TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 1637
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Okha Port in the year 2012. In order to facilitate the carrying out of its obligations, Reflect Geophysical in turn entered into a Charter Party Agreement vide contract dated 29.6.2012 to charter the vessel 'Geowave Commander', the registered owner being Master and Commander AS Norway,(for short 'Geowave Commander') for a period of three years. The said vessel is stated to be a specialized ship equipped to carry out seismic survey operations. In terms of the said contract, it is defined as a 'Bareboat Charter'. The charterer also has the option to purchase the vessel and the owners' seismic equipment provided the purchase option is declared by the charterers to the owners in writing latest on 18.1.2015 being six months prior to the end of the charter period. 4. In order to fully appreciate the terms of the charter, it is necessary to discuss/reproduce some of the clauses of the Charter Agreement: 10. Maintained and Operation (a)(i) Maintenance and Repairs: - During the Charter Period the Vessel shall be in the full possession and at the absolute disposal for all purposes of the Charters and under their complete control in every respect. The Charter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uired, repair the Vessel during the Charter Period and they shall pay all charges and expenses of every kind and nature whatsoever incidental, to their use and operation of the Vessel under this Charter, including annual flag State fees and any foreign general municipality and/or state taxes. The master officers and crew of the Vessel shall be the servants of the Charterers for all purpose whatsoever, even for any reason appointed by the Owners. xxxx xxxx xxxx xxxx xxxx (d) Flag and Name of Vessel: During the Charter period, the Charterers shall have the liberty to paint the Vessel in their own colours, install and display their funnel insignia and fly their own house flag. The Charterer shall also have the liberty, with the Owners' and Mortgagee's prior written consent, which shall not be unreasonably withheld to change the flag and/or the name of the Vessel during the Charter Period. Painting and re-painting, installment and re-installment, registration and re-registration if required by the Owners shall be at the Mortgage(s) bearing on the Vessel that would be required as a result of a change of flag initiated by the Charterers shall be Charterer's cost. (e) Ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed a dispute resolution Clause 18 providing for arbitration, which reads as under: 18. All disputes arising out of or in connection with this Charter Hire Agreement shall be finally settled in Mumbai under the Rules of India Arbitration Act before three arbitrators appointed in accordance with the said Rules. Each party shall appoint one such arbitrator and the two so appointed by the parties shall jointly appoint the third. 6. It is the case of the Appellant that the 16 vessels were made ready for Reflect Geophysical to ensure that fishing vessels were kept well clear of the towed in water seismic equipment so that their fishing equipment is not damaged. The daily hiring rate, as per the agreement, varies for the different nature of vehicles. The said Appellant also claims that the vessels were mobilized at Okha port but the fact remains that the Respondent ship never went to Okha and was at the Pipavav port from where it went to Mumbai. 7. Similarly Yusuf Abdul Gani, Appellant in SLP(C) No. 18899/2013, agreed to give on hire the 'Orion Laxmi' to Reflect Geophysical to work in support with the survey vessel 'Geowave Commander' vide contract dated 1.10.2012. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount along with interest against their dues or whether the Respondent is entitled to release of the amount so deposited in Court. The Legal Conundrum: 12. We are faced with the aforesaid factual position where there are actually three creditors of Reflect Geophysical, being the owners of the Respondent ship and the Appellants, who entered into contracts with Reflect Geophysical to provide assistance in the operation of the task for which the ship was engaged. 