Bombay High Court
Fal Shipping Co. Ltd. vs M.T.Al Layyah & Anr. Ig on 2 September, 2014
Author: K.R.Shriram
Bench: K.R.Shriram
KJ 1/17 NMSL1806.14
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ADMIRALTY & VICE ADMIRALTY JURISDICTION
NOTICE OF MOTION (L) NO.1806 OF 2014
IN
ADMIRALTY SUIT NO.92 OF 2012
FAL Shipping Co. Ltd. )...Applicant/Org.
defendant no.2.
IN THE MATTER BETWEEN :
M/s. Kassiopi Maritime Co. Ltd. )... Plaintiff
V/s.
M.T.AL Layyah & Anr. ig )... Defendants
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Mr.Rahul Narichania Sr.Advocate i/by Bose & Mitra & Co. for
plaintiff.
Mr.V.K.Ramabhadran i/by M/s.Cr.Bayley & Co. for defendants.
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CORAM: K.R.SHRIRAM, J.
DATED : 2nd September, 2014 P.C. :
1 By an ex-parte order dated 11.9.2012 this Court ordered arrest of the 1st defendant-vessel. Thereafter by an order dated 9.11.2012 this court ordered release of the 1st defendant-vessel at which time the court directed the 2nd defendant/one Horizon Energy Co. LLC (group company of defendant no.2) to furnish a bank guarantee in the sum of USD 453,453/- to the satisfaction of the Prothonotary & Senior ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 2/17 NMSL1806.14 Master. This bank guarantee was to be renewed every year.
In addition, Horizon Energy Co. LLC/ defendant no.2 had to furnish further bank guarantee every subsequent year in the sum of USD 37,441/- towards interest at the rate of 9% per annum on the plaintiff's claim. The said order was passed without prejudice to the rights and contentions of both parties, and with liberty to the defendants/Horizon to take out an appropriate application for seeking vacation, release and/or reduction of security and dismissal of suit.
2Thereafter the plaintiff referred its suit claim to arbitration in London under English Law, thereby putting an end to the suit. The Tribunal consisted of 2 Arbitrators. The Tribunal passed a detailed and reasoned award read with corrected award dated 24.7.2014 rejecting the claim of the plaintiff in its entirety. The plaintiff was also directed to pay its own costs and also bear the recoverable costs of defendant no.1 plus interest at the rate of 5% per annum compounded quarterly. The plaintiff was also directed to pay the costs of the award in the sum of GBP 8,780/- and if defendant no.1 had made all or any part payment in respect thereof, immediately reimburse defendant no.1 along with interest @ 5% p.a compounded quarterly.
3 In view of the aforesaid award, the defendants have taken out this Notice of Motion for (a) rejection of the plaint under Order VII Rule 11; (b) dismissal of the suit and return of bank guarantee ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 3/17 NMSL1806.14 furnished by a group company of defendant no.2; (c) order and direction to the plaintiff to pay damages in the sum of US$ 114,731 for wrongful arrest and wrongfully securing their alleged claim by way of bank guarantee increasing at US$ 122.72 per day until the final return of the duly discharged bank guarantees; (d) in the alternative to prayer (c) above, plaintiff to secure the losses and damages for wrongful arrest and for wrongfully securing its alleged claim by way of bank guarantee by depositing with this court counter-security in terms of US$ 114,731 increasing at US$ 122.72 per day until the return of the duly discharged bank guarantees.
4 Mr. Ramabhadran, counsel for the defendants submitted that in the light of the award rejecting the claim of the plaintiff, nothing remains further in this Admiralty suit. Even otherwise nothing remained in the suit because the Plaintiff having referred its suit claim to arbitration, the defendant cannot even file a written statement. The defendants submit that in view of the award, this court does not have the jurisdiction and/or discretion to direct continuation of the bank guarantees. The suit having been filed for security pending arbitration and the claim having been dismissed, the security cannot be continued. According to the defendants the plaintiff has no cause of action. The plaintiff is seeking continuation of security on the basis that it might succeed in its appeal and therefore, the plaintiff's prayer is based on speculative cause of action which was the case in any event as the suit itself was filed only for security pending arbitration. The defendants also state that due to ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 4/17 NMSL1806.14 the arrest of defendant no.1 vessel and the subsequent security being furnished by way of bank guarantees, the defendants have suffered losses and damages in the sum of US$ 114,731/- increasing at US$ 122.72 per day. This amount was also payable by the plaintiff to the defendants.
