Supreme Court Clarifies Maritime Claims Against Chartered Vessels: Sunil B. Naik vs. Geowa Ve Commander (2018)

LEGAL ISSUE: Whether a maritime claim can be maintained against a ship owned by a third party when the claim arises from a contract with the charterer of the ship. CASE TYPE: Admiralty Law. Case Name: Sunil B. Naik vs. Geowa Ve Commander. [Judgment Date]: March 09, 2018.

Date of the Judgment: March 09, 2018

Citation: (2018) INSC 177

Judges: J. Chelameswar, J., Sanjay Kishan Kaul, J.

Can a ship be arrested for a maritime claim arising from a contract with its charterer, who is not the legal owner? The Supreme Court of India addressed this complex question in a recent judgment, clarifying the scope of admiralty jurisdiction in cases involving bareboat charters. This case revolves around a dispute where two parties sought to recover dues from a charterer by arresting a vessel owned by a third party. The court had to determine whether such an action was permissible under admiralty law. The judgment was delivered by a two-judge bench comprising Justice J. Chelameswar and Justice Sanjay Kishan Kaul, with the majority opinion authored by Justice Sanjay Kishan Kaul.

Case Background

In 2012, Oil and Natural Gas Corporation Limited (ONGC) contracted Reflect Geophysical Pte. Ltd., Singapore, to conduct seismic survey operations off the coast of Gujarat. Reflect Geophysical, in turn, chartered the vessel ‘Geowave Commander’ from Master and Commander AS Norway under a bareboat charter agreement dated 29.6.2012. This agreement gave Reflect Geophysical control of the vessel for three years, with an option to purchase it by 18.1.2015. Reflect Geophysical then entered into separate charter hire agreements with Sunil B. Naik and Yusuf Abdul Gani for supply of fishing trawlers and a standby vessel, respectively, to assist in the survey operations. However, Reflect Geophysical failed to pay both the vessel owners and the appellants, leading to legal action.

Timeline:

Course of Proceedings

Yusuf Abdul Gani filed an admiralty suit in the Bombay High Court and obtained an order on 15.3.2013 for the arrest of the vessel ‘Geowave Commander’. Subsequently, Sunil B. Naik also filed an admiralty suit and obtained a similar order on 12.4.2013. The owners of the vessel, Master and Commander AS Norway, filed a motion to vacate the arrest orders. A single judge of the Bombay High Court vacated the ex-parte stay on 17.4.2013. Aggrieved, both Sunil B. Naik and Yusuf Abdul Gani appealed to the Division Bench of the Bombay High Court, which dismissed their appeals on 10.5.2013. This led to the appeals before the Supreme Court.

Legal Framework

The case revolves around the interpretation of maritime law and the concept of a bareboat charter. A bareboat charter, also known as a demise charter, is a contract where the owner of a vessel leases the entire ship to a charterer, transferring possession and control of the vessel. The charterer, in this case, becomes the de facto owner for the duration of the charter. The court also considered the International Convention on Arrest of Ships, 1999, specifically Article 1, which defines “maritime claim,” and Article 3, which deals with the exercise of the right of arrest. The relevant provisions are:

• Article 1(1)(f) of the Convention: defines a maritime claim as including “any agreement relating to the use or hire of the ship, whether contained in a charter party or otherwise.”
• Article 1(1)(l) of the Convention: defines a maritime claim as including “goods, materials, provisions, bunkers, equipment (including containers) supplied or services rendered to the ship for its operation, management, preservation or maintenance.”
• Article 3(1) of the Convention: states the conditions under which a ship can be arrested.
• Article 3(2) of the Convention: states the conditions under which other ships can be arrested.
• Article 3(3) of the Convention: states that the arrest of a ship which is not owned by the person liable for the claim shall be permissible only if, under the law of the State where the arrest is applied for, a judgment in respect of that claim can be enforced against that ship by judicial or forced sale of that ship.

The Supreme Court also referred to the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, although it was not in force at the time of the dispute. Section 5(b) of the Act is in consonance with Article 3 of the 1999 Convention.

Arguments

Appellants’ Arguments:

• The appellants argued that their claims fell under the definition of “maritime claim” under Article 1(1)(f) and (l) of the 1999 Arrest Convention, as they had provided services to facilitate the operation of the vessel.
• They contended that Reflect Geophysical, as the bareboat charterer, had de facto ownership of the vessel and thus, the vessel could be arrested for claims against the charterer.
• They relied on the judgment in Medway Drydock & Engineering Co. Ltd. v. M.V . Andrea Ursula to argue that a demise charterer has beneficial ownership of the vessel.
• They emphasized the expanding scope of admiralty jurisdiction as observed in M.V. Elisabeth & Ors. v. Harwan Investment & Trading Pvt. Ltd.