13. The first question, thus, which would arise is whether a maritime claim could be maintained under the admiralty jurisdiction of the High Court for an action in rem against the Respondent ship in respect of the dues of the Appellants when the charterer himself is in default of the payment to the owner. The case of the Appellants, on the one hand, is that there is a liability of the Respondent vessel on account of the charter agreement and the rights and obligations of the charterer while the Respondent, who has succeeded before both the forums, seeks to establish that the claim of the Appellants cannot be categorized as a maritime claim for invoking the admiralty jurisdiction of the High Court and that the vessel, thu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yage charters) are classified in English law as contracts of affreightment, pursuant to which the owners agree to carry goods by sea in return for a sum of money. Although the charterers have a right as against the owners to have their goods carried on the vessel, the ownership and the possession of the ship remains with the owners through the master and crew who remain their servants. Whether or not a charter party amounts to a demise charter depends in every case upon the precise terms of the charter, taking the instrument as a whole. The test has been summarized as follows: The question depends, where other things are not in the way, upon this: whether the owner has by the charter, where there is a charter, parted with the whole possession and control of the ship, and to this extent, that he has given to the charterer a power and right independent of him, and without reference to him to do what he pleases with regard to the captain, the crew, and the management and employment of the ship. That has been called a letter or demise of the ship. The right expression is that it is a parting with the whole possession and control of the ship. Thus, although time charters almost al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7. The draft Admiralty Act of 1987, did not see the light of the day. Section 3 of that Act seeks to define the admiralty jurisdiction of the court. The fate was no different for the draft Admiralty Act of 1999, Section 5 of which defines the admiralty jurisdiction. Finally, we have The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, which was passed by the Parliament and received the assent of the President of India on 9.8.2017 and was duly published in the Gazette on the said date but the date of its coming into force has still not been notified. Interestingly, the statement of object and reasons of this Act itself refers to the desirability of the codifying and clarifying the admiralty law in view of the observations of this Court in M.V. Elisabeth and Ors.1. The present dispute is, once again, a reminder to the Government of the necessity of bringing into force the said Act! 18. We may note that these Acts were referred to by Mr. Shekhar Naphade, learned Senior Advocate appearing for the Appellant, Sunil B. Naik, for purposes of elucidating the expanding admiralty jurisdiction as observed in M.V. Elisabeth and Ors.2. Thus, Section 3(1) (h),(j) & (l) of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....em and the manner of exercise is discussed in the following paragraphs: 44. "The law of admiralty, or maritime law, .... (is the) corpus of rules, concepts, and legal practices governing ... the business of carrying goods and passengers by water." (Gilmore and Black, The Law of Admiralty, page 1). The vital significance and the distinguishing feature of an admiralty action in rem is that this jurisdiction can be assumed by the coastal authorities in respect of any maritime claim by arrest of the ship, irrespective of the nationality of the ship or that of its owners, or the place of business or domicile or residence of its owners or the place where the cause of action arose wholly or in part. 45.... In admiralty the vessel has a juridical personality, an almost corporate capacity, having not only rights but liabilities (sometimes distinct from those of the owner) which may be enforced by process and decree against the vessel, binding upon all interested in her and conclusive upon the world, for admiralty in appropriate cases administers remedies in rem, i.e., against the property, as well as remedies in personam, i.e., against the party personally ...." (Benedict, The Law of Am....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tinue in personam. All actions in the civil law -- whether maritime or not -- are in personam, and arrest of a vessel is permitted even in respect of non-maritime claims, and the vessel is treated as any other property of the owner, and its very presence within jurisdiction is sufficient to clothe the competent tribunal with jurisdiction over the owner in respect of any claim. [See D.C. Jackson, Enforcement of Maritime Claims, (1985) Appendix 5] [See D.C. Jackson, Enforcement of Maritime Claims, (1985) Appendix 5, p. 437 et seq.]