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New Great Insurance Co. of India Ltd. Vs. Aktiselskaleet Set Astasiatsske Kampagni, Bombay - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Case NumberCivil Revn. Appln. No. 1236 of 1960 with A.F.O. No. III of 1960
Judge
Reported inAIR1964Bom71; (1963)65BOMLR487; ILR1964Bom151
ActsArbitration Act, 1940 - Sections 34; Arbitration (Protocol and Convention) Act, 1937 - Sections 3; Danish Law; Arbitration Act, 1899 - Sections 19; Common Law Procedure Act, 1854 - Sections 4 and 11; Arbitration Act, 1889 - Sections 4; Arbitration Act, 1950 - Sections 4
AppellantNew Great Insurance Co. of India Ltd.
RespondentAktiselskaleet Set Astasiatsske Kampagni, Bombay
Appellant AdvocateR.A. Jahagirdar, ;S.A. Kher and ;Subramania Iyer, Advs.
Respondent AdvocateD.P. Madan, Adv., i/b., Mulla and Mulla Craigie Blunt and Caroe, Attorneys
Excerpt:
.....which was incorporated at copenhagen and which carried on business of shipping and carriers of goods by sea. a clause in the bill of lading provided that any disputes arising under it were 'to be decided in denmark according to danish law.' short delivery of the goods covered by the bill of lading was made to the purchasers at bombay by the defendant company and the plaintiffs as insurers had to pay damages in a certain amount. in a suit by the plaintiffs filed against the defendant company to recover this amount of damages, the defendant, relying on the aforesaid clause in the bill of lading, contended that there was an agreement of arbitration between the parties, that that agreement was for foreign arbitration and that, therefore, section 34 of the arbitration act, 1940, and..........on board the fehmarn v. fehmara (1958) 1 wle 159. in that case also by a clause in the bill of lading parties had agreed that all disputes must be decided by russian courts. in that connection lord denning at p. 161 observed: 'then the next question is whether the action ought to be stayed because of the provision in the bill of lading that all disputes are to be judged by the russian courts. i do not regard this provision as equal to an arbitration clause, but i do say that the english courts are in charge of their own proceedings; and one of the rules they apply is that a stipulation that all disputes should be judged by the tribunals of a particular country is not absolutely binding. it is a matter to which the courts of this country will pay much regard and to which they will.....
Judgment:

K. K. Desai, J.

1. The Civil Revision Application No. 1236 of 1960 and the Appeal from Order No. 111 of 1960 have been placed before us for a common hearing as the question of law involved in both the matters is the same. The respondents in each of the matters are the East Asiatic Co. Ltd. In both the matters in the trial Courts on behalf of the respondents (hereinafter referred to as the defendants) application for stay of each of the suit was made on the ground that the claim made in each suit must be held to have been agreed to be referred to arbitration and that the provisions of Section 34 of the Indian Arbitration Act, 1940, and Section 3 of the Arbitration (Protocol and Convention) Act, 1937, were applicable. The contention of the petitioners in revision application No. 1236 of 1960 and of the appellant in appeal From Order No. 111 of 1960 (hereinafter referred to as the plaintiffs) was that there was no agreement of reference to-arbitration between the parties and the defendants' application was for that reason entirely misconceived.

