Author: Niyush, 4th year student at Amity Law School, Delhi.
Citation: 2017 SCC Online SC 1104
Bench: R.F. NARIMAN, SANJAY KISHAN KAUL
Date of decision: 14 September, 2017
Original copy: VIEW
Issue in question:
- What if an arbitration agreement amounted to a novation of the original agreement and thus nullified the actual claim against the ship?
- Were the necessary items delivered to the ship a lien on the sea or simply a law of the sea?
Facts of the case:
- Chrisomar Corp (Chrisomar) delivered bunkers and other necessary items to Nikolaos-S (the ship) in the port of Durban in 1999 on terms agreed with the owners, Third Element Enterprises, a Cyprus company. Chrisomar then issued bills of $ 94,611.25, which Chrisomar applied to the Calcutta’s High Court to arrest the ship on January 6, 2000, when the ship entered the port of Haldia.
- On January 25, 2000, Chrisomar notified the court of his intention not to proceed with the arrest, as the parties had reached an out-of-court settlement for which the court annulled the preliminary arrest warrant and ruled that the ship should cease to be detained. Chrisomar owes USD 104,688.60 (of which USD 94,611.25 for the amount originally billed, USD 2,177.35 for accrued interest and USD 7,900 for legal costs).The settlement contained further statements by the owners as well as provisions on what would happen if the settlement amount was not paid as agreed or the owners violated any of their other statements. Specifically, it states “… then Chrisomar has the right to take any appropriate legal action, including arresting the ship …”. No payment was made until May 2, 2000 and Chrisomar’s claim remained unsatisfied.
- Consequently, it was re-arrested and the ship was bought from One Fairsteel Corporation (a Singapore company), who bought it from Eastern Wealth Investment Ltd, which in turn bought it from the original owners, Third Element Enterprises Shipping Ltd. First Instance concluded that there was no sale in favor of MJR.
- MJR appealed to the Division Court, arguing that the owner of the vessel had changed hands and that on the day of the new arrest he was the owner. The board ruled that the action was dismissed and the decision of the single judge (court of first instance) was overturned. Chrisomar appealed to the Supreme Court convocation.
- The appeal would have to be granted.
- In fact, there was no evidence of any of the alleged back-to-back sales, and MJR was unable to prove that there was a change in ownership of the ship in his favor on the day of the arrest. The decision of the High Court would be repealed and the decision of the Court of First Instance would be reinstated.
- The court found that there is a difference between a “maritime claim” and a “sea lien”. All sea liens are sea claims, but not all sea claims are sea liens. The sea lien on the ship, wherever it goes, remains unaffected by the change of ownership.
- The Supreme Court’s detailed reasoning was as follows:
- The Court had jurisdiction to hear the case relating to a maritime dispute. Although India did not sign the 1952 Convention on Arrest (which contains a list of maritime claims in Article 1, including in particular sub section (k), which states that essential materials, if supplied to a ship for its operation or maintenance, are within the meaning of a Maritime law claim), the Supreme Court (formerly MV Elisabeth MANU / SC / 0685/1993; AIR 1993 SC 1014) (CMI883) ruled that the provisions of this type of agreement are to be regarded as part of customary law and supplement these provisions. Emend ‘and’ complement ‘Indian Maritime Laws’ and fill in the gaps in the Merchant Shipping Act.
- However, a requirement claim does not constitute a sea lien under Indian law (Bailey Petroleum Company against owners and interested parties in the MV Dignity ship (1993) 2 CHN 208 approved, in which the Calcutta High Court approved the decision of the Privy Council in Rio Tinto (1884) 9 App Cas 356) applied. Roscoe’s academic commentary, Admiralty Jurisdiction and Practice, 5th ed., was also cited with consent. Therefore, Chrisomar’s claim would not survive an (actual) change of ownership of the ship.
- The relevant point in time for establishing ownership of the ship is the day of arrest and not the day on which the complaint is brought.
- The violated settlement agreement as a whole (in particular the provisions on the failure of the owners) did not constitute a novation of the original agreement for the purposes of Indian contract law. Sections 62 and 63 of Indian contract law (although the Supreme Court took the opportunity to bring the parties to it remember that unlike the position under English law, no consideration is required to change an Indian contract).
- After the (second) arrest in May 2000, the original owners remained owners of the ship, so that Chrisomar had the right to arrest the ship and the decree of the Magistrate Judge was reinstated.
- In this case, the question raised was that India is not a party to various international conventions that define such a charge and the liability of a ship. The judge regretted the delay in the Indian legal system in adopting such international conventions. However, since India was a party to the Ship Arrest Convention and the same was used in MV Elizabeth 3, it has been interpreted as part of our national law. International conventions have been used successfully to justify detaining the ship and to define the charge.