Arrest of ships in India where there is a foreign-seated arbitration agreement

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Krrishan Singhania
K Singhania & Co, Mumbai
kgs@singhanialaw.com

Niti Jain
K Singhania & Co, Mumbai
niti@singhanialaw.com

Afreen Fazal
K Singhania & Co, Mumbai
afreen@singhanialaw.com

The Admiralty Law in India has recently seen an important development by the enactment of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (Admiralty Act).

This law has wide significance when it comes to international disputes. The Admiralty Act consolidates legislation relating to maritime claims/admiralty jurisdiction, including legal proceedings relating to ship arrest. This article, deals with the important question as to whether the admiralty jurisdiction can be invoked to arrest ships in India as security for foreign-seated arbitration proceedings.

The Admiralty Act contains provisions for both in rem actions andin personam actions. Section 5 of the Admiralty Act pertains to arrest of vessels in rem. An action in rem is brought against the ship itself, whereas an in personam action is brought against persons within the territorial jurisdiction of the court. In terms of the Admiralty Act, ‘arrest’ means detention or restriction for removal of a vessel by order of a High Court to secure a maritime claim, including seizure of a vessel in execution or satisfaction of a judgment or order. The rationale behind the provisions contained in section 5 of the Act is to obtain security for a maritime claim, which is the subject of an admiralty proceeding.[1]

The power of the court is unlimited, unless it is explicitly or by necessary implication curtailed. In the absence of such curtailment of jurisdiction, all remedies, which are available to the courts to administer justice, are available to a claimant against a foreign ship and its owner, found within the jurisdiction of the concerned High Court. This power of the court to render justice must necessarily include the power to make interlocutory orders for arrest and attachment before judgment.[2]

The question which then arises is whether admiralty jurisdiction can be invoked to arrest ships for claims that are, by agreement between the parties, subject to foreign-seated arbitration adjudication.

Two statutes that pertain to this issue are: the Arbitration and Conciliation Act, 1996; and The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.

The Arbitration and Conciliation Act, 1996

Prior to the 2015 amendment to the Arbitration Act, the position regarding interim measures for foreign-seated arbitration was set out in the case of Bharat Aluminium Co v Kaiser Aluminium Technical Service, Inc (BALCO).[3] In this case, the Supreme Court of India overruled its earlier decision in Bhatia International v Bulk Trading SA,[4] where the Court had held that the provisions of Part I of the Arbitration Act are equally applicable to foreign seated arbitrations unless the parties by agreement, explicit or implied, exclude all or any of its provisions. The result of the BALCO judgment was that India’s courts did not have the jurisdiction to grant interim relief (under s9) to secure claims for foreign seated arbitrations. The 2015 amendment to the Arbitration Act, however, extended the provisions of section 9 to international commercial arbitrations seated outside India.

The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017

Prior to the enactment of the Admiralty Act, the Supreme Court had reinstated the applicability of the International Convention Relating to the Arrest of Sea-Going Ships, 1952 and the International Convention on Arrest of Ships, 1999 (the Conventions) in India.[5]

Article 2(3) of the International Convention on Arrest of Ships, 1999 states:

‘A ship may be arrested for the purpose of obtaining security notwithstanding that, by virtue of a jurisdiction clause or arbitration clause in any relevant contract, or otherwise, the maritime claim in respect of which the arrest is effected is to be adjudicated in a State other than the State where the arrest is effected, or is to be arbitrated, or is to be adjudicated subject to the law of another State.’[6]

The 1999 Convention contains unambiguous provisions allowing parties the right to initiate an action in rem pending foreign-seated arbitration proceedings.

An important case in this regard is that of JS Ocean Liner v MV Golden Progress,[7] where the Bombay High Court drew a distinction between the nature of an application for interim relief under the Arbitration Act and an admiralty action for arrest of vessel. The Court was of the opinion that an arrest of a ship is a right in rem as if the vessel has a juridical personality, whereas a section 9 application under the Arbitration Act is an action in personam wherein the proceedings are initiated against a particular person.[8] The Court held that a section 9 application, seeking interim relief, for arrest of ship as security for an arbitration award in a foreign-seated arbitration, would not be maintainable. The Court was also of the opinion that taking into consideration the specific provisions in the Conventions, the parties may be accorded the right of an action in rem under admiralty jurisdiction for a maritime claim, even if an arbitration agreement with a foreign arbitration seat exists.