5 Per contra, Mr. Narichania, the counsel for the plaintiff agrees that the plaintiff had referred the suit claim to arbitration after filing the suit and that the Arbitral Tribunal had dismissed the claim of the plaintiff. The counsel, however, submitted that the plaintiff having preferred an appeal under Section 69 of the English Arbitration Act 1996 within the 28 days prescribed, until this appeal and the subsequent appeals if required or if filed by the plaintiff is disposed, the award has not attained finality. The plaintiff submitted that if the English Court sets aside the award and allows the claim, the plaintiff will be able to enforce the award against the security provided by the defendants in this Court. The plaintiff's counsel requested that security therefore, be continued by concluding that the reliefs sought in the Notice of Motion are premature and ought to be rejected.
6 The primary issue to be decided in this Notice of Motion is whether the plaintiff can ask for retention of security. Before moving on, it is best to examine the plaint. The suit claim arose out of alleged breach of a charter party for which the plaintiff was to commence arbitration in London. Pending that, the Plaintiff wanted security to ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 5/17 NMSL1806.14 be provided to satisfy the plaintiff's claim, should they succeed. At that stage itself, the plaintiff's cause of action was speculative. The plaintiff in paragraph nos.21, 23, 24, 29, 34 & 39-(b) has averred as under :-
21. There is an arbitration clause in the said Charterparty, which provides for disputes to be referred to Arbitration at London under English Law. The clause reads "GA ARB LNDN ENGLISH LAW". The plaintiff intends to initiate arbitration against the Defendant No.2 and will be doing so shortly, for its claims arising out of the breach of the Charterparty for which the plaintiff has sought security of its claim. The plaintiff is entitled to secure the amount in dispute which the plaintiff's shall claim in the arbitration prior to commencing arbitration proceedings or without prejudice and in the alternative to the satisfaction of the present suit. The plaintiff relies on a judgment of a Full Bench of this Hon'ble Court in the matter of MV Golden Progress reported in 2007 (2) Mh.L.J. 410. The plaintiff prays that the defendant no.1 vessel be arrested and the security furnished for its release be retained towards security and/or the satisfaction of the award that may be passed in favour of the plaintiff;
23. Accordingly the plaintiff seeks security towards its claim in Arbitration for a sum of USD 452,178 plus further interest;
24. In the alternative and without prejudice to the right of the plaintiff to seek security towards its claim in arbitration , the plaintiff prays for a decree in the said sum of USD 452,178 accordingly. The plaintiff is also entitled to interest at the rate of 18% per annum from the date of filing of the suit till the date of the decree and thereafter at the rate of 18% per annum on the sum ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 6/17 NMSL1806.14 decreed from the date of the decree till payment and/or realization;
29. The plaintiff submits that pending the commencement, hearing and disposal of the arbitration proceedings in London, the making of the arbitral award and until the enforcement and/or execution of the arbitral award it is entitled to have the 1 st defendant vessel arrested, condemned and sold and to have the sale proceeds of the vessel applied towards the security and satisfaction of the plaintiff's Arbitration award or in the alternative as security in this suit;
34. The plaintiff is entitled to security for its proposed arbitration against defendant no.2 and/or in the alternative a decree in United States Dollars currency which is the currency of the relevant contracts and the currency in which the plaintiff has received payments and also suffered losses;
39(b) That pending the commencement, hearing and disposal of the arbitration proceedings in London, the making of the arbitral award and until the enforcement and/or execution of the arbitral award the defendant vessel M.V.`Al Layyah' along with her hull, engines, tackles, machinery, boats, apparel and other paraphernalia lying at the port and harbour of Kandla or anywhere else in India be arrested, detained, condemned and sold by and under the orders and directions of this Hon'ble Court and the sale proceeds thereof be applied to secure and/or satisfy the plaintiff's claim of USD 452,178 together with interest at 18% p.a. till payment and/or realisation thereof ( as per the particulars of claim at Exhibit S to the suit).
