The Gujarat High Court has held that a 'maritime lien' over a vessel gets extinguished even in circumstances when the vessel is still mechanically navigable with all navigational and signalling equipment on board, when the intention of the owner of the vessel is no longer to deploy the vessel for navigationIntroductionThe global shipping industry relies extensively on the shipbreaking industry...
The Gujarat High Court has held that a 'maritime lien' over a vessel gets extinguished even in circumstances when the vessel is still mechanically navigable with all navigational and signalling equipment on board, when the intention of the owner of the vessel is no longer to deploy the vessel for navigation
Introduction
The global shipping industry relies extensively on the shipbreaking industry of developing countries, to dispose of their ageing fleet, thereby recovering the scrap value of the ship in terms of the long tonnes weight. Ships flying the flag of various jurisdictions regularly make their final funeral voyage to Alang (Bhavnagar, India), which is one of the largest Ship Recycling Yards in the world. It is very common for claimants having various claims against the vessel to obtain an order of arrest over the vessel when it comes to Alang for demolition/ship recycling.
These orders seriously affect the shipbreaking industry as there is always an element of uncertainty as to whether the vessel being imported into India for ship recycling would be subject to a maritime lien. This also made India a favourable jurisdiction for Claimants all around the world to invoke the admiralty jurisdiction of the Indian High Courts to obtain orders of arrest over the vessel.
A claimant can arrest a vessel for 'maritime liens' and 'maritime claims'. Whilst maritime claims get extinguished when there is a change in the ownership of the vessel, a maritime lien clings on to the vessel and survives the change in ownership of the vessel. As a general rule, a maritime lien gets extinguished only by the destruction of the vessel or laches. The recent ruling of the Gujarat High Court is significant in that the Court came to a finding that a maritime lien gets extinguished even in circumstances when the vessel is mechanically navigable, when the intention of the owner of the vessel is not to deploy the vessel for navigation.
Facts
On its funeral voyage to Alang, MV Hibiscus ("Vessel"), a vessel flying the Panamian flag passing through Colombo en route to India. The Plaintiffs were the joint owners of an international cable passing between Sri Lanka and the Maldives. The Plaintiffs filed an Admiralty Suit in the Gujarat High Court against the Vessel alleging that it had purportedly dropped anchor thereby damaging an international cable. Consequentially, the vessel would only be released upon the owner of the vessel furnishing a security of USD 2.2 million.
The shipbreaker who had purchased the vessel for ship recycling filed an Intervener Application. The ship breaker contended inter alia that he had purchased the Vessel for a valuable consideration of USD 3.87 Million for ship recycling and that the Vessel was beached prior to the order of arrest being passed by the Gujarat High Court.
The Plaintiff opposed the shipbreaker's application by contending inter alia that they had a maritime lien over the Vessel that survived the changed ownership of the Vessel. The Plaintiff contended that a maritime lien can only be extinguished by the total destruction/ demolition of the vessel or by latches or judicial sale.
In the instant case, the Vessel was merely beached and no part of the vessel had been broken/demolished in any manner whatsoever and that the signalling and radio equipment on board the vessel were still on board. The Vessel was fully mechanically navigable at the time when the order of arrest was passed. The time of the beaching of the Vessel was disputed and the Plaintiff contended that such an issue could only be decided through a full fledged trial of the case.
The Judgement of the Gujarat High Court
- The right to invoke the Admiralty Jurisdiction
- When is a ship amenable to the Admiralty Jurisdiction of the High Court?
The Court came to a finding that the Plaintiff could only invoke the Admiralty Jurisdiction if they could establish that they had an action in rem against a legally navigable vessel and the Vessel was in the territorial waters of India. Reliance was placed on the judgement of the Supreme Court of India in the case of M.V Elisabeth-v- Harwan Investment & Trading Pvt Ltd. Goa which is the locus classicus on the issue stating that Admiralty jurisdiction can only be invoked to enforce an action in rem against a vessel and only when the vessel is in the coastal/ territorial waters of India.
Reliance was placed on the divisional bench decision of the Gujarat High Court in the case of Destel Marine Limited v. M V Star 7 in which the Court had taken the view that "once the ship is beached and it would no more be in the territorial waters and consequently no admiralty jurisdiction could be invoked. Additionally, once a ship is beached and it is on the land mass, the jurisdiction would be of the Civil Court as per the local laws and no admiralty jurisdiction could be invoked."
The Gujarat High Court had expressed its agreement with the propositions of law laid down by the divisional bench of the Bombay High Court in the case of CCI Pvt Ltd. v M.V. Saba, where navigability of the vessel was a deciding factor in whether a ship was a vessel or not. The navigability of a vessel is not dependent upon the mechanical navigability of the vessel but also its ‘legal navigability’.
A vessel ceases to be 'legally navigable' if the intention of the owner of the vessel was to no longer deploy the vessel for navigation. The Court took note of the fact that the shipbreaker declared his intention to various regulatory authorities in Alang such as the Gujarat Maritime Board, Gujarat Pollution Control Board, the Customs Authorities that the Vessel was being imported into India for demolition/ship recycling. In the instant case, the shipbreaker not only declared his intention but also acted pursuant to his intention by making payment of the custom duties for the import of the Vessel into India.
The Plaintiff relied on the English Case of The Dundee, for the proposition that the sale proceeds of fishing stores could also be sold to satisfy the claim when a vessel was under arrest. This supports the proposition of the Plaintiff that the maritime lien clings on to every part of the vessel - her hull, tackle, fixtures, furniture, equipment etc. The Gujarat High Court distinguished this case from the facts of the instant case by coming to the finding that in that case, the vessel was 'legally navigable' in as much as the intention of the owners of the Dundee was still to deploy the vessel for navigation.
The Plaintiff also relied on the English case of The Neptune which was referred to by the Supreme Court of India in the case of O. Konavalov v. Commander, Coast Guard Region where the Supreme Court of India held that the "seaman had a right to cling to the last plank of the ship in satisfaction of the wages or part of them as could be found" In the case of The Neptune for the proposition that where part of a vessel had been saved by mariners, they were entitled to the payment of their wages, as far as the fragments of the materials would from a fund.
The Plaintiff contended that their maritime lien attaches to every part of the Vessel and the mere beaching and/or partial demolition of the Vessel and the change in the character of the Vessel would not result in the extinguishment of the plaintiff's maritime lien thereupon. The Gujarat High Court rejected the Plaintiffs submission by coming to a finding that The Neptune was not a case of the Admiralty Court but a Summary Civil Suit.
Conclusion
It is trite law that a maritime lien clings on to the vessel like a leech and would get extinguished only when the vessel is completely destroyed or on account of latches or on account of a judicial sale of the vessel. In this case, the Court held that a maritime lien would get extinguished on account of the intention of the owner not to deploy the vessel for navigation albeit the vessel was still mechanically navigable with all navigation and signalling and radio equipment on board.
This case is of immense practical significance to the shipbreaking industry. Prior to this judgement, a shipbreaker would always be uncertain about whether the vessel being purchased and imported into India for the purpose of ship recycling would be subject to any maritime lien. Following the instant judgement, it is now clear that a vessel can never be subject to an order of arrest when the shipbreaker pays custom duty for the import of the vessel.
There are certain effective points arising out of this Judgement. The timing of the application of arrest is absolute critical. A claimant desirous of arresting a vessel would have to ensure that they obtain an order of arrest prior to the shipbreaker filing documents with various authorities for the import of the vessel into India and the beaching of the vessel.
Disclaimer-The views expressed in this article are the personal views of the author and are purely informative in nature.