Notes & Summary 17

Tenth Edition (2017)

Ship Arrest in India. India a better forum for ship arrest

Ship Arrest in India, India is now considered to be the best forum for ship arrest. Admiralty jurisdiction can be invoked for any of the claims as setout in the Brussels or Geneva arrest conventions by filing a suit in the High Court in India having admiralty jurisdiction and obtaining an order of arrest of a ship. Admiralty suit can be filed when the ship is in Indian territorial waters being 12 nautical miles from the shore.

Today one of the most well-known arrest jurisdictions is India; the law, procedure, numerous case laws which make it favourable for arrest moreso for the below factors:
 
• Low Legal cost and third party expenses
• Prompt response and immediate reliefs
• Extent of Admiralty jurisdiction on presence of a ship in Indian waters (12 nautical miles from shore)
• Admiralty court also considers ship arrest even when ship is en-route India and there is no strict requirement that the ship should be in Indian waters but the ship should arrive in Indian waters within reasonable time
• A ship can be arrested regardless of her flag, owner and registered address
• Ship can be arrested regardless of where the claim arose
• Admiralty court has admiralty jurisdiction to enforce maritime lien via an action in rem
• The basis for Admiralty jurisdiction is by statute and ship arrest conventions (Brussels and Geneva), the principles as adopted and accepted
• Bombay, Kolkata, Chennai, Ahmedabad and Andhra Pradesh High Court are the Admiralty Courts with jurisdiction to arrest ship. Bombay High Court has ship arrest jurisdiction countrywide while other courts have statewise jurisdiction
• Sister-ship arrests are allowed in India
• Ship arrests are allowed by High Courts having admiralty jurisdiction on establishing that there is a prima-facie case
• Ship arrests are allowed ex-parte without giving notice to the opponent or the opponent being heard
• Ship can be arrested under Admiralty jurisdiction only by filing Admiralty suit
• Claims can be in any currency
• Admiralty judges are available for arrest or release of ship even after court hours for extreme urgent cases
• Appeal can be filed to the Appeal court comprising of Division Bench of the High Court having Admiralty jurisdiction from the trial court (single Judge) and an Special Leave Petition (SLP) can be filed in the Supreme Court of India (Apex Court) from the order order of the Appeal court
• Scan copy of the Power of Attorney or Letter of Authority are accepted by High Court having Admiralty jurisdiction for filing of Admiralty suit and obtaining order of arrest of a ship
• No cash bond or security is required to be furnished to the court by the Plaintiff for arrest of a ship but an undertaking by way of an Affidavit for wrongful arrest is required to be filed
• Ship can be arrested as security in Arbitration
• Parties promptly arrive at an out of court settlement
• High number of case withdrawals and disposals
• User-friendly procedures & environment
• Specialised shipping law firms for ship arrest work are available
 
India has not acceded to either Brussels or Geneva arrest conventions but the principles are adopted in two separate Supreme court judgments in m.v. Elizabeth and in m.v Sea Success and ship arrest is dealt with under the Admiralty Courts Act, 1861.
 
There are effectively three ways to arrest or attach a ship an arrest in rem, an arrest in personam and a security arrest.
 
A number of events or occurrences may trigger the arrest of ships. Article 1 of the 1952 Brussels Arrest Convention and 1999 Geneva Arrest Convention describes all the claims in relation to which a ship may be arrested under the convention, the principles of the conventions are applicable in India.
 
Arrest of a ship is part of the process by which an Admiralty Court gains jurisdiction over the subject matter in the suit and are known as "in rem" actions meaning that the action is against a "thing" rather than a person. Generally, the ship, itself, is responsible for payment of liens, mortgages or any other maritime lien that may arise. When the owner encumbers a vessel with a First Preferred Ship's Mortgage, it is the ship that guarantees payment rather than the owner. However, the owner may separately contract by a personal promise to pay or other type of guarantee to be personally liable.
 
An arrest of a ship is the prerequisite for the court to establish jurisdiction. If the ship cannot be arrested, the court may have no right over the ship. Arrest is the physical process by which, Sheriff or the Marshal goes aboard the ship and physically takes charge of it by serving the Warrant or the order of the court on the master of the ship or by pasting the Warrant or the order of the Court on the ship mast. The Warrant or the Order of the Court must be posted on the vessel, a copy given to the master or person in charge, as well as to the owner, the port and customs authority.
 
