2017 (9) TMI 1883 - SC - Indian Laws

Maritime claims must be asserted at vessel arrest time, not suit filing, per 1999 International Convention

Chrisomar Corporation Versus MJR Steels Private Limited and Ors.

SC held that maritime claims can only be asserted at the time of vessel arrest, not at suit institution, following the 1999 International Convention on ... Admiralty Law - arrest of vessel - claim for necessaries raises a maritime lien - novation of the original Contract - Effect of settlement or compromise - manner of enforcement of maritime claims - HELD THAT:- Section 12 states that the Code of Civil Procedure is to apply in all proceedings before the High Court insofar as it is not inconsistent or contrary to the provisions of the Act. By Section 17, the Admiralty Court Acts of 1840 and 1861 and the Colonial Courts of Admiralty Acts of 1890 and 1891 stand repealed. Also, the Letters Patent of 1865, insofar as it applies to the admiralty jurisdiction of the Bombay, Calcutta and Madras High Courts, also stands repealed. India is not a signatory to the International Convention on the Arrest of Ships, 1999, yet following M.V. Elisabeth (supra), this Convention becomes part of our national law and must, therefore, be followed by this Court. Article 3(1)(a) is in two parts. Article 3(1)(a) sets the controversy at rest because a maritime claim can be asserted only at the time the arrest is effected and not at the time of the institution of the suit. This being so, Shri Divan's reliance on English judgments to the contrary, namely Monica S. (1967) 2 Lloyd's Rep. 113 as followed in Re, Aro Co. Limited. 1980 1 All ER 1067, cannot be followed. Both judgments were prior to the 1999 Convention and it is this Convention that must be followed. It is, therefore, clear that the relevant date on which ownership of the vessel is to be determined is the date of arrest and not the date of institution of the suit. It is clear that on the facts in the present case as the original contract has been performed only by one party to the contract and not by the other, the second agreement is entered into so that the promisee (i.e. the Appellant herein) may accept, instead of the original performance of the agreement, any satisfaction which it thinks fit. Thus, the agreement deals with one leg of the original transaction, the leg of payment which has not yet been made while keeping the original transaction alive. The other clauses of the agreement buttress this conclusion. Under Clause 4, the ship owner will not sell the vessel prior to the satisfaction of the aforesaid claim. And, above all, under Clause (6), if for any reason the said payment is not made, the Appellant will be entitled to take all appropriate legal steps, which include arrest of the vessel, for recovery of the said amount. Even by Clause (8), the original agreement is kept alive. In the event that the ship is unable to proceed to Bangkok, the Appellant maintains its rights of recovery against the shipowner and the vessel. If the original agreement had disappeared by novatio, there is no question of taking appropriate steps to arrest the vessel which is owned by the ship owner who is the promisee and who has not yet performed his part of the contract. A guarantee Clause contained in clauses 7 and 8 is again only an additional string to the bow of payment. The fact that exclusive jurisdiction is given to the courts at Piraeus, Greece has to be read with Clause 6 of the agreement. Obviously, arrest of the vessel for recovering the aforesaid amount in case payment is not made can be at any port, and not merely at Piraeus. For all these reasons, we are of the view that the aforesaid agreement read as a whole does not amount to a novatio of the original agreement, but was in fact entered into keeping the original agreement alive in order to ensure that payment under the original agreement is made to the Appellants. In fact, the agreement dated 18.1.2000 is not a settlement of the original claim at a lesser amount. As has been held by us, it is only a means of enforcing the payment leg of the original transaction through a third party charterer. Consequent upon the vessel not sailing to Bangkok or the third party charterer failing to make payment, the original obligation of the Appellant continued, and was enforceable by the arrest of the vessel. It is settled law that an agreement such as the agreement dated 18.1.2000 is not to be construed legalistically but is to be construed as ordinary businessmen would construe it. We have seen on the facts of the present case how, by the order dated 25.1.2000, the application in Suit No. 1 of 2000 alone was dismissed for non-prosecution, only interim orders were vacated and it was stated that 'the vessel shall cease to be under arrest as of now.' It is clear, therefore, that in