2. In connection with the above contentions made on behalf of the parties, the only facts which need be noted are as follows: In the matter of civil revision application, the claim of the plaintiffs is based on Bill of Lading dated Antwerp, March 27, 1956. The Bill of Lading was admittedly issued on behalf of the defendants' company which carries on business of shipping and carriers of goods by sea. The Bill of Lading was issued to 'Shipper:-- Agency Maritime. H. Masset S. P. E. L.' and stated that the goods were 'consigned' to 'Order' of Shipper. Under the reading 'Particulars furnished by Shipper' the East Asiatic Co. Ltd., the defendants in this case, are mentioned. That, we apprehend, was to show that the good mentioned in the Bill of Lading were shipped on account of the defendants-company. The goods were carried from Antwerp by S. S. 'Manchuria' the ship of the defendants company and described, in the Bill of Lading as '274 bundles 'Corrugated Galvanized Sheets' 25,356 kos.' The goods were insured by the plaintiffs. When the goods were in transit, the same were purchased by certain merchants at Bombay. The merchants upon payment to the relevant Bankers name into possession-of the shipping documents including the Bill or Lading and the relevant insurance policy. Upon' application for delivery of the 274 bundles represented by the Bill of Lading and purchased on c.i.f. terms by the merchants, delivery was givenof short quantity; 39 bundles were not delivered. In connection with the 39 bundles of corrugated galvanized sheets, the plaintiffs as insurers had to pay damages in the sum of Rs. 3,368.30 nP. The plaintiffs as insurers became subrogated to the rights of the purchasers as holders of the Bill of Lading upon payment of damages. The plaintiffs as subrogated parties and as insurers filed Suit No. 1343/7624 of 1957 in the Court of Small Causes to recover from the defendants the above sum of Rs. 3,368.30 nP.

3. Reliance was placed on behalf of the defendants on printed clause 2 of the Bill of Lading which runs as follows: --

'Jurisdiction--Any dispute arising under this Bill of Lading to be decided in Denmark according to Danish law.'

The defendants contended that on a true construction of this clause 2, there was an agreement of arbitration between the parties, and that that agreement of arbitration was for foreign arbitration. According to the defendants, therefore, the provisions of Section 34 of the Indian Arbitration Act and Section 3 of the Arbitration (Protocol and Convention) Act, 1937, applied to these facts. The plaintiffs' claim was accordingly liable to be stayed.

4. Before referring to the question of law that is raised on behalf of the defendants in the above manner, the facts as in the Appeal from Order No. 111 of 1960 may be stated. They are almost similar to the facts in the case of civil revision application. In this 'case also the defendants issued a Bill of Lading dated Antwerp June 7, 1955. The shipper is 'Steinmann and Co. as Agents'. The goods are stated to be consigned to 'Order of the Bank of India Ltd.'. The ship of the defendants 'M. V. Mangolia' carried the goods from Antwerp. The goods are mentioned in the Bill of Lading as '20 bundles galvanized pipes Kilos 20,000'. In this case also the appellants at Bombay purchased the goods on c.i.f. terms whilst the goods were in transit.' Upon payment to the relevant Bankers the appellants received delivery of the shipping documents. On their behalf their Clearing Agents applied for delivery of goods and thereupon goods were delivered in driblets. Initially 6 bundles containing 132 pieces of 3 inches in size of Galvanized Pipes were delivered. Thereafter one further bundle containing 22 pieces was delivered. The Clearing Agents at the time of taking delivery of these bundles found that the defendants' ship had carried Galvanized Pipes of different sizes for different consignees at Bombay and that the pipes were lying in a mixed condition. The bundles deliverable to the plaintiffs had not remained bundles; the goods had become entirely mixed up goods. The Clearing Agents appear to have further found that sufficient goods of the size and description deliverable to the plaintiffs had not remained for delivery with the defendants and their agents at Bombay. In this connection the appellant's Clearing Agents addressed correspondence and got the goods surveyed. The appellants got further deliveries but they were not given delivery of 47 pieces of the Galvanized Pipes of 3' size and 42 pieces of 4' size. There was short delivery to the above extent to the appellants in respect of the goods purchased by them. The appellantsaccordingly claimed damages from the defendants-as shipping company under the Bill o Lading to the extent of damage assessee at Rs. 6,718-12-0. The appellants made an alternative cause of action in the suit that the defendants had used up the goods that were short delivered to the plaintiffs-and had delivered the same to third parties. According to the appellants, the defendants were guilty of conversion of the goods short delivered and liable to pay to them damages in the sum of Rs. 6718-12-0. The appellants therefore filed the Suit No. 2246 of 1956 in the Bombay City Civil Court. The defendants pleaded the above-quoted clause 2 in the Bill of Lading and contended in that suit also that to the facts the provisions of Section 34 of the Indian Arbitration Act and Section 3 of the Arbitration (Protocol and Convention) Act, 1937, apply and the defendants were entitled to stay. In both the suits the trial Courts granted stay of the suits.