Once arrested, the ship is under custodia legis of the Court through the Marsdhal or the Sheriff and the owner loses all control. To avoid this situation and its effect on commerce, the court will allow the owner to furnish suitable security. Once the security is accepted, the ship is returned to the owner and the litigation continues with the security as the subject of execution of judgement.
 
Once the Sheriff or the marshal has seized a ship by arresting her, he is obligated to preserve the ship and its equipment. Generally, the custodian of a seized ship should not interfere with the conduct of cargo and other operations normal to a vessel in berth unless directed so by court order.
 
It is important to realise that the Sheriff or the Marshal does not put hull insurance on a seized vessel. It is necessary for the owner or the Plaintiff to place adequate Port Risk Insurance on the vessel to protect their interest against loss.
 
If a vessel is not released by furnishing of security, the court may order an interlocutory sale. An interlocutory sale, means a sale prior to the completion of the litigation and the entering of a judgment. As a general rule the sale will not be allowed for four months unless the ship is in a precarious condition. The Plaintiff can make an application to the court for sale of the ship if the arrested property is perishable, liable to deterioration, of if the cost of keeping it is excessive or disproportionate and is danger to the environment and the surroundings.
 
Regardless as whether the sale is interlocutory or a judgment sale, the purchaser at the auction does not have any right in the ship, until the sale is confirmed by the court. Once confirmation is received, the buyer receives title which extinguishes all other liens and provided him with a clear title. An "in rem" action resolves claims of all of the world against the vessel and no lien for past debts can be created or asserted.
 
The proceeds of the sale are paid into the court and are used to satisfy any expenses incurred by the keeping of the vessel and fees to the Sheriff or the Marshal. The balance is paid to the claimants on priority basis and any balance left over is paid to the owner. If the sums received are not sufficient to pay all claims, the claimants pay proportionately to the shortfall.
 
The Admiralty Court Act, 1861 does itself provide for the arrest of a ship or other property but that entitlement is to be found in Article 1 of both the ship arrest conventions. A claimant may only arrest a ship in relation to a claim only if it falls within the description of the arrest conventions and is able to commence an in rem proceeding against that ship in respect of that claim. If the intended claim is of a type that is not able to be pursued as an action in rem then it will not be possible to arrest any ship in relation to that claim. This might occur, for example, because the claim that it is wished to pursue is not a maritime lien and does not fall within the list of maritime claims as described under the conventions. Equally, if the claim can be pursued in rem but not against the particular ship in question, then it is also not possible to arrest that ship in the pursuit of that claim. This might occur, for instance where the person liable for the claim is no longer the owner of that ship at the time the in rem proceedings are commenced.
 
Maritime claims applies in relation to all ships, irrespective of the places of residence or domicile of their owners; and all maritime claims, wherever arising and does not have effect in relation to a cause of action if, at the time when the cause of action arose, the ship concerned was a foreign ship.
 
The list of maritime claims found in both the arrest conventions are closed lists.
 
Accordingly, if it is wished to pursue a claim as an action in rem or to arrest a ship in respect of such a claim, the claim must fall within one or more of the categories of claims listed in Article 1 to anyone of the arrest conventions. If it does not, then it cannot be the subject of an action in rem and a ship or other property cannot be arrested in the enforcement of that claim.
 
The claims listed in Article 1 of both the arrest conventions are all claims that are expressed to or impliedly concern or relate to ‘a ship’. They therefore contemplate some connection between the claim and a particular ship or ships. That being so, it is not sufficient for the pursuit of an action in rem that the intended claim be one against a ship owner either generally or in respect of its ships or operations generally. Nor is it sufficient that the person who is alleged to be liable for that claim happens to own a ship. It is therefore not possible to pursue as an action in rem against a ship a claim that is not related to or concerns that ship, or in the case of sister ship arrest, a maritime claim that is not related to or concerns some other ship that was at the time the cause of action arose owned or chartered by or in the possession or control of the owner of the sister ship.
 
Accordingly, in order to pursue a claim as an action in rem against a ship or other property, there must be some connection between that claim and either the ship that is intended to be the subject of the in rem proceeding or of which the ship the subject of the in rem proceeding is intended to be a sister ship.
 
There are two methods of enforcement of maritime claims, by action in rem and by an action in personam.
 