Respondent’s Arguments:

• The respondent argued that the appellants’ claims were against Reflect Geophysical, the charterer, and not against the vessel or its owner.
• They contended that the charter hire agreements were for the use of the appellants’ vessels by Reflect Geophysical, and not for the use of the respondent vessel.
• They argued that Reflect Geophysical was not the de jure owner of the vessel and therefore, the vessel could not be arrested for claims against the charterer.
• They relied on Article 3(3) of the 1999 Arrest Convention, stating that the ship could be arrested only if the judgment could be enforced against the ship.
• They cited The “Eschersheim” to argue that the agreement must be directly related to the use of the ship in question.
• They also cited The “Permina 3001” to argue that full possession and control does not equate to beneficial ownership.

The innovativeness of the argument by the appellants was that they sought to equate the de facto ownership of the charterer to the de jure ownership of the owner to bring their claim under the maritime claim to arrest the vessel.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. 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.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court upheld the decisions of the lower courts, ruling against the appellants. The court held that the maritime claims of the appellants were against Reflect Geophysical, the charterer, and not against the vessel ‘Geowave Commander’ or its owner. The court emphasized that a maritime claim must be directly linked to the ship or its owner. The court further clarified that a bareboat charter does not confer de jure ownership on the charterer, and therefore, the vessel cannot be arrested for claims against the charterer.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• M.V. Elisabeth & Ors. v. Harwan Investment & Trading Pvt. Ltd. was cited for the expanding scope of admiralty jurisdiction but was distinguished as the present case did not involve a claim against the owner of the vessel.
• Liverpool & London S.P. & I Association Limited v. M.V. Sea Success I & Anr. was used to highlight the applicability of international conventions, but the court clarified that the convention must be applied correctly.
• Medway Drydock & Engineering Co. Ltd. v. M.V. Andrea Ursula was expressly dissented from, with the court holding that a demise charterer does not have beneficial ownership of the vessel.
• The “Eschersheim” was cited to interpret the phrase “an agreement for the use or hire of a ship,” but the court found that the agreement was not for the use of the respondent vessel.
• Polestar Maritime Ltd. v. M.V. Qi Lin Men & Ors. was cited to emphasize that a ship can be arrested for a maritime claim against another ship only if they have the same owner.
• Epoch Enterrepots v. M.V. Won Fu was cited to differentiate between different types of charter parties.
• I Congreso Del Partido was followed, which dissented from Medway Drydock & Engineering Co. Ltd. and clarified that “beneficial ownership” refers to equitable ownership.
• The “Permina 3001” was followed to hold that full possession and control of a ship does not equate to beneficial ownership.
• Mount Royal/Walsh Inc. v. The Ship Jensen Star el al was followed to interpret “beneficial owner” under Canadian law.
• Antares Shipping Corporation v. The Ship ‘Capricorn’ et al. was followed to discuss the concept of beneficial ownership.
• The “Father Thames” was followed, which declined to follow Medway Drydock & Engineering Co. Ltd.
• The court referred to the The Administration of Justice Act, 1956 (U.K.) to discuss the concept of beneficial ownership of a ship and held that it refers to equitable ownership.
• The court referred to the The Supreme Court Act of 1981 (U.K.) to recognize the distinction between beneficial ownership and charterer of a ship.
• The court referred to the The Merchant Shipping Act, 1958 (India) to discuss the concept of ownership of shares in a ship.
• The court referred to the The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (India) to discuss the arrest of a vessel in rem, particularly section 5(b), and held that it is in consonance with Article 3 of the 1999 Convention.
• The court referred to the International Convention on Arrest of Ships, 1999 to interpret Articles 1 and 3 regarding maritime claims and arrest of ships.

The court emphasized that the arrest of a ship is a procedure to obtain security for a claim against the owner of the ship, and not against a charterer. The court also clarified that the term “beneficial ownership” refers to equitable ownership and not merely possession and control of the vessel.

The Supreme Court observed that the appellants were trying to recover their dues from the owners of the respondent vessel because the charterer had gone into liquidation. The court held that such an action was not permissible under admiralty law.

The court quoted from the judgment:

“The maritime claim is in respect of the vessels which are owned by the appellants and the party liable in personam is Reflect Geophysical. Were the respondent vessel put under the de jure ownership of Reflect Geophysical, the appellants would have been within their rights to seek a detention order against that vessel for recovery of their claims.”

“The crucial test would be of ownership, which in the present case clearly does not vest with Reflect Geophysical and the de facto ownership under their bareboat charter cannot be equated to a de jure owner, which is necessary for an action in personam.”

“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 charterer into a “beneficial owner.””

