This article is written by Yukta Joshi. This article has been edited by Ojuswi (Associate, Lawsikho).Â
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
This landmark judgment dated 23 March 2022 marks the recent development in the field of maritime law. The division bench of the Bombay High Court addressed the issue of whether the crew wages and Protection & Indemnity Club’s payment towards crew wages can be treated as Sheriff’s expenses and/or a maritime lien. The judgment also mentioned guidelines relating to the abandonment of a ship (vessel).
General information
Vessel Name: GP Asphalt I
Vessel owner: G.P Asphalt Shipping Inc
Swedish Club: Protection and indemnity with which vessel was entered. Appellant in Commercial Appeal 108 of 2021.
FTI Consulting: Company undertaking restructuring of the owner of the defendant’s vessel.
V8 Pool: Respondent in Commercial Appeal No. 108 of 2021 which arrested the vessel. (Marshall island corporation)
Coram: S.J. Kathawalla and Milind N. Jadhav, JJ. [OS2]
Facts
In the present case, the vessel was arrested on 22 December 2020. Owners made the last supply of provisions and fuel on 22 December 2020. Wages had not been paid since November 2020. The abandonment (which under the MLC is considered to be when the owner does not make provision for supplies or when the owner fails to pay two months’ wages to the crew) was brought to the notice of the Swedish Club by the crew’s email dated 7 January 2021. The Swedish Club filed its interim application indicating its readiness to make payments for the crew’s benefit and seeking leave for the same on 21 January 2021. It moved an application without delay and an interim order was obtained on 27 January 2021 insofar as the food/water/supplies for the crew were concerned.
Chronology of events
On 22nd December 2020, a vessel M.T. GP ASPHALT I is owned by GP ASPHALT Shipping Inc. The Swedish Club was arrested by V8 Pool Inc. The Crew members informed via emails to the FTI consulting, that the company is undertaking a restructuring of the owner of the vessel, regarding low vessel supplies. Thereafter, the company arranged supplies for a month.
On 7th January 2021, the Crew emailed to the Swedish Club that salaries for November and December 2020 were overdue and arrangements had to be made for food and water.
On 21st Jan 2021, the Swedish Club filed interim application no. 2062 of 2021, stating that the vessel has been abandoned and relying on MLC 2006, seeking leave to make payments for maintenance and wellbeing of the crew. However, the Ld. Single Judge disallowed the application.
The crew members also filed an interim application no. 1395 of 2021, seeking that their wages accrued post-arrest be treated as sheriff’s expenses and be paid out immediately from the sale proceeds. However, the Ld. Single judge disallowed that application by an order dated 11 march 2021. Thereafter, both the Swedish club and crew members appealed the respective orders. Both appeals were allowed.
Issues
The following issues came up before the appellate court (Bombay High Court):
- Whether the crew wages accrued on board a vessel after her arrest by the Admiralty Court would rank as sheriff’s expenses?
- Whether a party who has approached the admiralty court for leave to pay the crew their wages can claim amounts from the sale proceeds of the vessel as sheriff’s expenses/maritime lien?
- Whether pre-arrest wages paid by the Swedish Club can be given the status of maritime lien?
Rule/Law
Rule 1084 of the Bombay High Court (original side) Rules, provides that, “if expenses are required to be incurred during the period of arrest for the safety & preservation of the ship and its crew, the sheriff should make a report to the Admiralty Court and the Court shall pass appropriate orders after hearing all the parties. A party putting sheriff in funds pursuant to such order will be entitled to recover those amounts as sheriff’s expenses,” (Para 43 of the Swedish Club vs V8 Pool Inc. And 3 Ors, Commercial Appeal No. 108 Of 2021 In Interim App. No. 2062 Of 2021)
LD. single judge decision (from which appeal was preferred)
The Swedish club was obligated under MLC 2006 to make payment for 4 months and was not a volunteer. If Swedish Club makes the above payments post-ship arrest, it will not be counted as Sheriff’s expense.
To seek reimbursement, the Swedish club will have to:
- File a suit
- Prove the claim
- Determine priorities and then seek reimbursement from the sale proceeds.