Claims enforceable by action in rem can be divided into the following:
        a.    claims attracting a maritime lien or other charge on the relevant property
        b.    claims enforceable by an action in rem against the relevant property
        c.    claims enforceable by an action in rem against the relevant ship or sister ship provided certain
               conditions in relation to liability in personam are met
        d.    claims not falling within the above.
In order to pursue a claim as an action in rem and to thereby arrest a ship or other property in support of that claim it is necessary to identify:

• first, the particular ship or property which is to be the subject of the proposed in rem proceeding;
• secondly, the nature of the claim that is sought to be pursued against that ship or other property. This is for the purposes of determining that the proposed claim is one that is capable of being pursued as an action in rem as described in Article 1 of the arrest conventions;
• thirdly, the relationship between that claim and the ship or other property the subject of the proceeding or in the case of sister ship arrest the relationship between the claim and the ship in respect of which the claim is said to arise;
• fourthly, in the context of in rem proceedings, the identity of the ‘relevant person’, that is the person who it is alleged would be liable for the plaintiff’s claim had it been commenced as an action in personam;
• fifthly, the relationship of the relevant person to the ship or other property in respect of which the claim is made at the time the cause of action arose and in particular whether that person was the owner or charterer or person in possession or control of the ship at that time; and
• finally, the relationship of the relevant person to the ship or other property at the time the proceedings are commenced, and in particular whether at that time the relevant person was the owner of that ship in the context of in rem proceedings brought or the demise charterer of that ship in the context of proceedings brought.

No Indian statute defines a maritime claim. The Supreme Court Act, 1981 of England has catalogued claims with reference to the unified rules adopted by the Brussels Convention of 1952 on the Arrest of Seagoing Ships. Although India has not adopted the various Brussels Conventions, the provisions of these Conventions are the result of international unification and development of the maritime laws of the world, and can, therefore, be regarded as the international common law or transnational law rooted in and evolved out of the general principles of national laws, which, in the absence of specific statutory provisions, can be adopted and adapted by courts to supplement and complement national statutes on the subject. In the absence of a general maritime code, these principles aid the courts in filling up the lacunae in the Merchant Shipping Act and other enactments concerning shipping. "Procedure is but a handmaiden of justice and the cause of justice can never be allowed to be thwarted by any procedural technic lities." S.P. Gupta v. Union of India (1981 Supp SCC 87).

The Division Bench of the appeal court in the Gujarat High Court at Ahmedabad in the matter of Vital Ventures Ltd -vs- m.v.Infinity referred to the larger bench on questions of law as their view differed to the view taken by the Division Bench of this Court in the case of Croft Sales and Distribution Limited and are of the opinion that the view taken by the Division Bench in Croft Sales decision requires reconsideration by a Full/Larger Bench. Under the circumstances, the matter is referred to the Full/Larger Bench to consider the following questions of law:

(i) Whether the ship can be arrested for any Maritime Claim, as defined under Article 1(1)(v) of the International Convention of Arrest of Ships (Geneva) 1999?
(ii) Whether application of 1999 Convention would be subject to and it should be applied only for enforcement of a contract involving public law character? 

In the said suit of Vital Ventures the defendants raised a preliminary objection that the dispute raised by the plaintiff is purely in connection with the commercial transaction for the sale of vessel. The contract does not involve any public law character and, therefore, the claim of the plaintiff cannot be termed as a maritime claim. The suit was therefore, not maintainable. In this context heavy reliance was placed on the decision of the Division Bench of this Court in case of Croft Sales and Distribution Ltd. v. M.V. Bansil reported in 2011 GLHEL_HC 224598. Learned Single Judge by his judgment dated 2.11.2015 held that the Admiralty Suit was not maintainable.

The said judgment of the learned Single Judge was challenged by the plaintiff before the Division Bench, where also the defendants relied heavily on the decision of Croft Sales. The Court was however, not in agreement with the view taken in case of Croft Sales (supra) and, therefore, by the abovenoted order referred the above two questions to the larger Bench.

The full bench of the Gujarat High Court has concurred with the Supreme Court in the matter of Sea Sucess and have answered as under:

The admiralty jurisdiction of the High Court can be exercised for arrest of a ship for any maritime claim defined under clause (1) of Article 1 of the International Convention of Arrest of Ships (Geneva) 1999 and the ship can be arrested for any maritime claim as defined under the said Convention and further that there is no restriction or limitation on application of the Convention that the same would be subject to and could be applied only for enforcement of a contract involving public law character.

