AIR 1993 SC 1014 – referred to.

Commentary on “Bareboat Charters by Mark Davis 2nd Edn – referred to.

1.2 The emphasis of the respondent is on the maritime claim being maintained against the owner of the ship and detention of a ship as a sequitur thereto as security for a decree liable to be passed against the owners of the ship in personam. It was submitted that since the claim is stated to be one against RG and not against the owners, such a detention could not have been made. RG in fact, has not even been made a party to the suit, the entity, which would be liable in personam. [Para 22] [494-B-C] Liverpool & London S.P. & I Association Limited v. M.V. Sea Success I & Anr. [2003] 5 Suppl. SCR 851 : (2004)

9 SCC 512 – referred to.

1.3 In the interest of international comity, though India is not a signatory to the Convention of 1999, the principles of the same are utilized and applied to appropriate situations to determine whether a ‘maritime claim’, as understood in the international context has arisen and whether the same warrants the arrest of the vessel in question as per its provisions. [Para 24] [495-B-C]

1.4 Article 1 of the Convention defines Maritime Claim. Article 2 stipulates the powers of arrest and sub-clause (2) clarifies that the ship may be arrested only respect a maritime claim. Sub-clause (3) stipulates that ship may be arrested for purposes of obtaining security notwithstanding that by virtue of a jurisdiction clause or arbitration clause, it has to be adjudicated in a State other than the State where it has been arrested. Article

3 deals with the exercise of right of arrest. [Paras 25-27] [495-CD, F-H; 496-C-D]

1.5 The endeavour of the appellants to bring the claim within the provisions is naturally opposed by the respondent on the ground that the agreement between the appellants and RG is actually a charter hire agreement between RG and the two appellants. It was contended that there were neither any goods supplied nor services rendered and, in fact, the survey operations never commenced as the ships remained stationed at the port at place O whereas the respondent vessel never arrived at place O. RG is stated to have actually engaged the vessels of the appellant through a charter hire agreement and this cannot form a part of the maritime claim against the respondent ship. Thus, the plea is that the charter hire agreement is for use of the appellant’s vessel by RG. The respondent is not liable personally for the maritime claim and, thus, there can be no arrest of the ship since the ship is not owned by RG. The charter agreement provisions were referred to (extracted aforesaid) to substantiate that at present, at best RG was only a de facto owner and not a de jure owner and that in order for RG to be de jure owner the provisions provided how six months in advance of the expiry of the contract recourse could be had to the same. That occasion never arose. [Paras 29, 30] [497-D-G; 498-D-E]

1.6 A reference was made to Article 3(3) of the Convention, which provides for arrest of the ship only if the judgment in respect of that claim can be enforced against the ship by judicial or forced sale of that ship and in the absence of any provision under the Indian law by which the ship not owned by a person could be made liable for a maritime claim, the arrest of the ship could not take place. The judgment could be obtained only under the contract which would be against RG. [Para 31] [498-F-G] Epoch Enterrepots v. M.V. Won Fu [2002] 3 Suppl. SCR

507 : (2003) 1 SCC 305 – referred to.

Medway Drydock & Engineering Co. Ltd. v. M.V. Andrea Ursula [1973] QB 265; The “Permina

3001”(1979) Vol. 1 Lloyd’s Law Reports 327; The “Leoborg” (1962) Vol.. 2. Lloyd’s List Law Reports

146 – referred to.

1.7 The essential ingredients for maintaining a maritime claim for which a vessel may be detained were specified as under that in order to ascertain whether in an action in rem filed in the Admiralty jurisdiction of the court, the plaintiff is entitled to an order of arrest of the Defendant vessel, the following needs to be established: (a) The plaintiff has a maritime claim; (b) The vessel in respect of which the plaintiff has a maritime claim; (c) The party liable in personam in respect of the maritime claim; and (d) The party liable in personam is the owner of the vessel sought to be arrested.” [Para 37] [500-D-G]

1.8 The conclusion of the Single Judge, was that there was no principle or authority for proposition that a maritime claim for unpaid charter hire in respect of vessel ‘A’ against the hirer thereof can be enforced by arresting vessel ‘B’, which is on bareboat charter of the hirer of the former vessel vis-à-vis vessel ‘A’. [Paras 38, 39] [500-G-H; 501-E-F]

Polestar Maritime Ltd. v. M.V. Qi Lin Men & Ors. Admiralty Suit (Lodging) No.3547/2008 decided on 22.10.2008 – referred to.