. Admiralty actions in England, on the other hand, whether in rem or in personam, are confined to well defined maritime liens or claims and directed against the res (ship, cargo and freight) which is the subject-matter of the dispute or any other ship in the same beneficial ownership as the res in question." xxxx xxxx xxxx xxxx xxxx 99. What then was the jurisdiction that the Court of England exercised in 1890? The law of Admiralty was developed by English courts both as a matter of commercial expediency and due to equity and justice. Originally it was a part of common law jurisdiction, but the difficulty of territorial limitations, constraints of commo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n any cause of possession, salvage, damage, wages or bottomry. By Clause (6) of the Act jurisdiction was extended to decide all claims and demands whatsoever in the nature of salvage for services rendered to or damage received by any ship or seagoing vessel or in the nature of towage or for necessaries supplied to any foreign ship or sea-going vessel and the payment thereof whether such ship or vessel may have been within the body of a country or upon the high seas at the time when the services were rendered or damage received or necessary furnished in respect of such claims. But the most important Act was passed in 1861 which expanded power and jurisdiction of courts and held the field till it was replaced by Administration of Justice Act, 1920. The importance of the Act lay in introducing the statutory right to arrest the res on an action in rem. Section 35 of the 1861 Act provided that the jurisdiction by the High Court of Admiralty could be exercised either by proceedings in rem or proceedings in personam. "The essence of the rem in procedure is that 'res' itself becomes, as one might say, the Defendant, and ultimately the 'res' the ship may be arrested by legal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the Statute. Even now, the Admiralty jurisdiction of the High Court of Justice in England is derived 'partly from Statute and partly from the inherent jurisdiction of Admiralty' [Maritime Liens by D.R. Thomas]. Observations of Lord Diplock in Jade (The) [See D.C. Jackson, Enforcement of Maritime Claims, (1985) Appendix 5, p. 437 et seq.] that Admiralty jurisdiction was statutory only have to be understood in the context they were made. By 1976 the statutory law on Admiralty had become quite comprehensive. Brother Thommen, J., has dealt with it in detail. Therefore those observations are not helpful in deciding the jurisdiction that was exercised by the High Court in England in 1890. 22. The emphasis of the Respondent is, thus, 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. Since the claim is stated to be one against Reflect Geophysical and not against the owners, such a detention could not have been made, it was contended. Reflect Geophysical, in fact, has not even been made a party to the suit, the entity, which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... arising out of one or more of the following: xxxx xxxx xxxx xxxx xxxx (f) any agreement relating to the use or hire of the ship, whether contained in a charter party or otherwise;" xxxx xxxx xxxx xxxx xxxx (l) goods, materials, provisions, bunkers, equipment (including containers) supplied or services rendered to the ship for its operation, management, preservation or maintenance; 26. 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. For an elucidation we reproduce the said clauses: Article 2 Powers of arrest xxxx xxxx xxxx xxxx xxxx 2. A ship may only be arrested in respect of a maritime claim but in respect of no other claim. 3. A ship may be arrested for the purpose of obtaining security notwithstanding that, by virtue of a jurisdiction Clause or arbitration Clause in any relevant contract, or otherwise, the maritime claim in respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e agreement between Reflect Geophysical 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 Okha whereas the Respondent vessel never arrived at Okha. Reflect Geophysical 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. In this behalf, reference has been made to the judgment in The "Eschersheim" [1976] Vol. I Lloyd's Law Reports 81. The relevant portion, which is also reproduced in the impugned judgment is extracted as under: In my opinion there is no good reason for excluding from the expression "an agreement for the use or hire of a ship" any agreement which an ordinary ASN 12/14 Appeal-209-13. doc business man would regard as being within it. If which an ordinary business man would regard as being within it. If A and B make an agreement for A's ship to be used for carrying out any operation for B, I consider that the agreement is one for the use, if not for the hire of the ship. Thus an agreemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was the legal or equitable owner or not, lawfully had full possession and control of her, and, by virtue of such possession and control, had all the benefit and use of her which a legal or equitable owner would ordinarily have." 33. In the aforesaid context it may be noticed that in Section 1 of the Administration of Justice Act, 1956, the Admiralty jurisdiction could be invoked inter alia in the following case: 1. Admiralty jurisdiction of the High Court (I) The Admiralty jurisdiction of the High Court shall be as follows, that is to say, jurisdiction to hear and determine any of the following questions or claims - xxxx xxxx xxxx xxxx xxxx (h) any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship; 34. A reference, has, thus, also been made to the decision in The "Permina 3001" (1979) Vol. 1 Lloyd's Law Reports 327 of the Singapore Court of Appeal, the relevant portion of which reads as under: The question is what do the words "beneficially owned as respects all the shares therein" mean in the context of the Act. These words are not defined in the Act. Apart from authority, we would construe them to refer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; (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. 