5. In connection with the question as to whether there was an agreement of arbitration between the parties by reason of the above quoted clause 2 contained in the Bills of Lading in question, one may once refer to the language in that clause. The heading of the clause is 'Jurisdiction' and the clause provides 'any dispute arising under this Bill of Lading to be decided in Denmark according to Danish law'. Similar clauses contained in Bills of Lading have been construed in different previous decisions. It is, however, desirable, in view of the several authorities cited before us, first of all to record our own reaction as to the-true construction of the language in this clause. Obviously this clause does not mention by specific language any arbitration agreement between the parties. The heading of the clause suggests that the agreement that was being arrived at related to jurisdiction. The parties have apparently agreed, under the clause that as regards disputes arising; under the Bills of Lading, the same should be decided at Denmark. They have also agreed that the same should be decided according to Danish-law. It is not suggested on behalf of the defendants in this case that this clause provides for any private arbitration between the parties in respect of the disputes mentioned therein. It is not suggested that by reason of this clause the parties are entitled to appoint private arbitrator or arbitrators. The only suggestion that is made is that this clause must be construed as providing for reference of disputes by parties to arbitration of the proper and appropriate Court at Denmark. When we made the statement in the last sentence. Mr. Madan for the defendants has intervened and stated that his case is that this clause does not provide for reference to arbitration by appropriate Court but 'provides for determination by appropriate Court of the disputes referred to in the-clause.' It is clear to us that reference of disputes to determination of a Court of law cannot constitute an arbitration between the parties. The law of arbitration in fact envisages references of disputes to private arbitrators and not Courts of law as such. It is unnecessary in this connection to refer to the scheme of the Arbitration Act and various sections therein. It is apparent that a decision of a Court of law cannot be set aside and' or modified or remitted back under the ArbitrationAct. Such decision cannot be remitted back to the Courts of law. It is clear that the decisionsof Civil Courts consist of 'decrees' and/or 'orders'. The provisions under the Arbitration Act relating to (i) appointments of arbitrators and (ii) revocation of their authority and remission,modification and setting aside of Awards cannotbe applicable if the disputes are to be determinedby Civil Courts as such. Various provisions of the Arbitration Act, therefore, cannot be attracted bythe language as contained in the above clause 2 of the Bills of Lading. Having regard to theabove situation it is difficult for us to accept thecontention made on behalf of the defendants that provisions of Section 34 of the Indian Arbitration Act and Section 3 of the Arbitration (Protocol andConvention) Act, 1937, are attracted to the factsof these cases by reason of the provisions in clause 2 of the Bills of Lading.

6. It is, however, necessary to point out that Mr. Madan has rightly pointed out that in the case of Haji Abdulla Haji Cassum v. George Reginald Stamp and in the case of Marittima Italians, Steamship Co. v. Burjor reported respectively in 26 Bom LR 224: AIR 1924 Bom 381, and 32 Bom LR 43: AIR 1930 Bom 185, two Division Benches of this Court had to consider the effect of clauses in Bills of Lading which were similar to Clause 2 that is quoted above. In both the cases having regard to the previous decisions of English Courts, the Courts came to the conclusion that the provisions similar to the provisions in clause 2 quoted above must be held to contain a 'submission'. On that footing the Courts applied the provisions of Section 19 of the Arbitration Act, 1899, and granted stay of the suits on the application made on behalf of the defendants. We would have felt ourselves bound to follow those two decisions if on a reading of the subsequent English authorities it was not clear to us that the English Courts themselves have now taken a different view of the true construction of clauses similar to clause 2 above.