Definition of Maritime Claim as defined under the International Convention of Arrest of Ships (Geneva), 1999, reads as under:
Maritime Claim means a claim arising out of one or more of the following:
(a) loss or damage caused by the operation of the ship;
(b) loss of life or personal injury occurring, whether on land or on water, in direct connection with the operation of the ship;
(c) salvage operations or any salvage agreement, including, if applicable, special compensation relating to salvage operations in respect of a ship which by itself or its cargo threatened damage to the environment;
(d) damage or threat of damage caused by the ship to the environment, coastline or related interests; measures taken to prevent, minimize, or remove such damage; compensation for such damage; costs of reasonable measures of reinstatement of the environment actually undertaken or to be undertaken; loss incurred or likely to be incurred by third parties in connection with such damage; and damage, costs, or loss of a similar nature to those identified in this subparagraph (d);
(e) costs or expenses relating to the raising, removal, recovery, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship, and costs or expenses relating to the preservation of an abandoned ship and maintenance of its crew;
(f) any agreement relating to the use or hire of the ship, whether contained in a charter party or otherwise;
(g) any agreement relating to the carriage of goods or passengers on board the ship, whether contained in a charter party or otherwise;
(h) loss of or damage to or in connection with goods (including luggage) carried on board the ship;
(i) general average;
(j) towage;
(k) pilotage;
(l) goods, materials, provisions, bunkers, equipment (including containers) supplied or services rendered to the ship for its operation, management, preservation or maintenance;
(m) construction, reconstruction, repair, converting, or equipping of the ship;
(n) port, canal, dock, harbour and other waterway dues and charges;
(o) wages and other sums due to the master, officers and other members of the ship's complement in respect of their employment on the ship, including costs of repatriation and social insurance contributions payable on their behalf;
(p) disbursements incurred on behalf of the ship or its owners;
(q) insurance premiums (including mutual insurance calls) in respect of the ship, payable by or on behalf of the shipowner or demise charterer;
(r) any commissions, brokerages or agency fees payable in respect of the ship by or on behalf of the shipowner or demise charterer;
(s) any dispute as to ownership or possession of the ship;
(t) any dispute between coowners of the ship as to the employment or earnings of the ship;
(u) a mortgage or a hypotheque or a charge of the same nature on the ship;
(v) any dispute arising out of a contract for the sale of the ship.
 
Maritime Lien
A maritime lien is a species of charge that attaches to property and follows the property – most commonly a ship – to secure certain types of claims. It is inchoate from the time of the events giving rise to it, attaching to the ship, traveling with the ship into anyone’s possession even a bona fide purchaser for value without notice, except a purchaser at an admiralty court sale and perfected by legal process. Only a limited class of maritime liens are recognised, the categories are:
i.      Any claim for damage done by any ship
ii.     Any claim for damage received by any ship or sea-going vessel
iii.    Any claim in the nature of salvage services
iv.    Any claim by a master or crew for wages, etc.
v.     Any claim by a master in respect of disbursements
vi.    Any claim arising out of bottomry and respondentia
In admiralty law, a maritime lien is a privileged claim upon sea-connected property, such as a ship, for services rendered to, or the injuries caused by that property. In common law, a lien is the right of the creditor to retain the properties of his debtor until the debt is paid.
 
It is a proprietary lien where interest is about the property. It should be understood that “res” may be the vessel including its appurtenances and equipment, the cargo, the freight or even the proceeds of sale. The rights include jus in re (right on the property) and jus in rem (right against the property). The doctrine of maritime lien is that a ship will be treated as a wrongdoer, not the owner, that the loss, damage or harm is caused by the maritime property, itself, and it has to make good for the loss. The attachment of maritime lien will start when the cause of action arises and will not be eliminated even by change of ownership in a good faith purchase.
 
Two significant differences between maritime liens, which only exist in admiralty law, and the right to keep that exist in general civil law are that in general civil law, "Prior in time is prior in right", i.e., the rights of the lien holder with the earliest lien are superior to those of later lien holders, whereas in maritime law the rights of the most recent lien holder are superior, and all maritime liens are superior to all non-maritime liens.

The Characteristics of maritime lien are as follows:
 
  • Wages of the ship’s master and crew
  • Salvage operations
  • General average claims
  • Claims for the breach of a charter party
  • Preferred ship mortgages
  • Claims under maritime contracts for repairs, supplies, towage, pilotage and a wide variety of other “necessaries”
  • Claims for maritime torts including personal injury and death, and collision claims
  • Claims for the damage or loss of cargo
  • Claim by the carrier of cargo for unpaid freight and demurrage
  • Pollution claims
     
Although there is a list recognised by the admiralty jurisdiction, the definitions and criteria are not the same under the maritime law of differing jurisdictions. For example, In India, bunker suppliers are not protected by maritime lien nor under UK law. However the supplier of bunker goods has the right of lien in the US.

 
 
BCAS: 7103-1001
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