One thing to be noted, the crew themselves filed an application seeking that their wages accrued post-arrest be treated as Sheriff’s expense and paid out immediately as sale proceeds. However, the application was disallowed by the Ld. Single Judge by stating that it was open to the crew to prove their entitlement of such amount by way of suit. Aggrieved by the decision of the Ld. Single Judge, both Swedish Club and the Crew Members appealed from the respective orders.
Swedish club’s submissions (before the appellate court)
The Swedish Club made the following submissions before the Appellate Court-
That the payment made to the crew by the Swedish Club, i.e., USD 64,663 should be considered Sheriff’s expenses (these are the payment for wages accrued from 22 December 2020 (the date of arrest) till 28 February 2021 (4 months payment made by Swedish Club).
Rule 1084 of the Bombay High Court (Original Side) Rules defines what is considered as “Sheriff’s expense” and Swedish Club had approached the Ld. Single Judge under this Rule for leave, as per established admiralty law, to make payment of the crew wages which had accrued during the period of arrest through the Sheriff
The Swedish Club also stated the provisions of MLC (Standard A2.5.2). This Standard establishes requirements to ensure that an effective financial security system is in place to assist seafarers in the event of their abandonment. The financial security system shall provide direct access, sufficient coverage and expedited financial assistance, per this Standard, to any abandoned seafarer on a ship flying the flag of the Member.
It is important to understand when a seafarer is considered “abandoned”. A seafarer is considered abandoned when a shipowner:
- fails to cover the cost of the seafarer’s repatriation; or
- has left the seafarer without the necessary maintenance and support;
- has otherwise unilaterally severed their ties with the seafarer including failure to pay contractual wages for at least two months.
Assistance provided by the financial security system shall be sufficient to cover the following:
- outstanding wages and other entitlements due from the shipowner to the seafarer under their employment agreement, the relevant collective bargaining agreement or the national law of the flag State, limited to four months of any such outstanding wages and four months of any such outstanding entitlements;
- all expenses reasonably incurred by the seafarer, including the cost of repatriation; and,
- essential needs of the seafarer like food, water, clothing, etc.
The Swedish club approached the Ld. Single Judge to discharge its humanitarian obligations under MLC. Regulation 12 of Standard A2.5.2 specifically provides that the P&I Club is entitled to stand in the shoes of the crew once it has made payment to the crew. If the Maritime Labour Convention casts an obligation on the P&I Club to pay, it also gives the P&I Club the right to subrogation i.e., to step in the shoes of the crew and to enjoy the right which the crew enjoyed. (Para 16 of the Swedish Club vs V8 Pool Inc. And 3 Ors, Commercial Appeal No. 108 Of 2021 In Interim App. No. 2062 Of 2021)
Rule 1084 does not make any distinction between voluntary payments and payments made otherwise. Any party who incurs expenses to maintain a vessel under arrest or wages to the crew during the period of arrest is entitled to recover such expenses as Sheriff’s expenses, irrespective of whether it is voluntary or not.
What needs to be kept in mind is whether the expenses relate to the period when the vessel is under arrest. If yes, then these expenses should be categorised as Sheriff’s expenses regardless of the identity of the person who has borne or is willing to bear it. If a party wishes to make payment to the crew of its wages and stand in the shoes of the crew, leave has to be taken from the Admiralty Court before making any such payment. Without such leave, the crew’s rights in its wages cannot be assigned/ subrogated.
Thus, in the present case, Swedish Club voluntarily came forward seeing the condition of the crew and in line with its humanitarian obligations under the Maritime Labour Convention, legitimately expecting that the Ld. Single Judge would follow the worldwide practice that permits P&I Clubs, once the vessel is sold, to recover such amounts standing in the shoes of the crew.
The Swedish Club submitted that Ld. Single Judge failed to follow the binding precedent of this Court in (a) coming to a conclusion that crew members were not entitled to recover post-arrest wages as Sheriff’s expenses and (b) finding that a P&I Club was not entitled to recover wages that it had paid to the crew members for the period of arrest as Sheriff’s expenses. (Citing various judgments as proof of precedent).
