Chartered Ship Owned By Third Party Can’t Be Arrested In Maritime Claim Against Charterer: SC [Read Judgment]

Settling an important point of law in admiralty jurisdiction, the Supreme Court has held that a maritime claim against the charterer of a ship, who is not the de jure owner of the ship, cannot be enforced through a restraint order against the ship owned by a third party. The Supreme Court bench comprising Justice J Chelameswar and Justice SK Kaul was considering appeals challenging the refusal of Bombay High Court to enforce maritime claims through the arrest of vessel Geowave Commander.

The vessel Geowave Commander was chartered and hired by Reflect Geophysical Pte Ltd, to carry out seismic survey operations off the coast of Gujarat near Okha port in the year 2012 as per tender awarded by ONGC.

Reflect Geophysical had entered into a charter hire agreement on 30.10.2012 with M/s Sunil B Naik, to supply 24 fishing trawlers being the chase vessels to assist in survey operations to be conducted by chartered vessel Geowave Commander. Similarly, one Yusuf Abdul Gani agreed to give on hire the vessel ‘Orion Laxmi’ to Reflect Geophysical to work in support with survey vessel Geowave Commander. When payments due to Sunil Naik and Yusuf Gani were defaulted by Reflect Geophysical, they filed approached the Bombay High Court to enforce their claim by arresting the vessel Geowave Commander. The Bombay High Court refused to order arrest, holding that Reflect Geophysical was not the owner of Geowave Commander, and hence the claims against Reflect Geophysical could not be enforced through the arrest of the vessel.

The SC bench applied the principle laid down in the celebrated case in admirality law, MV Elisabeth &Ors. v. Harwan Investment & Trading Pvt. Ltd AIR 1993 SC 1014, that the foundation of an action in rem against a ship arises from a maritime lien or claim imposing a personal liability upon the owner of the vessel. Detention of a ship is done as security for a decree liable to be passed against the owners of the ship in personam. Since the claim is against Reflect Geophysical and not against the owners of Geowave Commander, it cannot be arrested for liability of Reflect Geophysical.  Justice Kaul, who authored the judgment, explained the decision with the illustrative example of a garnishee proceeding in the following manner:

As an illustrative example if we consider the principles of a garnishee order where amounts held by a third party on behalf of a defendant can be injuncted or attached to satisfy the ultimate claim, which may arise against the defendant. It is not as if somebody else’s money is attached in pursuance to a garnishee’s order. Similarly, for a claim against the owner of the vessel, a vessel may be detained and not that somebody else’s vessel would be detained for the said purpose. 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.

Plea of beneficial ownership

The appellants, in order to secure an order of arrest, tried to press into service the plea of “beneficial ownership”. The plea is based on UK judgment Medway Drydock & Engineering Co Ltd v MV Andrea Ursula [1973] QB 265. It was observed in Medway that “a ship would be beneficially owned by the person who, whether or not he was the legal or equitable owner or not, lawfully had full possession and control of her, and, by virtue of such possession and control, had all the benefit and use of her which a legal or equitable owner would ordinarily have”.

But the said plea was not accepted. The court noted that this rule in Medway Drydock was not accepted and followed in subsequent decisions, Father Thames [1979] 2 Lloyd’s Rep. 364, and I Congreso Del Partido [1978] Q.B. 500.

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,” said the court.

[To read more on arrest of vessels and maritime claims, refer another enlightening decision by the bench of Justice RF Nariman and Justice SK Kaul in Chrisomar Corporation v. MJR Steels Private Ltd, holding that “arrest Of foreign ship for maritime claim permissible only if there is no change of ownership between the date of claim and date of arrest”.