The position taken by courts prior to the enactment of the Admiralty Act was that a suit for arrest of a ship to secure a maritime claim would not be affected merely because an arbitration agreement with a foreign seat exists, as the Conventions contained express provisions in this regard.

This was the legal position taken prior to the enactment of the Admiralty Act.The Admiralty Act does not contain any comparable provisions regarding a right to file admiralty suit to arrest a ship as security for foreign seated arbitration, as is contained in the Conventions. Therefore, there is a lack of clarity as regards whether the omission of such a specific provision will change the previously held position in this regard or not.

While the Indian law is silent on the issue, this article analyses the law of Singapore, which may provide guidance to India’s courts.

The position in Singapore

The position in Singapore offers clarity on this issue. Under the provisions of the International Arbitration Act (IAA), a ship may be arrested in Singapore in order to obtain security for a claim subject to Singapore or foreign arbitration. Therefore, it is not uncommon for an arrest to be effected in Singapore for the sole purpose of obtaining security for the satisfaction of a potential foreign arbitration award.[9]

Section 7 of the IAA, confers power on the court to order that a ship or property arrested, or security furnished to prevent arrest or obtain release from arrest, be retained or that equivalent security be furnished in the arbitration, in either case, for the satisfaction of any arbitration award.[10]

The position regarding the arrest of a ship to obtain security for an arbitration award was discussed in the case of ICL Raja Mahendra,[11] where the court made the following observation:

‘I agree that the court’s jurisdiction to arrest a ship in an action in rem should not be exercised for the purpose of providing security for an award or judgment elsewhere. An exception is where a party applies under section 6 of the International Arbitration Act.’

Section 6 of the IAA deals with a mandatory stay of proceedings which are in breach of an arbitration agreement specifying that disputes are to be determined by arbitration tribunal in a specified jurisdiction. The courts’ power to retain property arrested as security for foreign arbitration, is explicitly provided for by section 7 of the IAA, as a result making Singapore a popular jurisdiction for ‘arbitration security’ arrests.

The second question that arises is whether the enforcement of such an arbitration award is a claim that comes within the admiralty jurisdiction of the Singapore courts. The law relating to this is contained in the High Court (Admiralty Jurisdiction) Act (HCAJA) and the Rules of Court.[12] Section 3(1) of the HCAJA states that the admiralty jurisdiction of the High Court extends to any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship.[13] Therefore, if an arbitration award arising out of an agreement relating to any of the matters listed under the HCAJA is to be enforced, the admiralty jurisdiction of the courts can be invoked.

It must, however, be noted that an action for arrest of vessels brought in Singapore courts to obtain security for foreign court proceedings is not maintainable. The position was clarified in the case of DSA Consultancy v The ‘Eurohope’.[14] There is no statutory provision that empowers the Singapore courts to order that property arrested be retained for the satisfaction of a judgment given in foreign court proceedings.

The position is, however, different for foreign-seated arbitrations, as section 7(1) of the IAA specifically allows for ships arrested under the High Court’s admiralty jurisdiction to be used as security for pending international arbitrations.

Conclusion

The legal position in Singapore regarding arrest of ships to secure claims pending in foreign arbitration proceedings has been clearly clarified. However, this is not the case in India. There is ambiguity about whether the provisions of the Conventions previously relied on by India’s courts will still be applicable, in view of the absence of similar provisions in the 2017 Admiralty Act.

We are of the opinion that it is important for India’s legislature to enact laws that are in accordance with international maritime conventions. This will give comfort to foreign investors and ensure a level playing field to both Indian and foreign players in the maritime industry. It is important for India to adopt an approach like that specified in the Conventions, in order to provide for a dispute resolution mechanism which is similar to other countries.

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