Crew members’ submissions (before the appellate court)
Crew Members had been paid their wages till 28 February 2021 and this appeal was for reimbursement of wages incurred between 1st March 2021 till 20th March 2021 (when the Crew was repatriated)
Ld. Single Judge had, without assigning reasons, rejected the Crew Members’ application for their post-arrest wages to be considered as Sheriff’s expenses and paid out immediately. The Crew Members were constrained to stay on board the vessel during the period of arrest and they were entitled to their wages. They could not now be told to file a suit and prove their wages- which is what the Ld. Single Judge did.
When a vessel is under arrest, the mere fact of the crew member being on board is sufficient to entitle him to his wages. Whether he is discharging his normal duties is irrelevant – on an arrested vessel, his duties may have altered. This does not mean that he is not entitled to wages. If the Sheriff / arresting party considers his presence unnecessary, they should take steps to disembark and repatriate him to stop the wages accruing. Not having done that, the arresting party could not object to the wages being considered as Sheriff’s expenses
“Crew wages” are accorded the highest priority after “sheriff’s expenses”. (Section 9(1)(a) r/w Section 10(1)(a) of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.[OS6] )
V8 Pool Inc. submissions (who had arrested the vessel)
V8 Pool (Respondent) made the following submissions before the Appellate Court-
V8 Pool had no objection to the Swedish Club’s claim being granted the status of a maritime lien & V8 Pool had no objection to the Crew Members’ claim for the wages from 1 March to 20 March 2021 being granted the status of Sheriff’s expenses and being paid out immediately. However, the Swedish Club could not claim the post-arrest expenses as Sheriff’s expenses. This was because the Swedish Club was obliged to make payment of wages to the crew members under the MLC. It was not a volunteer and it could not seek the same benefits as a volunteer would have under such circumstances.
The Swedish Club in the present case had failed to discharge its obligations under the MLC. It had no reason to file the interim application to seek leave of the Admiralty Court and should have made the payment without any such leave. Even while seeking leave, it sought to impose a condition that the payment should be considered as Sheriff’s expenses. The MLC does not contemplate obtaining leave of the Court by a P&I Club to comply with its obligations under the MLC.
Therefore, the Ld. Single Judge was correct on the following grounds- (a) that Swedish Club was in breach of its obligations to make prompt payment under the MLC and (b) no prior leave of the court was required for Swedish Club to comply with its obligation of payment of wages, supply of food/ provision and repatriation of the crew.
The Sheriff has not sought any assistance from the Swedish Club. The expenses incurred by Swedish Club cannot be understood as the Sheriff’s requisition. Likewise, the interim application preferred by Swedish Club cannot be considered a report of the Sheriff.
As a matter of law, payment of wages and other employment entitlements of the crew after an arrest is not the responsibility of the Sheriff unless the Sheriff considers it appropriate to employ or engage crew members. The obligation is that of the ship owner. Failure of such obligation entitles the crew members to initiate an action against the vessel and enforce its maritime lien. Therefore, unless the Sheriff deems it fit to continue the crew members and accordingly presents such a report before the admiralty judge for consideration, crew wages cannot be treated as Sheriff’s expenses.
Every expense required to be incurred for the safety and preservation of the vessel and its crew after the vessel is arrested can only be incurred by the Sheriff, who is the vessel’s custodian. This removes the requirement of any party being required to obtain leave of the court. No such leave is necessary as it is only the Sheriff who will incur such expenses after first obtaining directions from the Court to this effect. Any expense incurred by a third party even if it is for the safety and preservation of the vessel and its crew cannot be considered as Sheriff’s expenses under Rule 1084 unless the Sheriff requires the third party to incur such expenses and makes a report to the court requiring such expenses to be incurred and the court makes an order to this effect.
P&I Club (Swedish Club) is not even entitled to the maritime lien status enjoyed by the crew, even if it makes payment of wages to the crew and the crew’s rights are subrogated to it. A maritime lien is a personal privilege that ensures the sole benefit of the maritime lienee and cannot be transferred.
As far as the crew’s right to claim their post-arrest wages as Sheriff’s expenses is concerned, there is no such right. The Master and crew may continue to remain on board under their contract of employment with the owners. All wages due to them would be under such a contract and would not be Sheriff’s expenses. The crew have a maritime lien in respect of these amounts but are not entitled to them being classified as Sheriff’s expenses. If the Sheriff negotiates with the crew and directly employs the crew, then wages under that contract would be considered Sheriff’s expenses.
