2014 has been a busy year on the admiralty side of the Bombay High Court. In a series of decisions, the Court has sought to introduce a greater level of clarity to the law relating to ship arrests within the jurisdiction of that Court.
In Universal Marine and another v MT HARTATI and another1, the Court dealt with the circumstances in which the arrest of a sister ship in the same beneficial ownership was permitted under Indian law. The Court held that, for the purposes of the 1990 Arrest Convention, the term “owner” meant “registered owner”. Accordingly, “sister ships” were those that were in the registered ownership of the same entity.
As a matter of Indian law, the Court could look beyond the registered owner and “pierce the corporate veil” only if it can be demonstrated that the ownership structure was a sham, i.e. created with an intention to defraud the claimant or other creditors.
In Navbharat International Ltd v Cargo on board MV AMITEES and others (the Best Foods case), the Court had occasion to consider Rule 941 of the Bombay High Court (Original Side) Rules. Rule 941 falls within Part III (Admiralty), and requires an in rem arrest application to be supported by an affidavit and an undertaking to “pay such sum by way of damages as the Court may award as compensation in the event of a party affected sustaining prejudice by such order”.
The issue in the Best Foods case was whether the defendant shipowner had to show bad faith or malice on the part of the claimant in order to be able to call upon the Rule 941 undertaking. The single judge deciding the case held that “the undertaking gets triggered the moment the order of arrest is held to be wrongful and the order of arrest is vacated”.
The Court did not go into the question of what constitutes wrongful arrest, and whether malice or bad faith were necessary factors for the Court to take into account when determining whether an arrest is wrongful.
Compensation for wrongful arrest
In Lufeng Shipping Co v MV RAINBOW ACE and others, the Court was faced with an application for compensation by an aggrieved shipowner. The Court had previously determined that the arrest of the MV RAINBOW ACE was wrongful, and the owners sought compensation on the basis of the earlier decision of the Court in the Best Foods case.
The Court held that the claimant’s liability was established pursuant to Best Foods. However, the shipowner had failed to mitigate its damages by refusing to provide security and leaving the vessel under arrest. A shipowner seeking compensation for wrongful arrest is in the position of any other claimant, and “all claimants have a duty to mitigate” their losses. The owner’s recourse to the courts could not be considered to be “mitigation” for this purpose.
Arrest for security for foreign arbitration
In Rushabh Ship International LLC v MV African Eagle and others, the Bombay High Court issued a carefully nuanced judgment holding that, as a matter of Indian law, a claimant could not arrest a ship merely to secure its claims in foreign arbitration. To invoke the admiralty jurisdiction of the Indian Courts, a claimant has to file a suit asking the Court to hear and determine its claim; if the defendant seeks to have the proceedings stayed due to the existence of an arbitration clause, the Court was bound to issue a stay.
But if the primary relief sought from the Court was an order for security for foreign arbitral proceedings, the suit was liable to be rejected for want of a cause of action.
The Court pointed out that no cause of action would lie in such cases because the Indian courts did not have the power to issue interim relief in support of foreign arbitral proceedings, pursuant to the decision of the Supreme Court of India in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc2.