Novation of Agreement & Change of Ownership while Vessel is under Arrest [M.V. Nikolaos-S]

Certain fundamental principles of maritime law in India were re-visited by the Hon’ble Supreme Court in its Judgment dated 14^th September 2017 in Chrisomar Corp. v. MJR Steels Pvt. Ltd. [Civil Appeal No. 1930 of 2008], which can be found here. It is pertinent to note that at the time of passing of the Judgment the Admiralty (Jurisdiction & Settlement of Maritime Claims) Act, 20117 passed by Parliament had not come into force.

Brief Facts:

Without going into the   detailed dates of events, the relevant facts leading to filing of the Civil Appeal are as follows:

The Appellants supplied the Vessel M.V. Nikolaos-S with bunkers and other necessaries. Due to non-payment the Appellants were compelled to obtain an order of arrest, a settlement agreement was entered into between the Appellants & the Owners, and the Ld. Single Judge was pleased to set aside the arrest. Now after entering the settlement agreement but before the order of vacation of arrest was passed the Vessel was sold to the Respondent No. 1. Thereafter, the Appellant applied to the Ld. Single Judge seeking re-arrest on the ground of breach of the settlement agreement. An order of re-arrest came to be passed. According to the learned single Judge, the arrest order made it clear that the Admiralty Suit was kept alive and remained alive on the date of the re-arrest. All that was done by the order of re-arrest was to recall the order of vacation of arrest, and when that was done, the original order of arrest was automatically revived. This being the case, it is clear that the plaintiffs were entitled to recover their dues.

In an appeal filed by the Respondent No. 1 before the Division Bench, the D.B. applied section 62 of the Indian Contract Act, 1872 to the out of court settlement and stated that as there was a novatio of the original agreement in law, the original cause of action pleaded in Admiralty Suit no longer subsisted. Therefore, the claim made in the suit was held to have been abandoned when the settlement was acted upon. In this view of the case, the Division Bench reversed the single Judge’s decision and held that the suit was liable to be dismissed on all these grounds.

Issues:

1) Whether a settlement agreement would amount to novation of the original agreement, thus defeating the right in rem against the Vessel?

2) Whether necessaries supplied to the Vessel amounted to maritime lien or merely a maritime claim?

The other issues in the Appeal are not being gone into in this article.

Observations of the Court:

a) The Calcutta High Court in Bailey Petroleum Co. v. Owners & parties interested in the vessel M.V. Dignity [(1993) 2 CHN 208] had held that supply of necessaries do not create a maritime lien.

b) The Brussels Convention relating to the Arrest of Sea-Going Ships, 1992 did not list supply and necessaries as ‘maritime liens’.

c) Though India is not a signature of the Brussels Convention by the Supreme Courts’ Judgment M.V. Elisabeth and others v. Harwan Investment and Trading Private Limited, [1993 Supp. (2) SCC 433 at 462], the Convention was incorporated as part of India’s national law.

d) Thus, (as per Article 3(1)(a) of the Convention) a maritime claim can be asserted only at the time the arrest is effected and not at the time of institution of the Suit.

e) The judgment Mona S. [(1967) 2 LLR 113] as followed in Re: Aro Co. Ltd. [1980 1 All ER 1067] could not be followed as they were passed prior to the 1999 Brussels Convention.

f) While distinguishing section 62 and 63 of the Indian Contract Act, the Hon’ble Court held that the word “alter” in Section 62 of the Contract Act. In order that a contract that is altered in material particulars fall under Section 62, it must be clear that the alteration must go to the very root of the original contract and change its essential character, so that the modified contract must be read as doing away with the original contract. If the modified contract has no independent contractual force, in that it has no meaning and content separately from and independently of the original contract, it is clear that there is no new contract which comes into being. The original terms continue to be part of the modified contract except to the extent that they are inconsistent with the modifications made. Thus, in the present case, section 63 was applicable.

Thus, the Division Bench’s decision was set aside and the Single Judge’ decision was upheld.

------------------------

 admiralty law, maritime, consent terms, settlement agreement, arrest, vacation, re-arrest,