Appellate court’s holding
On the first issue that whether the crew wages accrued on board a vessel after her arrest by the Admiralty Court would rank as sheriff’s expenses, the Hon’ble Court held that this court has repeatedly permitted crew wages accrued post-arrest to be recovered as sheriff’s expenses without putting the crew to the trouble of filing a suit, proving their claims, getting a decree, determining priorities & then seeking payment out which will take several years. Thus, the impugned order dated 11th March 2021, whereby, the Ld. Single Judge has disallowed the crew’s application for their post-arrest wages to be considered as sheriff’s expenses cannot be sustained.
On the second issue that whether a party who has approached the admiralty court for leave to pay the crew their wages claim amounts from sale proceeds of the vessel as sheriff’s expenses, the court held that the P & I Club (here Swedish Club) is also entitled to the post-arrest wages being considered as sheriff’s expenses. The Hon’ble Court held that MLC which imposes a humanitarian obligation on the P & I Club to make certain payments also give P & I Club, the right to stand in the shoes of the crew by subrogation/assignment/another mode of transfer. Given clause 12 of A2.5.2., it cannot be said that once the P & I Club has made the payment, it has to file a suit & recover the amounts after proving it, obtaining a decree, determining priorities and then seeking payment out. If the crew is entitled to claim such amounts as sheriff’s expenses, so is the P & I Club. This is in accordance with international practice. (Para 16 of the Swedish Club vs V8 Pool Inc. And 3 Ors, Commercial Appeal No. 108 Of 2021 In Interim App. No. 2062 Of 2021)
On the third issue that whether the pre-arrest wages paid by the Swedish club can be given the status of a maritime lien, the Court held that law is that, such lien is not assignable/surrogate, without prior leave of the court. However, there is no blanket embargo on the transferability of such lien. If the prior leave of the court has been taken, a lien can be transferred. Since the prior leave of the court has been taken, the maritime lien can be transferred. The Swedish Club cannot be faulted for approaching the Admiralty Court to take leave before making such payments.
Reliefs granted in appeal
The Swedish club and the crew members in their respective appeals were granted the following reliefs:
- Both appeals were allowed.
- Crew members (Appellants) in Comm. Appeal No. 11 of 2021 are entitled to payment of USD 11,133.31 out of the sale proceeds as sheriff’s expenses, being the payment of wages for 1st March 2021-20th March 2021 (when the crew was repatriated).
- Swedish Club (Appellants) in Comm. Appeal 108 of 2021 is entitled to the payment of USD 64.663 as considered sheriff’s payment for wages accrued from 22 December 2020 (Date of Arrest) to 28 February 2021.
- Swedish Club is also entitled to the payment made by it of USD52,417 to be assigned the status of a maritime lien, being payment of wages accrued from 1 November 2021 to 22nd December 2021 (the period prior to arrest).
- Swedish Club is at liberty to prosecute the suit filed in this regard and to determine priorities and seek payment out thereafter, in accordance with Law.
Conclusion
The present matter deals with the issue of entitlement of crew wages accrued on board a vessel after her arrest and in the event of its abandonment by the shipowner to be considered as sheriff’s expenses. The High Court of Judicature at Bombay entertained the appeals filed by the crew members and P & I Club (Protection &Indemnity Club) in its commercial division in the exercise of its ordinary original civil jurisdiction. The Court concluded that the paramount consideration is the well-being of the crew members and the safety and preservation of the vessel and the Rule has to be construed accordingly.
Rule 1084 provides that if expenses are required to be incurred during the period of the arrest for the safety and preservation of the ship and its crew, the Sheriff should make a report to the Admiralty Court and the court shall pass appropriate orders after hearing all parties. A party putting the Sheriff in funds pursuant to such order will be entitled to recover those amounts as Sheriff’s expenses.
References
- Swedish Club v. V8 Pool Inc., Commercial Appeal No. 108 Of 2021 In Interim App. No. 2062 Of 2021; https://indiankanoon.org/doc/81811609/
- https://www.ilo.org/global/standards/maritime-labour-convention/text/WCMS_763684/lang–en/index.htm
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