accordance with the agreement dated 18.1.2000, the proceedings were not put an end to. Neither was the original cause of action superseded, as we have stated earlier. The moment there is a breach of the settlement agreement, the Appellants would be entitled to take appropriate legal steps against the ship owner, including the arrest of the vessel, which can only be if the original contract still subsists. The appeal is, accordingly, allowed in the aforesaid terms. Issues Involved:1. Whether the supply of necessaries to the vessel amounted to a maritime lien.2. Whether the original contract was novated by the agreement dated 18.1.2000.3. Determination of the relevant date for assessing the ownership of the vessel.4. Whether the vessel was owned by Respondent No. 1 at the time of its re-arrest on 2.5.2000.5. The effect of the settlement agreement on the original cause of action.Detailed Analysis:1. Maritime Lien for Necessaries:The court examined whether the supply of bunkers and other necessaries to the vessel M.V. Nikolaos-S amounted to a maritime lien. It was established that under Indian law, claims for necessaries supplied to a vessel do not constitute a maritime lien. The court referred to various judgments, including M.V. Elisabeth and M.V. Won Fu, which clarified that maritime liens are limited to specific claims such as damage done by a ship, salvage, seamen’s wages, master’s disbursements, and bottomry. The court concluded that the supply of necessaries, though a maritime claim, does not create a maritime lien enforceable against the vessel.2. Novation of the Original Contract:The court analyzed whether the agreement dated 18.1.2000 constituted a novation of the original contract. It was argued by the appellant that Section 63 of the Indian Contract Act applied, allowing the promisee to accept satisfaction from a third party without extinguishing the original contract. The court agreed, stating that the agreement did not replace the original contract but was meant to enforce the payment leg of the original transaction. The court emphasized that the agreement should be construed in a business context, aiming to ensure payment under the original contract. The court rejected the Division Bench’s view that there was a novation, holding that the original contract remained enforceable.3. Relevant Date for Ownership Determination:The court addressed the issue of the relevant date for determining the ownership of the vessel. It referred to the International Convention on the Arrest of Ships, 1999, which India follows as part of its national law. According to Article 3(1)(a) of the Convention, the ownership of the vessel must be assessed at the time of arrest, not at the time of the institution of the suit. This clarified that the ownership on the date of re-arrest (2.5.2000) was crucial for the case.4. Ownership of the Vessel on 2.5.2000:The court examined the evidence to determine if Respondent No. 1 owned the vessel on 2.5.2000. It found that the High Court had incorrectly relied on an oral admission and documents that did not conclusively prove the ownership transfer. The court noted discrepancies in the chain of sales and the lack of proof for the back-to-back sales claimed by Respondent No. 1. It highlighted that the first sale from Third Element Enterprises to Eastern Wealth Investment Limited occurred only on 27.4.2000, casting doubt on subsequent sales. The court also referred to a suit filed by Respondent No. 1 on 9.5.2000, which indicated that the payment under the Letter of Credit had not been completed by that date. Thus, the court concluded that Respondent No. 1 had not proven ownership of the vessel on the date of arrest.5. Effect of the Settlement Agreement:The court analyzed the settlement agreement dated 18.1.2000 to determine its effect on the original cause of action. It held that the agreement did not supersede the original contract but was intended to ensure the payment of the original claim. The court pointed out that the settlement terms did not put an end to the proceedings or supersede the original cause of action. Instead, the agreement reinforced the original contract by specifying a different mode of performance. The court disagreed with the Division Bench’s view that the settlement constituted a novation, maintaining that the original claim remained enforceable.Conclusion:The Supreme Court set aside the judgment of the High Court and restored the decree of the trial court, allowing the appellant to recover the claimed amount from the cash security furnished. The court held that the supply of necessaries did not create a maritime lien, the original contract was not novated by the settlement agreement, the ownership of the vessel should be assessed on the date of arrest, and Respondent No. 1 had not proven ownership of the vessel on 2.5.2000.