Maritime law by Christopher Hill 5th Edn – referred to.

1.9 Insofar as the respondent vessel is concerned, there is no agreement entered into by either of the two appellants and, thus, it cannot be a maritime claim in respect of Article 1(1)(f) of the Arrest Convention. Consequently, there would be no occasion to arrest the vessel under Article 3(1)(b) of the Arrest Convention as no maritime claim has resulted in the hands of the demised charterer with regard to the demised vessel. The maritime claim by either of the appellants could, thus, be enforced only by arresting another vessel owned by RG and the de facto ownership, could not be converted into a de jure ownership. In respect of Article 1(1)(l), it was, once again, held that there was no supply of goods to the vessel or of supply of services to the vessel in question, which was the respondent vessel. Insofar as the reasoning in appellant’s case, so far as Article 1(1)(l) is concerned, it has been categorically found that it was not a case where goods had been given on hire or for use of the respondent vessel.[Para 42] [502-C-F]

2.1 It is clear from the various terms of the bareboat charter that RG had the status of a de facto owner. The charter agreement did contain a clause for conversion of the status into a de jure owner but the occasion for the same never arose. The option to purchase was to be exercised by an advance intimation of six months prior to the end of the charter period and the purchase price was also specified as US$ 3,01,50,000. The charterer could not make any structural changes in the vessel or in the machinery, boilers, appurtenances or space parts thereof without first securing the owner’s approval and the vessel had to be restored to its former condition before the termination of the charter, if so required by the owners. This was, thus, a deed between the owner of the respondent and RG. [Para 44] [502-G-H; 503-A-B]

2.2 The contracts entered into with the appellants by RG are completely another set of charter hire agreements/contracts. The unpaid amounts under these contracts amount to claims against RG. Thus, if there was another vessel owned by RG, the appellants would have been well within their rights to seek detention of that vessel as they have a maritime claim but not in respect of the respondent vessel. The maritime claim is in respect of the vessels which are owned by the appellants and the party liable in personam is RG. Were the respondent vessel put under the de jure ownership of RG, the appellants would have been within their rights to seek a detention order against that vessel for recovery of their claims. [Para 45] [503-C-E]

2.3 In the facts of the instant case, the owners of the respondent vessel, in fact, also have a claim against RG for unpaid charter amount. Thus, unfortunately it is both the owner of the respondent vessel on the one hand and the appellants on the other, who have a maritime claim against RG, which has gone into liquidation. The appellants quite conscious of the limitations of any endeavour to recover the amount from RG, have ventured into this litigation to somehow recover the amount from, in effect, the owners of the respondent vessel by detention of the respondent vessel. That may also be the reason why the appellants did not even think it worth their while to implead RG against whom they have their claim in personam, possibly envisaged as a futile exercise. [Para 46] [503-E-G]

2.4 The test of the ownership of both the ships as one and the same is not satisfied in the instant case. The second situation envisaged is where another ship owned by the charterer is detained, i.e., he has taken ‘A’ ship on charter where he has only de facto ownership and his ship ‘B’ is detained where charterer has de jure ownership. It cannot be countenanced that where no in personam claim lies against an entity, still the ship of that entity taken on bareboat charter can be detained to recover the dues. The owner of the respondent vessel is as much a creditor of RG as the appellants. [Para 48] [504-A-C]

