In a judgment pronounced by a Single Judge of the Bombay High Court on 9th June 2014, in the matter of Rushabh Shipping International LLC Vs. the bunkers on board the ship, m.v. AFRICAN EAGLE, and freight due, & Others, it has been held that the principles set out by the Supreme Court of India in the BALCO judgment are applicable to Admiralty Suits, as are the provisions of the Code of Civil Procedure. Consequently, inter-parte Suit simply for interim relief pending Arbitration outside India, will not be maintainable. The Court has gone on to hold that unless the dispute is decided by the Arbitrator, cause of action will clearly be contingent and speculative and there will be no existing cause of action to support the Plaint and therefore the Plaint is bound to be rejected under Order 7 Rule 11(a) of the Code of Civil Procedure.
The Court held that the Court’s jurisdiction to arrest a ship in an action in rem should not be exercised only for providing security for an Award which may be made in Arbitration proceedings, because the purpose of exercise of jurisdiction is to provide security in respect of action in rem (substantive action for recovery of a Maritime claim filed here, rather than in an arbitration), and not to provide mere security in other proceedings like Arbitration proceedings.
The judgement goes further to say that the Court will not issue Warrant of Arrest if the Court’s jurisdiction is invoked by the plaintiffs to obtain the arrest of a ship as security for an Award in Arbitration proceedings.
Accordingly, the Court was pleased to reject the Plaint in this matter.
Consequently, in view of the aforesaid decision, unless and until a prayer for decree and/or substantial relief can be made in the Suit, as opposed to a mere prayer for security pending Arbitration, Suit will not lie.
The problem therefore is when the parties have agreed to refer disputes if any to Arbitration, can they then file a substantive Suit for recovery? The answer to this is perhaps, there is no bar for the party to file a Suit claiming recovery, and it would be up to the Defendants in such proceedings to come forward and apply to the Court for stay of the Suit pending the agreed arbitration between the parties.
Accordingly, there is a change in the position of the law in view of the aforesaid decision of a Single Judge of the Bombay High Court, which is of course subject to Appeals if any, in that previously, a party could file an Admiralty Suit and seek arrest of a vessel for security in a pending Arbitration and/or proposed Arbitration between the parties. Now, a Suit simplicitor for security is not permissible.
Further, recently in March / April 2014, a Single Judge of the Bombay High Court, has held that there is no question of the Defendants having to show maliciousness and/or bad faith to be entitled to damages / compensation for wrongful arrest.
The decision held that under Rule 941 of the Bombay High Court (O.S.) Rules, the Plaintiff is obliged to give Undertaking to the Court, undertaking that the plaintiff will pay such sum by way of damages that the Court may order in case of any party sustaining damages by virtue of the Court issuing Warrant of Arrest of a vessel on the Plaintiff’s application; and held that once the arrest is set aside for whatever reason, the Defendant becomes entitled to file application to the Court based on such undertaking given by the Plaintiff to the Court. Then, the Court has to only see as to what is the quantum of damages; and not entitlement itself, which would be covered by the Undertaking under Rule 941, in which Rule there is no reference to maliciousness and/or bad faith.
Para 10 of the said Judgment (Best Foods) reads as under -
“The Undertaking given by the Plaintiff therefore, is in accordance with the rules which are a ‘special law’. Rule 941 does not provide for any pre-condition. The rule is very clear that if any party sustaining prejudice pursuant to the order passed by this Court, the party obtaining the order shall pay such sum by way of damages as the Court may award as compensation. In effect it is a blank cheque which the Plaintiff gives to the Court and what is required is only to write the date, the name of the payee and the amount. It is an unconditional, unqualified, irrevocable undertaking. The judgment relied upon by the Plaintiff to submit that there was no malice and the Court can award damages only if there was malice or there was malafides in obtaining the order etc., are totally incorrect. None of the judgments deal with Rule 941 of the Bombay High Court (Original Side) Rules. None of the judgments also deal with a situation where an undertaking like the one given in this Suit has been given. Therefore, if the order has been obtained either without jurisdiction, or if the order is held to be wrongful and the order of arrest is vacated, the liability under the undertaking is triggered. The next step, once liability is established, is to determine the quantum of damages to be awarded as compensation. Rule 941 provides “……….. such sum by way of damages as the Court may award as compensation …..”. Therefore, all these factors of no malice or no malafides or no gross negligence etc. come into play at this stage, i.e. the stage where the Court determines the quantum of damages to be awarded as compensation by exercising its judicial discretion.”
Again on this issue, in a decision pronounced on 9.6.2014, by a Single Judge of the Bombay High Court in the matter of Lufeng Shipping Co. Ltd. m.v. Rainbow Ace & Anr., the Court held that a Defendant has a duty to mitigate i.e. furnish security without prejudice and then contest the arrest and if the Defendant does not do so, he will not be entitled to claim damages for every single day that the vessel remained under arrest when the Defendant was contesting the arrest before the Court. The Court held, “It is correct that this Court has under the Best Food case held that in view of the undertaking given under Rule 941, if any party sustains prejudice pursuant to the ex-parte order of arrest passed by this Court, the party obtaining the order of arrest has to pay such sum by way of damages as the Court may award as compensation. Therefore, if the order has been obtained either without jurisdiction and/or order held to be wrongful and the order of arrest is vacated, the liability under the undertaking is triggered. The next step, as liability is established, is to determine the quantum of damages to be awarded as compensation. After quoting para 10 of the BEST FOODS Case, the Court went on to hold, “In my opinion, the action/inaction /stand of Applicant was totally ill advised. It is settled law that any Claimant who has a claim in any given situation either for breach of contract or tort has an obligation to mitigate its losses. In my view, it will equally apply even in situation like in this case by virtue of the undertaking given by the Plaintiff. Compensation for pecuniary loss imposes on the Claimant a duty of taking all reasonable steps to mitigate the loss and debars the claimant from claiming any part of the damage due to his neglect to take such steps. As held in the Best Food case, the Court also would consider the claim of the Applicant owner of the vessel on the basis if the Applicant filed a Suit for damages what would the Court have done. Certainly the Court would have considered the issue of mitigation as well. A Claimant has to be put as far as possible in as good a situation as if the arrest had not taken place. But this principle is qualified by a second, which imposes on a Claimant the duty of taking all reasonable steps to mitigate its loss.”
As of date (11-6-2014), on the above two issues, this is the position of law as laid down by a Single Judge of the Bombay High Court, which are subject only to Appeals.