7. It may at once be stated that initially in the case of Law v. Garrett (1878) 8 Ch D 26, and thereafter in the case of Austrian Lloyd Steamship Co. v. Gresham Life Assurance Society (1903) 1 KB 249, and thereafter again in the case of The Cap Blanco (1913) P 130, the English Courts have proceeded to grant stay of suits where reference of disputes was agreed to be made to foreign Courts in clauses similar to Clause 2 above, on the footing that such clauses must be held to have provided for determination of disputes between the parties by foreign Courts. The Courts appear to have applied provisions of Section 11 of the Common Law Procedure Act, 1854, and Section 4 of the Arbitration Act in England, to such cases. The above sections are similar to the provisions in Section 19 of the Indian Arbitration Act, 1899, and Section 34 of the present Indian Arbitration Act. Stay of suits were granted on the footing that these clauses provided for reference to foreign Courts as if In an arbitration. These were the authorities which were followed in the cases reported in 26 Bom LR 224: AIR 1924 Bom 381 and 32 Bom LR 43: AIR 1930 Bom 185. The above English cases came up for discussion in the case of Racecourse Betting Control Board v. Secretary of State for Air (1944) Ch. 114. Lord Justice Mackinnon discussed the true position arising on the above three authorities at p. 126 as follows :

'In each of those (the three English authorities) the contract of the parties provided for the decision of any dispute by a foreign Court, in each one of the parties brought an action in breach of his agreement, and in each his action was stayed, It is, I think, rather unfortunate that the power and duty of the Court to stay the action was said, to be under Section 4 of the Arbitration. Act, 1889. In truth, that power and duty arose under a wider general principle, namely, that the Court makes people abide by their contracts, and therefore, will restrain a plaintiff from bringing an action which he is doing in breach of his agreement with the defendant that any dispute between them shall be otherwise determined. Section 4 of the Arbitration Act, 1889, only applies this principle to one type of such an agreement. The three cases cited really apply it to another type, and it would have been, I think, more logical to say, not that the plaintiff could be restrained under Section 4 of the Act, but that he could be restrained under the principle of which that section is a particular example.'

After making the above observations the learned Law Lord observed that it was impossible that provisions of Arbitration Act could be applied to an agreement providing for determination of disputes by a foreign Court.

8. Now, this criticism of the above cited three English authorities by the learned Law Lord was approved in the case of Cargo Lately Lades on Board the Fehmarn v. Fehmara (1958) 1 WLE 159. In that case also by a clause in the Bill of Lading parties had agreed that all disputes must be decided by Russian Courts. In that connection Lord Denning at p. 161 observed:

'Then the next question is whether the action ought to be stayed because of the provision in the bill of lading that all disputes are to be judged by the Russian Courts. I do not regard this provision as equal to an arbitration clause, but I do say that the English Courts are in charge of their own proceedings; and one of the rules they apply is that a stipulation that all disputes should be judged by the tribunals of a particular country is not absolutely binding. It is a matter to which the Courts of this country will pay much regard and to which they will normally give effect, but it is subject to the overriding principle that no one by his private stipulation can oust these Courts of their jurisdiction in a matter that properly belongs to them.'

Again in the later part of his judgment the Lord Justice observed :

'I do not regard the choice of law in the contract as decisive. I prefer to look to see with what country is the dispute most closely concerned.'

Then he examined the question as to whether the disputes between the parties could appropriately be tried by English Courts and not by Russian Courts. Having come to the conclusion that the dispute must be tried by Courts in England, the learned Judge ordered that the application made on behalf of the defendants must be dismissed as was done by the lower Court. Lord Justice Hodson specifically referred to the observations made by Lord Justice Mackinnon in the case of (1944) 1 Ch 114, and commented that he 'made it plain that that general principle was quite independent of Section 4 of the Arbitration Act, 1889, Section 4 of the Arbitration Act, 1950, although in a number of cases where applications for a stay have been made argument has been addressed to the Court and judgments have been delivered as if Section 4 itself, were being invoked.'

9. As regards the observations made by Atkin L. J. in the case of The Atheace (1922) it L.L. Rep. 6, he observed as follows: --

'I notice that Atkin L.J. did not proceed on that basis, but founded himself upon the general principle which the judge stated and to which Mackinnon L. J. referred, that where parties have agreed that disputes should be referred to a foreign tribunal there is no indisposition on the part of the Courts of this country to give effect to such a bargain. He went on to say that such a bargain is treated as equivalent to an arbitration clause, that is to say, the discretion is to be exercised on the same lines as where there is an arbitration clause.'