(emphasis supplied)
7 The plaint therefore, has proceeded firstly, primarily and
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KJ 7/17 NMSL1806.14
notably on the basis that the plaintiff is ready and willing to go for arbitration and what the plaintiff requires is only security towards its claim in the arbitration. As a fall back, the plaintiff has made a meek alternative prayer for a decree in the amount as the plaintiff intended to claim in any arbitration. Though there is an alternative prayer for a decree, reading the plaint as a whole or on a holistic reading of the plaint it is evident that the main intention for filing the present suit is only to obtain security pending arbitration and nothing else. The averments or prayer for decree (in the alternative) are only cosmetic with no intention of pursuing the same. The plaintiff, having elected to go to arbitration and proceeded therewith has in effect abandoned the 2nd part, viz., for a decree in the suit. In effect the plaintiff has abandoned the suit and nothing remains in the suit today. Even the written statement cannot be filed by the defendants. The suit has come to an end.
8 Secondly, in the prayer clause also what the plaintiff has sought is "pending the commencement, hearing and disposal of the arbitration proceeding in London, making of the arbitral award and enforcement and/or execution of the arbitral award", the security be continued. Therefore, the security was only until the enforcement and/or execution of the arbitral award. In this case the question of enforcement and/or execution of the arbitral award does not arise any more because the plaintiff's claim itself is dismissed by the arbitrators. Mr.Narichania relied upon two judgments, one of the Gujarat High Court in the matter of Ratilal Balabhai Nazar Vs. ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 8/17 NMSL1806.14 Ranchhodbhai Shankerbhai Patel & ors.1 and another of the Apex Court in the case of Ramjilal and others Vs. Ghisa Ram etc.2 to submit that an appeal is a continuation of the suit and as the appeal is a continuation, the suit gets finally decided only when the suit is finally disposed off by the appellate court and that the rights and remedies continue to subsist till the court decides the controversy if the appeal is presented and pending disposal. Therefore, until the appeal against the award and further appeals if filed by the plaintiff, are disposed, the award regarding the claim of the plaintiff is not final.
9 But that is not even the relief sought in the suit. The plaintiff has sought security only till 'the making of the arbitral award and enforcement/execution of the arbitral award'. If the plaintiff wanted the security to be continued until any appeal from the award or appeals against order in the appeals are disposed off, they would have said so in the plaint. I would say the plaintiff has deliberately not stated so. I say deliberately because, that would mean that the plaintiff itself feels its claim might be rejected by the arbitral tribunal and the court while considering the plaintiff's ex-parte application for arrest might refuse arrest by holding that the plaintiff has not made out a prima facie or reasonably best arguable case. It is a deliberate omission by the plaintiff and the plaintiff cannot say that the appeal is a continuation of the arbitration 1 AIR 1968 GUJ. 172 2 AIR 1996 SC 3338 ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 9/17 NMSL1806.14 proceedings and security should be continued till the House of Lords finally decide the matter. Moreover, an arbitration award is final and binding unless set aside. Therefore, the award has attained finality. The position in an arbitration and a suit are not the same. Therefore, these judgments are of no help to the plaintiff.
10 Plaintiff's reliance upon J.S. Ocean Liner LLC vs. m.v. Golden Progress (Supra)1 to file this suit or continue with security is misplaced. The pleadings in Golden Progress were different. In Golden Progress, as it appears from the judgment, the suit filed was for a decree and the parties were going in for arbitration because the defendant appeared and said the plaintiff should go for arbitration. If the defendant had not done so, the suit would have proceeded further. Hence the Court said retention of security pending arbitration to be at the discretion of the Single Judge.
In this case, the plaintiff has volunteered and proceeded with arbitration and have sought security only pending arbitration. The situation is totally different from Golden Progress (Supra).
Therefore, the present suit itself has come to an end when the plaintiff elected and went ahead with the arbitration. The plaintiff on its own volition has abandoned the suit. In the first place itself it did not want to pursue the suit. What is pending in England is only an appeal against the award. The plaintiff's claim in this suit is only for security pending arbitration in London. As per the judgment in the case of Bharat Aluminium Co. V/s. Kaiser Aluminium Technical 1 2007 (2) Mh. L.J.410 ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 10/17 NMSL1806.14 Service, Inc. (Balco)1 which has been relied upon in the judgment of this Court in the case of Rushabh Ship International LLC Vs. The Bunkers Onboard the ship M.V.African Eagle2, the cause of action of the plaintiff would be speculative. The plaint proceeds on the footing that if the plaintiff succeeds in the arbitration then the plaintiff should be entitled to the benefit of the security furnished by the defendants for execution. In my view, even at the stage the suit was filed, the cause of action was speculative. The plaint therefore, had to be rejected under Order VII Rule 11.