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Legal Ownership: The court emphasized the importance of legal ownership in determining liability for maritime claims. The court was clear that the de facto ownership of the charterer under a bareboat charter does not equate to de jure ownership.
• Direct Link to the Vessel: The court underscored that a maritime claim must have a direct link to the vessel or its owner. Claims against a charterer do not automatically extend to the vessel itself.
• Interpretation of “Beneficial Ownership”: The court clarified that “beneficial ownership” refers to equitable ownership, not mere possession and control under a demise charter. This was a key point in the court’s reasoning, as it rejected the appellants’ argument that the charterer’s control over the vessel made it a beneficial owner.
• Adherence to International Conventions: The court, while recognizing the importance of international conventions, emphasized that these conventions must be correctly applied and interpreted. The court was clear that the 1999 Arrest Convention does not allow the arrest of a ship for claims against its charterer.
• Preventing Unjust Enrichment: The court was also influenced by the fact that the appellants were trying to recover their dues from the owners of the respondent vessel, who were equally victims of the charterer’s default.

The court’s reasoning was heavily grounded in legal principles and the specific language of the relevant statutes and conventions. The court’s analysis was meticulous and detailed, with a clear emphasis on the importance of legal ownership and the direct link between a maritime claim and the vessel or its owner.

Fact:Law

The court’s decision was influenced more by the legal principles and interpretation of the law as compared to the facts of the case.

Key Takeaways

• A maritime claim cannot be enforced against a vessel owned by a third party when the claim arises from a contract with the vessel’s charterer.
• A bareboat charter does not confer de jure ownership on the charterer, and therefore, the vessel cannot be arrested for claims against the charterer.
• The term “beneficial ownership” refers to equitable ownership and not mere possession and control of the vessel.
• International conventions must be applied correctly and interpreted in the context of domestic law.
• Parties entering into contracts with charterers must be aware of the limitations in enforcing claims against the vessel itself.

Directions

The Supreme Court dissolved the interim order dated 17.5.2013 and directed that the amount deposited by the respondent, along with accrued interest, be remitted back to the owners of the respondent vessel.

Development of Law

The ratio decidendi of the case is that a maritime claim cannot be enforced against a vessel owned by a third party when the claim arises from a contract with the vessel’s charterer, and that a bareboat charter does not confer de jure ownership on the charterer. This judgment clarifies the legal position on maritime claims against vessels under bareboat charters, reinforcing the principle that a maritime claim must be directly linked to the ship or its owner. The court also clarified the meaning of beneficial ownership.

Conclusion

In conclusion, the Supreme Court dismissed the appeals, holding that the appellants’ maritime claims were against the charterer, Reflect Geophysical, and not against the vessel ‘Geowave Commander’ or its owner. The court clarified the legal position on maritime claims against vessels under bareboat charters, emphasizing the importance of legal ownership and a direct link between the claim and the vessel or its owner. The court also clarified that beneficial ownership refers to equitable ownership and not mere possession and control of the vessel. The judgment serves as an important precedent in admiralty law, clarifying the scope of maritime claims in cases involving bareboat charters.

Category

• Admiralty Law
  • Maritime Claims
  • Bareboat Charter
  • Arrest of Ships
  • Beneficial Ownership
  • International Convention on Arrest of Ships, 1999
  • Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017
• International Law
  • International Convention on Arrest of Ships, 1999
• Contract Law
  • Charter Party Agreement
• Admiralty Law
  • Section 5(b), Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017

FAQ

Q: What was the main legal issue in this case?
A: The main legal issue was whether a maritime claim could be maintained against a ship owned by a third party when the claim arose from a contract with the charterer of the ship.

Q: What is a bareboat charter?
A: A bareboat charter, also known as a demise charter, is a contract where the owner of a vessel leases the entire ship to a charterer, transferring possession and control of the vessel to the charterer.

Q: What is a maritime claim?
A: A maritime claim is a legal claim arising from a maritime activity, such as the use or hire of a ship, or the supply of goods or services to a ship.

Q: What is the significance of “beneficial ownership” in this case?
A: The court clarified that “beneficial ownership” refers to equitable ownership, not mere possession and control of the vessel. This distinction was crucial in determining whether the vessel could be arrested for claims against the charterer.

Q: What was the Supreme Court’s decision in this case?
A: The Supreme Court ruled against the appellants, holding that the maritime claims were against the charterer, and not against the vessel or its owner. The court held that a vessel cannot be arrested for claims against its charterer.

Q: What is the ratio decidendi of this case?
A: The ratio decidendi is that a maritime claim cannot be enforced against a vessel owned by a third party when the claim arises from a contract with the vessel’s charterer, and that a bareboat charter does not confer de jure ownership on the charterer.

Q: What is the impact of this judgment on maritime law?
A: This judgment clarifies the legal position on maritime claims against vessels under bareboat charters, reinforcing the principle that a maritime claim must be directly linked to the ship or its owner. It also clarified the meaning of beneficial ownership.

Q: What was the role of the International Convention on Arrest of Ships, 1999 in this case?
A: The court used the Convention to interpret the definition of a maritime claim and the conditions under which a ship can be arrested. The court emphasized that the Convention must be correctly applied and interpreted.

Q: What is the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017?
A: The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 is an Indian law that governs admiralty jurisdiction and the settlement of maritime claims. The court referred to it to emphasize that its provisions are in consonance with the 1999 Arrest Convention.