38. The learned single Judge opined that the claim in Yusuf Abdul Gani's case was in respect of use or hire of another ship Orion Laxmi and the claim, thus, could not be maintained against the Respondent vessel. It was stated to be a claim in personam against Reflect Geophysical and thus, only a vessel owned by Reflect Geophysical could have been restrained. The learned single Judge also records that it has not been the case of Yusuf Abdul Gani that Reflect Geophysical is a de facto owner of the ship sought to be arrested and the position of an owner of a ship is different from a demised charter when it comes to the arrest of a vessel owned or chartered. In this behalf a reference has been made to the case of Polestar Maritime Ltd. v. M.V. Qi Lin Men and Ors.4 where Article 3(2) of the Arrest Convention was elucidated specifying that a ship can be arrested in respect of a maritime claim against another ship only in the following circumstances: (a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essel 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 Reflect Geophysical 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 Sunil B. Naik'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. Conclusion: 43. On giving our thoughtful consideration to the issue at hand, we are in full agreement with the view taken by the Courts below and find no reason to interfere in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mplead Reflect Geophysical against whom they have their claim in personam, possibly envisaged as a futile exercise. 47. It is in the aforesaid context that while discussing this issue in the impugned order, the essential ingredients for detention of a vessel in a maritime claim were specified (para 37 aforesaid). 48. The aforesaid issue has also been discussed in Polestar Maritime Ltd.6 while dealing with Article 3(2) of the Arrest Convention. The test of the ownership of both the ships as one and the same is not satisfied in the present 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 Reflect Geophysical as the Appellants. 49. Mr. Naphade, learned Senior Advocate while relying on the judgment in M.V. Elisabeth and Ors.7 had referred to the expan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Advocate for the Appellant recorded by us relates to the plea of "beneficial ownership" of the Respondent ship by Reflect Geophysical and, thus, the enforceability of a claim by the Appellants against the Respondent ship. In support of this plea reliance is placed on the judgment in Medway Drydock & Engineering Co. Ltd.8. We must record at the inception itself that this issue appears not to have been raised either before the learned single Judge or the Division Bench as there is no discussion on this aspect. We, however, still feel necessary to deal with this aspect and in some detail largely based on our own foray into this area of law rather than simply relying on the judgment referred to aforesaid. 54. United Kingdom became a signatory to two international conventions - 'International Convention relating to Arrest of Sea Going Ships' and 'International Convention on certain Rules concerning Civil Jurisdiction in matters of Collision' signed at Brussels on 10.5.1952. Article 3 of the former in Sub-clause (2) states that "Ships shall be deemed to be in the same ownership when all the shares therein are owned by the same person or persons." The context is, thus, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....] Q.B. 500 by Robert Goff, J. This judgment debates the concept of "beneficially owned" in respect of shares therein within the meaning of Section 3(4) of The Administration of Justice Act, 1956. There is a respectful disagreement with the line adopted by Brandon, J. in the Medway Drydock & Engineering Co. Ltd.10. Thus, it is noticed that Brandon, J. construed the words "beneficially owned as respects all the shares therein" as not being restricted to legal or equitable ownership, but as being wide enough to include such "ownership" as is conferred by a demise charter. Robert Goff, J. recorded the reasoning of Brandon, J. for doing so as under: The reasoning of Brandon J. which led him to reach this conclusion was as follows: (1) The expression "beneficially owned" in Section 3(4) is capable of more than one meaning: either owned by someone who, whether he is the legal owner or not, is in any case the equitable owner; or beneficially owned by a person who, whether he was the legal or equitable