September 23, 2022
Shipping News Letter- September 2022
No liability can be fixed on a shipowner for bunker supplies when he is not a party to the contract.
Applicant – Original defendant, owner of vessel
Opponent – Original plaintiff, bunker supplier
Date of decision – August 21, 2020
Facts of the case:
In this case, the applicant ship-owner chartered his vessel to Lianyi Shipping Corporation (Lianyi). Lianyi hired bunkers during the charter period from Bo Hai (bunker supplier). The time charter agreement clearly placed the onus to purchase and pay for the bunkers on the time charterers (Lianyi). Lianyi also confirmed its liability to make payment for the bunkers. However, Lianyi did not pay the bunker suppliers, causing the bunker suppliers to secure an order for arrest of the applicant’s ship. The unpaid bunker supplier obtained the arrest order on the ground that there was a valid maritime claim/lien against the Vessel. It is against this arrest order that the applicant has moved the Gujarat High Court.
Simply put, the bunker supplier is holding the owner of the ship liable for payment for bunkers supplied as opposed to holding the charterer of the ship.
The Applicant (owner) is seeking direction that –
- The order of arrest of the vessel be vacated and the security deposited by him for obtaining release of the vessel be returned to him.
- The applicant should be compensated for the losses and legal costs suffered by him due to the arrest of his vessel.
Issues:
Whether the arrest of the Vessel was permissible?
Whether the ship owner could be held liable without any privity of contract between the ship owner and bunker supplier?
Held:
The bunker supplier argued that supply was made on the faith and credit of the Vessel and thus, Vessel was liable to arrest. The bunker supplier also argued that as per the standard terms and conditions of supply, the default in payment gave rise to a maritime/contractual lien on the Vessel. However, the Court held that there was no maritime lien on the Vessel as Section 9 of the Admiralty Act, 2017, codifies and restricts maritime liens to only five categories of claims, and does not extend to claims for unpaid bunker supplies.
The Court also made a distinction between a maritime claim and a maritime lien. It held that a maritime claim could be established under Section 4 of the Admiralty Act, 2017 and arrest could be ordered only if the owner was liable for the supply. However, the bunker supplier had been made aware emphatically that the charterer was placing the order and not the owner. Further, the fact that the owner refused to have any clause of lien on the vessel for unpaid bunkers was known to the bunker supplier. Thus, the arrest of the ship was not permissible.
The order of arrest of the Vessel was vacated and set aside. The security deposit was refunded with interest.
K S & Co Comment:
This decision of the Gujarat High Court in not arresting a vessel for the debt incurred by charterers is welcome. A balance has been struck between maritime claimants and owners of vessels. To do the opposite would amount to punishing an innocent ship owner who had taken every precaution possible in his contract with the charterer to avoid this exact situation. It is also important to note a distinction between a maritime claim and a maritime lien.
Plaintiff – Charterparty
Defendant – Ship owner
Date of decision: February 11, 2022
Facts of the case:
The plaintiff approached the owners for hire of the vessel for 3 months, extendable by a further period of 3 months. The Charterparty contemplated that the vessel will be delivered at Safe Port at Sallah, Omani and hirable at the rate of USD 24,000 per day.
The plaintiff and broker exchanged correspondence. The plaintiff also communicated with the Master of the Defendant vessel in the meantime.
The Broker emailed the plaintiff requesting for his KYC documents. Not receiving a reply he once again emailed the plaintiff, stating that they would wait for a maximum of one hour for the requested documents.
Instead of sending the KYC documents, the plaintiff responded saying that since the Charterparty had already been fixed, trading the vessel by putting her on hire to other parties would be a breach of the Charterparty.
The next day, the plaintiff emailed the broker, stating that the owners’ attempt to cancel the Charterparty was wrong. He also corresponded with the Master of the Defendant vessel asking its expected time of arrival to which he received a positive response.
Based on the allegedly executed Charterparty, the plaintiff had sub-chartered the vessel for USD 25,900.
The plaintiff issued a demand notice to the owners, stating that they breached the Charterparty, causing the plaintiff losses of USD 342,000 and called upon the owners to compensate him.
Issues:
Was there a valid contract duly executed between the plaintiff and the owner of the Defendant vessel?
Held:
On examination, it appeared to the Court that no concluded contract was entered into by the plaintiff with the owner of the defendant vessel through the broker. The negotiations never fructified into a complete contract that would effect a maritime claim. There was no meeting of the minds as the request for KYC documents by the defendant remained unanswered.
Thus, an order to arrest the defendant vessel was refused.
The Court also held that the Charterer did not suffer any real loss. The Charterer claimed that it had suffered due to loss of hire from the sub-charter agreement that it claimed to have entered into. However, it was found that the sub-charter was never finalized and thus the Charterer did not suffer any loss.
K S&CO Comments:
The judgment is welcome. Arrest of ships must only be done in extreme circumstances. The scrutiny of the correspondence by the Court was imperative to show the non-existence of a valid contract. The court must be given credit for not hastily ordering arrest of the vessel and waiting until completion of trial for its release. This case also shines a light on the importance of completing all formalities required for the execution of the charterparty, so that this type of situation does not arise.
