The recent judgment of Dan Bunkering Pte. Ltd v. Best Excellence Corporation Ltd (Civil Application No.1 of 2019 in Admiralty Suit no.8 of 2019) 21 August 2020 has upturned admiralty law in Gujarat. Those familiar with vessel arrests in India may know that the Gujarat High Court had for over two decades permitted bunker suppliers to arrest ships for a charterers debt. There was a brisk trade in the Gujarat High Court of arresting vessels for unpaid bunkers admittedly ordered and supplied at the behest of the charterer. An enlarged view of the personification theory of a ship was adopted by the local court to justify arresting ships without any requirement of the in personam liability of the owner as a precondition to invocation of the court's in rem jurisdiction. Ship arrest for the unpaid dues of a time/voyage charterer was easily obtained. The distinction between maritime liens and maritime claims were confused and conflated by the local courts.
Part of the problem arose due to the lack of a modern admiralty statute. However, the advent of the Admiralty Act, 2017, made significant changes to the law on arrest of ships in India. In particular this enactment, statutorily codifies maritime liens and makes explicit that the the arrest of a ship as security for a maritime claim is conditional on the in personam liability of the owner.
The Gujarat High Court in a break from past practice, correctly applied the provisions of the new law to rule that it was impermissible to arrest a ship for the debts of its charterer.
The arrest of the vessel was obtained by the unpaid bunker supplier by asserting that it had a valid maritime claim/lien against the vessel. The vessel at the relevant time was under a time charter.
The correspondence exchanged between the bunker supplier and the charterer established that the bunkers had been ordered by the time charterer and not the owner of the vessel.
The bunker supplier argued that the supply was made on the faith and credit of the vessel and once the vessel had consumed the bunkers, the vessel was liable to arrest. It also relied on its standard terms and conditions of supply to argue that any default in payment of the bunkers gave rise to a maritime/ contractual lien on the ship.
The Court disagreed with the bunker supplier's argument. It reasoned that Section 9 of the Admiralty Act, 2017, which codifies maritime liens and restricts it to only five categories of claims, do not extend to claims for unpaid bunker supplies. The Court ruled that a contractual lien could not bind the owner of the vessel particularly when there was no privity of contract between it and the bunker supplier.
The Court held that the bunker supplier was a maritime claimant under Section 4 of the Act and could only arrest a ship if it were satisfied that the owner was liable for the supply.
The Court for the first time judicially acknowledged that there was a difference between a maritime claim and a maritime lien- which distinction had previously been lost sight of by the Gujarat High Court.
Due Diligence on the part of the Bunker Supplier
The Court relied on the English Judgment of "The Yuta Bondarovskaya" (1998 2 Lloyds Rep.357) to hold that it was incumbent on a maritime claimant to ascertain the identity of the owner of the vessel when an order for supply of bunkers was placed. It cautioned that if the bunker supplier was unsure of the identity of the owner of the vessel it should not supply bunkers on credit. Payment should, instead, be demanded upfront.
The onus was on the supplier to ensure that adequate security has been provided by the charterer before supplying fuel to the ship.
This view is in marked contrast to that previously adopted by the Gujarat High Court which caused great difficulty to vessel owners who were compelled to secure claims for the unpaid dues of their erstwhile charterer.
Knowledge on the part of the Bunker Supplier
The bunker non-lien clause which was issued by the owners of the vessel specifically informing the supplier that no lien can be created on the vessel in case of a default on the part of the charterer, also weighed with the Court in deciding against the claimant.
In the circumstances, the Court concluded that the bunker supplier clearly knew in advance of the supply that the owner was not responsible for payment and that there was no warrant for the action to proceed to trial. The Court accordingly vacated the order of arrest and directed that the security money be returned to the vessel owner.
The judgment is under appeal. It therefore remains to be seen whether the appeal court will uphold the view of the trial court. At any rate, the ruling marks a positive turn in the law, as it strikes a fair and just balance between the competing interests of maritime claimants and vessel owners trading in Gujarat.
The above is a generic analysis and should not be regarded as a substitute for specific advice based on the facts of a client's objectives and specific commercial agreements reached. Please do reach out to us at email@example.com for any queries.