11Let us take this case further. The plaintiff's claim in the arbitration has been dismissed. In the Golden Progress (Supra) this issue as to what would happen if the plaintiff lost the arbitration before the Tribunal was not considered. The need to consider that did not arise. The judgment proceeded on the basis as to how the plaintiff will be able to enforce the award. In paragraph 78 (iii) the court has concluded as under :-
78.iii) If the proceedings are brought within the time so ordered by the Court before the Arbitral Tribunal, any final decision resulting therefrom shall be recognised and given effect with respect to the arrested ship or to the security provided in order to obtain its release provided that the defendant has been given reasonable notice of such proceedings and a reasonable opportunity to present the case for defence and in accord with the provisions contained in Arbitration and Conciliation Act, 1996.
1 (2012) 9 SCC 552 2 Notice of Motion NO.1591 of 2013 decided on 9.6.2014 ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 11/17 NMSL1806.14 (emphasis supplied) 12 This presupposes that even if the plaintiff succeeded in the arbitration, the plaintiff will be able to execute the award against the security only after the defendant has been given reasonable notice for such proceeding and reasonable opportunity to present the case for defence and in accordance with the provisions contained in Arbitration and Conciliation Act, 1996. But as to whether in the first place the security furnished by the defendant should be retained pending arbitration at all, the Full Bench concluded in paragraph 78(iv) as under :-
78(iv) With regard to Clauses (ii) and (iii), it is, however, clarified that retention of security shall remain a matter of discretion and it shall be for the Court to pass appropriate order in that regard after taking into consideration all relevant circumstances. Let the notices of motion No.2780 of 2005 and 3287 of 2005 be posted before the Admiralty Judge for disposal in the light of our answer to the reference.
(emphasis supplied) 13 The counsel for the two opposing parties state that this discretion has to be exercised prior to commencement of arbitration but their summation was different. According to Mr.Ramabhadran the court had a discretion for retaining the security before the arbitration commenced but now arbitration having ended the court has no discretion whatsoever and the security ought to be returned.
The submission of Mr.Narichania was the court having exercised its ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 12/17 NMSL1806.14 discretion before the commencement of arbitration by retaining the security, the court was prima facie satisfied of the plaintiff's case at that stage and therefore, cannot change its view. Therefore, unless and until the appeal filed by the plaintiff in the English court now to be followed by appeal in the court of appeal, to be followed by House of Lords is finally determined (if need be), the security should be retained. If we go by Mr. Narichania's submission, this security has to be continued indefinitely particularly when there is no suit pending in Bombay.
14The Full Bench has in paragraph 78(iv) considered a situation between the order of release of ship against security and commencement of arbitration while clarifying that retention of security will be at the discretion of the single Judge to be passed after taking into consideration all relevant circumstances. This means the Court can reconsider its prima facie view on the merits of the plaintiff's case for security before commencement of arbitration. Vessel was arrested, pursuant to an ex-parte order. At that stage, the court felt the plaintiff had a prima facie case without the benefit of hearing the defendant. While ordering the release of the vessel, the single Judge had granted liberty to the defendants/Horizon energy Co. LLC to take out an appropriate application for seeking vacation/release and/or reduction of security and dismissal of suit. The parties thereafter referred their disputes to arbitration and both the arbitrators have conclusively held that the claim of the plaintiff requires to be dismissed. The situation and circumstances have ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 13/17 NMSL1806.14 changed now. Pursuant to the liberty granted while obtaining the order of release of the first defendant vessel, the defendants have taken out this notice of motion. The prayer of the plaintiff was also to continue with the security only till making of the arbitral award and/or enforcement/execution of the arbitral award. The reasoned arbitral award is made but the question of enforcement and/or execution does not arise as the claim for alleged breach of charter party has been dismissed. I have no hesitation in holding that in view of the circumstances now, i.e., the arbitration having concluded and the plaintiff's claim having been rejected, there is not even prima facie case or a reasonably best arguable case for the plaintiff to even obtain security let alone to retain the security.
15 Going back to exercise of discretion, in my opinion, the onus is on the plaintiff to satisfy the court by making out a case at each stage for security or retention of security. The plaintiff will have to make out a case as if they are applying for the first time today to secure their claim. In view of the changed circumstances, it is not just continuation of the security. It should be construed as if the plaintiff is seeking fresh security today pending disposal of the appeal that it has filed in the High Court in England. In any case the defendants were given liberty to take out an application for seeking vacation, release and/or reduction of security and dismissal of suit. The defendants are now claiming release of security. The plaintiff has to make out a prima facie/reasonably best arguable case now. The arbitrators by their reasoned award having rejected the claim of the ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 14/17 NMSL1806.14 plaintiff, I am not satisfied that the plaintiff has made out a prima facie case or reasonably best arguable case for any security.
