In a recent decision1, the Bombay High Court (High Court) held that the expenses incurred by P&I Club under its policy and/or under the provisions of the Maritime Labour Convention, 2006 (MLC) cannot be treated to be 'Sheriff's expenses'. The Court further observed that once the P&I Club fulfils its obligations under the insurance policy and/or the provisions of MLC, it will have to file its claim before the Court and proving its case and only then will the P&I Club be entitled to be reimbursed from the sale proceeds of the vessel.
The Swedish Club (Applicant) had provided an insurance cover for the vessel GP Asphalt I (Defendant Vessel) which was arrested vide an order2 passed by the High Court in the admiralty suit3 filed by one V8 Pool Inc. (Plaintiff).
The Defendant Vessel was subsequently auctioned and sold by the High Court and the sale proceeds were deposited with the Prothonotary and Senior Master of the High Court. The Applicant filed an application4 seeking modification of its prayers is light of the Defendant Vessel having been sold and thereby seeking directions inter alia to treat the payment of the four month's wages to the crew members as 'Sheriff's expenses' and to release its payment from the sale proceeds in priority.
Contentions of the Applicant
The Applicant argued that it has an obligation to pay minimum of four months wages to the crew members under Regulation 2.5.2, Standard A2.5.2 of the MLC, which the Applicant is willing to do once leave is granted by the High Court. The Applicant further contended that the payments made to the crew members be treated as Sheriff's expenses and paid in priority from the sale proceeds of the Defendant Vessel, without the need to file a suit or prove its claim and without standing in the queue for the High Court to decide the priorities.
The Applicant Club replying upon the judgment of the English Court in the matter of The Berostar5 where the leave of the court was required to pay the wage arrears, submitted that the Applicant is seeking the permission of the High Court before paying the wages for the four months to the crew members and accordingly be paid in priority from the sale proceeds in the form of 'Sheriff's expenses'.
The Applicant further relied upon the order passed by the High Court of Republic of Singapore in the matter of The vessel Bringhtoil Lion and Brightoil Grace to argue that based on international practice leave has to be obtained before making the payment of the wages to the crew members and that once the payment is made, it should be treated as 'Sheriff's expense'.
It was further contented by the Applicant that since it is paying the four months wages to the crew members as per the obligations under the MLC, it would stand in the shoes of the crew members and will have a maritime lien against the sale proceeds of the Defendant Vessel and will be on a higher priority level.
The High Court observed that the obligation of the Applicant to pay the four months wages to the crew members does not only arise under the MLC, but is also a contractual obligation on the basis of the contract of indemnity insurance policy/ certificate of insurance that has been entered into between Defendant No.2/ owner of the Defendant Vessel and the Applicant. Further, as per the certificate of insurance, in respect of the sum paid by the Applicant to the crew members, the Applicant is entitled to acquire by subrogation, assignment or otherwise, the rights which the seafarer would have enjoyed.
The High Court while observing that the judgment in the matter of The Berostar and The vessel Bringhtoil Lion and Brightoil Grace being not applicable to the facts of the case at hand held that unlike the present instance where a P&I Club has filed the application seeking payment of the wages of the crew members, the cases referred to by the Applicant were made by crew members, mortgagee or were in the form of consent degrees, thus making the reliance of such cases not applicable to the present matter.
It was further observed that the obligation of a P&I Club under the MLC arises irrespective of a vessel being arrested or not and becomes payable upon a request made by the crew members or seafarers or their nominated representatives. Thus, no permission of a court is required for a P&I Club to fulfil its obligations under the MLC.
The High Court concluded - while the Applicant is at liberty to decide as to how and when it shall fulfil its obligations under the MLC, the obligations under the MLC inter alia the payment of the wages to the crew members cannot be treated as 'Sheriff's expenses' and/or priority be given towards its payment from the sale proceeds. Accordingly, once the obligation under the MLC is met by the Applicant, the Applicant will be at liberty to make an application to the High Court seeking reimbursement of the amount paid to the crew members and that the same shall be decided on its own merits, including the aspect of whether the Applicant shall have a maritime lien or any other special priority over the sale proceeds of the Defendant Vessel.
1 V8 Pool Inc. v. GP Asphalt I & Ors. [Interim Application (L) No. 2227 of 2021 in Commercial Admiralty Suit (L) No. 9620 of 2020], decided on June 21, 2021.
2 December 22, 2020
3 Commercial Admiralty Suit (L) No. 9620 of 2020
4 Interim Application (L) No. 2227 of 2021
5  Vol. 2 LLR 403
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