2.5 The arrest of the ship is regarded as a mere procedure to obtain security to satisfy the judgment. To that extent it is distinguished from a right in personam to proceed against the owner but there has to be a liability of the ship owner and in that eventuality the legal proceedings commenced in rem would become a personal action in personam against the defendant when he enters appearance. There cannot be a detention of a ship as a security and guarantee arising from its owner for a claim which is in respect of a non-owner or a charterer of the ship. [Para 49] [504-D-E]

2.6 On turning to the provisions of the Convention, a maritime claim is specified as relating to use or hire of a ship whether contained in a charter party or otherwise [clause (f)]. Insofar as clause (l) is concerned they relate inter alia to services rendered to the ship. Such an order of detention can be in respect of a ship where there is identity of the owner against whom the claim in personam lies and the owner of the ship. It cannot be used to arrest a ship of a third party or a non-owner. [Para 50] [504-E-G]

2.7 For a claim against the owner of the vessel, a vessel may be detained and not that somebody else’s vessel would be detained for the said purpose. The crucial test would be of ownership, which in the instant case clearly does not vest with RG and the de facto ownership under their bareboat charter cannot be equated to a de jure owner, which is necessary for an action in personam. [Para 51] [505-A-B]

2.8 Mere possession of the ship, however, complete and whatever be the extent of the control was not found good enough to confer the status of ownership. The “beneficial use” of a chartered ship would not ipso facto convert the status of a charterer into a “beneficial owner.” The attention to the word “beneficial” in the Act of 1956 was, thus, attributed to the requirement to take into account the special English Institution of Trust which forms no part of domestic law of other signatories to the Convention. [Para 59] [511-G-H; 512-A-B] I Congreso Del Partido [1978] Q.B. 500; The “Father Thames” [1979] 2 Lloyd’s Rep. 364; Mount Royal/Walsh Inc. v. The Ship Jensen Star el al, [1990] 1 F.C 199; Antares Shipping Corporation v. The Ship ‘Capricorn’ et al. [1980] 1 S.C.R. 553 – referred to.

2.9 There is a clear distinction between a beneficial ownership of a ship and the charterer of a ship. [Para 65] [514-C]

2.10 The Arrest Convention of 1999, Article 1 specifies that the maritime claim means a claim inter alia arising out of an agreement relating to use or hire of “the ship.” The connotation of “the ship” would mean the 16 trawlers or the OL vessel and not the respondent ship. Thus, there is no maritime claim against the respondent ship. Article 3 deals with the exercise of rights of arrest and the eventualities are specified thereunder. In terms of clause (2) of Article 3, the arrest is permissible of any other ship (which would connote the respondent ship), which, when the arrest is effected is owned by the person who is liable for the maritime claim. The liability of the maritime claim is RG and not the owners of the respondent ship. In terms of sub-clause (b) of clause (2) of Article 3, a demise charterer, time charterer or voyage charterer of that ship is liable. The ship in question, is not the respondent but the 16 trawlers or the OL. In view thereof, really speaking RG cannot be said to be the beneficial owner in the capacity of a demised charterer of the respondent ship. RG is not the owner of the respondent ship and the owner cannot be made liable for a maritime claim, which is against the trawlers and OL vessel. [Para 66] [514-C-G]

2.11 Clause 5(b) of the 2017 Act is in consonance with Article

3 of the 1999 Convention. The expression “the vessel”, “owner” and “demise charterer”, thus, must be read in the aforesaid context and the maritime claims in respect of 16 trawlers and OL cannot be converted into a maritime claim against the respondent ship not owned by RG. [Para 68] [515-B-D]

2.12 The appellants have neither any agreement with the owners of the respondent vessel nor any claim against the respondent vessel but their claim is on account of their own vessels hired by the charterer of the respondent vessel. There is no claim against the owners of the respondent vessel. [Para 69] [515-D-E]

2.13 The interim order is dissolved and the amount along with accrued interest thereon is to be remitted back to the owners of the respondent vessel, who deposited the same before the High Court in pursuance of the interim order. [Para 71] [515-F]

The “Eschersheim” [1976] Vol. I Lloyd’s Law Reports 81-referred to.