Therefore, the defendants are entitled to return of security.
16 Even otherwise if one considers the principles of natural justice and balance of convenience, the fact that cannot be disputed is that the defendants have expended cost in providing the security and in continuing with the security. Obtaining an ex-parte order of arrest is a very drastic step. Obtaining excessive security or continuing with security is very oppressive also. The defendants have also expended cost in their litigation in Bombay and also arbitration in London and also will continue to expend cost to oppose the appeal filed by the plaintiff in England. The plaintiff's have also given an undertaking to this Court to pay such sums as the Court may award as damages to the person who has suffered prejudice by the order of arrest. The plaintiff is a Liberian company with no assets within the jurisdiction of this court. Atleast the plaintiff has not stated anywhere that it has assets against which the defendants can proceed later for any loss or prejudice caused to the defendants by virtue of the arrest by the 1st defendant vessel. On this ground also the balance of convenience is in favour of the defendants. Under Order XXV of the Code of Civil Procedure, this court on its own motion or on an application of the defendants, direct the plaintiff to give within a time fixed, security for the payment of all cost incurred and likely to be incurred by any defendant. If the plaintiff is a sole plaintiff and is residing out of India and that plaintiff does not possess any sufficient ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 15/17 NMSL1806.14 immovable property within India, Order XXV of the Code provides that in all such cases, an order of security for payment of cost has to be made. It is a mandatory provision as has been held by this court in the matter of Alpha Oil International V/s. m.t.CHEM LILY1. I asked the plaintiff's counsel as to whether they were inclined to furnish security. The counsel for the plaintiff stated that he had no instructions. He however, further submitted that the defendants have not produced any evidence for their claim for damages/loss/ prejudice due to the arrest, but he agreed that some cost would have been incurred for bank guarantee and legal costs.
17 It is indisputable that the defendants have incurred costs to keep the original bank guarantee alive and to furnish further bank guarantee every year. It is indisputable that the defendants have incurred costs to defend this suit and the arbitration. The defendants' are continuing to incur costs in this notice of motion. The defendants have given a break up of the costs. The plaintiff is a Liberian company with no immovable property in India. Therefore, in my view the defendants are also entitled to security towards their claim and costs.
18 Mr. Ramabhadran had stated at the outset that he would argue the damages claim of the defendants during the final hearing of the motion and at this ad-interim stage he was pressing only the prayer for return of security and security for costs. Therefore, at this
1. Notice of Motion No.381 of 2014 in Admiralty Suit No.14 of 2008 decided on 8 th April 2014 ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 16/17 NMSL1806.14 ad-interim stage it is ordered as under :-
(a) Prothonotary & Senior Master is directed to return all the guarantees including the renewals and further bank guarantees duly cancelled to the defendants/Horizon Energy Company.
(b) Withing two weeks (i) the plaintiff to furnish security in the sum of US$ 1,00,000/- by way of cash deposit. The plaintiff to continue to deposit US$ 9,000/- every year with the Prothonotary and Senior Master until the disposal of this notice of motion and (ii) if the plaintiff choses to furnish a bank guarantee, then bank guarantee of a nationalized bank to be furnished in favour of the Prothonotary & Senior Master to secure the claim of the defendants in the sum of US$ 1,00,000/- together with interest thereon at 9% per annum until disposal of this notice of motion.
I am granting increase at US$9,000/- / 9% p.a. interest because that is the rate at which the plaintiff had obtained security on their dollar claim from the defendants.
19 Mr. Narichania, counsel for the Plaintiff requests that the order be stayed by two weeks.
20 I have held that the plaint itself requires to be rejected under Order VII Rule 11. I have held that there is no suit infact which ::: Downloaded on - 02/09/2014 23:48:45 ::: KJ 17/17 NMSL1806.14 is pending because the Plaintiffs have chosen to go in arbitration abandoning the suit. The Arbitrators have also dismissed the claim of the plaint and I have held therefore, no prima facie or reasonably arguable case is made out by the Plaintiff.
21 In the circumstances, the question of granting any stay does not arise. Stay refused.
ig (K.R.SHRIRAM, J.)
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