owner or not, lawfully had full possession and control of her, and, by virtue of such possession and control, had all the benefit and use of her which a legal or equitable owner would ordin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cially owned as respects all the shares therein" refer only to cases of equitable ownership, whether or not accompanied by legal ownership, and are not wide enough to include cases of possession and control without ownership, however full and complete such possession and control may be. Since I have reached a different conclusion to Brandon J., I think it right to point out that I have had the benefit of a full argument by counsel for the Defendants in this case, whereas The Andrea Ursula came before Brandon J. on a motion by Plaintiffs for judgment in default of appearance, on which the Defendants were not represented. 58. Thereafter Robert Goff, J. records his conclusion in the following manner: My approach to the case before me is as follows. I start with the statute, and the words with which I am particularly concerned, and which I have to construe in the context of the statute, are "beneficially owned as respects all the shares therein." In my judgment, the natural and ordinary meaning of these words is that they refer only to such ownership as is vested in a person who, whether or not he is the legal owner of the vessel, is in any case the equitable owner, in other words, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e charterer has, within limits defined by contract, the beneficial use of the ship; he does not, however, have the beneficial ownership as respects all the shares in the ship. Furthermore, I can find nothing in the remainder of the statute to cause me to reject the natural and ordinary meaning of the words; certainly, I would not construe other references in the statute to "ownership" -- as in Section 1(1)(a) -- or "co-owner" -- as in Section 1(1)(b) -- as referring in any way to demise charterers. Indeed in Part V of the Act, which is concerned with Admiralty jurisdiction and arrestment of ships in Scotland, the equivalent provision, Section 47(1)(b), requires that "all the shares in the ship are owned by the Defendant." This provision, to which I can properly have regard: see The Eschersheim [1976] 1 W.L.R. 430, 436 per Lord Diplock, reinforces my conclusion that Section 3(4) of the Act is concerned with title, the word "beneficial" being introduced to allow for the peculiar English institution of the trust." xxxx xxxx xxxx xxxx xxxx Accordingly, I do not regard the words "beneficially owned as respects all the shares therein" as being capable of more than one meaning; in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tle to the ship; am confirmed in this view by the provision relating to ownership in Article 3(2) and by the fact that Article 3(4), to which Article 3(1) is expressed to be subject, makes special provision for the case of the demise charterer and others. It is to be observed that, if one puts Article 3(4) on one side, the draftsman of the Act of 1956 appears to have been seeking to give effect to Article 3(1) and (2) of the Convention, subject to the fact that he appears to have been concerned to extend the word "ownership" by the addition of the adjective "beneficial," very possibly to take account of the special English institution of the trust which may form no part of the domestic laws of other signatories to the Convention. 59. We have been persuaded to extract in extensio from the judgment in I Congreso Del Partido12 on account of the clarity of the view expressed by Robert Goff, J. finding it difficult to be put in better words. Thus, 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 charte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....termediary, like a trustee, a legal representative or an agent. The French corresponding expression 'veritable proprietaire' leaves no doubt to that effect. 63. The Supreme Court of Canada in Antares Shipping Corporation v. The Ship 'Capricorn' et al. [1980] 1 S.C.R. 553 also referred to the concept of beneficial ownership and cited with the approval, observations made in Halsbury's Laws of England at para 15 as follows: Ownership in a British ship or share therein may be acquired in any of three ways - by transfer from a person entitled to transfer, by transmission or by building. Acquisition by transfer and transmission have been the subject of statutory enactment. Acquisition by building is governed by the common law. Ownership in a British ship or share therein is a question of fact and does not depend upon registration of title. Whether registered or unregistered, a person in whom ownership in fact vests is regarded in law as the owner if registered, as the legal owner; if unregistered, as the beneficial owner. 64. The successor to the 1956 Act is the Supreme Court Act of 1981. Section 21(4) of that Act of U.K. recognizes the discussion in view of Rober....