Angre Port Private v. TAG15, Interim Application No. 112 of 2021 in Commercial Admiralty Suit no. 4 of 2020, Bombay High Court
Date of Decision: January 3, 2022
Facts of the case:
The plaintiff sought a summary judgement of INR 93,719,098 against the first defendant vessel, Tag 15, for port charges, berth hire charges, penal berth hire charges, salvage operations, and mooring crew charges. The original suit was only filed against the vessel. Sudip Bhattacharya was appointed as liquidator and was added as the second defendant after the vessel’s owner, Tag Offshore Ltd, went into liquidation.
On February 13, 2019, the vessel arrived at the plaintiff’s port and began occupying berth space. EXIM Bank Ltd, a secured creditor of Tag Offshore Ltd, arrested the vessel on March 4, 2019. RH Petroleum Ltd initiated insolvency proceedings against Tag Offshore Ltd on April 24, 2019, in accordance with Section 9 of the Insolvency and Bankruptcy Code 2016 (IBC). The crew abandoned the vessel on May 7, 2019. The vessel began drifting away from the plaintiff’s berth on June 16, 2019, due to strong winds and currents caused by the monsoon. The vessel floated away after breaking its mooring rope, posing a serious threat to the port, its navigational channels, and the nearby village. The plaintiff immediately hired and dispatched a nearby tug, the Shambhavi, to salvage the vessel and return it to safe harbour. Tag Offshore Ltd was dissolved on September 26, 2019. The plaintiff had the vessel arrested on January 20, 2020. The liquidator filed an interim application on January 28, 2020, seeking modifications/recall of the arrest order. The Court granted the liquidator limited relief in an order dated January 29, 2020, allowing him to sell the vessel subject to certain terms and conditions. He was, however, unable to do so.
The plaintiff filed an interim application for judicial sale of the vessel on February 26, 2020. The reason for the sale was that there was a high risk of deterioration of the vessel, which had been lying unscrewed for a long time, and the plaintiff’s maritime lien would be jeopardised. Finally, on July 9, 2020, the Court ordered the vessel to be sold. The Court confirmed the sale of the vessel to JT Marine Services Pvt Ltd for INR 107,500,000 on September 22, 2020.
The defendants argued, among other things, that the plaintiff’s admiralty suit was barred by res judicata – the plaintiff had already filed its claim before the liquidator of Tag Offshore Ltd, and thus was not entitled to bring the same claim again.
Issue:
- Whether this Suit is maintainable?
- Whether the Suit is being barred by the principles of Res Judicata?
- Whether the “Penal Berth Hire charges” are in the nature of penalty?
Held:
The proviso to Section 33(5) of IBC, 2016, states that the liquidator may institute a suit or other legal proceeding on behalf of the corporate debtor with the prior approval of the adjudicating authority. When reading Section 33(5), it is clear that the provision only prohibits the filing of a suit or other legal proceeding against the corporate debtor. It does not preclude the institution of a suit or other legal proceeding against a ship owned by the corporate debtor when the Court invokes its admiralty jurisdiction. The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act 2017 treats the vessel as a separate legal entity that can be sued without involving the vessel’s owner in the proceedings. The Admiralty Act action against the vessel is an action in rem, and a decree can be sought against the vessel without suing the owner. The purpose of an action in rem against the vessel is to enforce the maritime claim against the vessel and recover the amount of the claim from the vessel through an admiralty sale and payment from the sale proceeds. The vessel is responsible for paying the claim. This is the fundamental premise of an in rem action. The owner’s presence is not required for the plaintiff’s claim to be heard. Because of this, there is no requirement to serve the writ of summons on the owner of the vessel, and service of the warrant of arrest on the vessel is sufficient.
The second argument, that the plaintiff’s suit is barred by res judicata principles, proceeded on the basis that there is no qualitative difference between the claim made against the corporate debtor and the claim made against the vessel because they are based on the same cause of action. This argument is incorrect in light of the decision in Raj Shipping Agencies v. Barge Madhwa & Anr (2020 SCC Online Bom 561), in which this Court clearly distinguished between a claim made against the vessel (in this case, the corporate debtor Tag Offshore Ltd), which is an action in rem, and a claim made against the owner of the vessel (in this case, the corporate debtor Tag Offshore Ltd), which is a claim in personam.
The third argument was that the Penal Berth Hire charges that the 1st Defendant Vessel would incur were specified in the Plaintiff’s Tariff Booklet. It was undisputed that once Tag Offshore Ltd. engaged the Plaintiff’s services for the first Defendant Vessel, it would be contractually obligated to pay for those services in accordance with the Plaintiff’s Tariff Booklet. After reading the Tariff Booklet, it was clear that the Penal Berth Hire charges were not penal in nature, but rather additional charges that the Vessel would incur in the event of an emergency. It was determined that once the 1st Defendant Vessel contractually agreed to pay these additional charges, Defendant No.2 could not resile from this contractual obligation. While adjudicating the Plaintiff’s invoice dated October 17, 2019, the Court also noted that Defendant No. 2 understood Penal Berth Hire charges as additional charges rather than a penalty. When Defendant 2 adjudicated the said invoice, he accepted all charges except the salvage costs/operations. The Court determined that once Defendant No. 2 accepted that these amounts were payable to the Plaintiff, he could no longer argue that the Plaintiff was not entitled to any Penal Berth Hire Charges and that they were penal in nature. The fact that the Defendant No. 2 made a statement before the Court on 9 March 2020 that there was no dispute regarding Berth charges and Port charges, was a determining factor when deciding the issue.
K S&CO Comments:
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