10. There are further observations in this case which also go to show that to an agreement of the kind contained in clause 2 of the Bills of Lading before us provisions for stay as contained in statutes relating to arbitration cannot be applicable. As we find that the English Courts themselves in the above manner distinguished and refused to follow the ratio of the decisions in the previous cases and as the two decisions of Division Benches of this Court referred to above were arrived at by following the principles that were pronounced in the previous English decisions, and as those decisions are now not good law, we deem it unnecessary to follow the Division Bench decisions. In our view, to the provisions of Clause 2 in the Bills of Lading relied upon on behalf of the parties in this case Section 34 of the Indian Arbitration Act, 1940, and Section 3 of the Arbitration (Protocol and Convention) Act, 1937, are not applicable. The defendants' applications on the footing that those sections applied as to the facts of this case were entirely misconceived.

11. Even so we deem it necessary to record that this Court has always ordinarily proceeded to enforce the agreements relating to trial of disputes by particular Courts. In connection with applications for specific enforcement of such agreements, this Court has in its discretion granted stay of suits filed in breach of such agreements. There are numerous such cases on record of this Court where stay has been granted. There are however numerous cases where in spite of such agreements, having regard to the hardship involved and difficulties of balance of convenience this Court has not enforced such agreements and refused to grant stay. In each case therefore the Court would have to consider the hardship involved and where the balance of convenience lies. The Court in its discretion would be entitled either to refuse stay or grant the same on consideration of such matters.

12. Though the defendants' application wasmisconceived as mentioned above, we have under the circumstances allowed the parties to point out hardship involved and as to where the balance of convenience lies in these two cases. It is apparent that the Bills of Lading in the cases before us were issued at Antwerp in Belgium. It is also a fact that the goods were insured in the suit before the Court of Small Causes by the plaintiffs as insurers. Goods were purchased on c.i.f. terms in both cases by merchants at Bombay whilst the goods were in transit. The merchants paid the price due to the Bankers against delivery of shipping documents at Bombay. The merchants received short delivery at Bombay. The goods were discharged by the defendants' ship at Bombay. The plaintiffs in one case as insurers paid the damages in respect of short delivery of the goods to the purchasing merchants at Bombay. The damages in both the suits we apprehend, would have to be ascertained on the footing of the market price of the shipped goods at Bombay at the relevant dates. The documents, which the Captain of the ship delivered to the Manager of the Port Trust at Bombay in connection with discharging the goods at the Port of Bombay and the facts relating to the disappearance of the goods short delivered also, we apprehend, must have happened at Bombay. A large part of the relevant documents must be with the Port Trust authorities and agents of the defendants at Bombay. The shipping documents also arrived at Bombay and must be now at Bombay. These facts we have mentioned to show that a very large part of the relevant material evidence exists at Bombay. As against the above relevant facts, Mr. Madan for the defendants contends that having regard to clause 2 of the Bills of Lading, the law that would be applicable for ascertainment of damages payable to the plaintiffs in both the cases could be Danish law. He also suggests that initially the goods may not have been delivered to the defendants-company at Antwerp and may not have been consigned, though stated as consigned in the Bill of Lading. He also suggests that evidence of officials on each of the ship to prove that they took due care of the goods whilst on board like prudent bailees would be relevant in each case. He suggests that to ascertain Danish law and to ascertain the true facts in these cases, commission might have to be issued at Antwerp and Denmark. These, according to him, are factors, which must induce us to accept his contention that the balance of convenience in this case lies in allowing the suits to be tried by an appropriate Court in Denmark. In spite of best efforts we have not been able to appreciate these arguments. In this case nothing has been pointed out in affidavits to show that there is relevant evidence at Antwerp which will have to be brought on record. Nothing has been stated to show the reason why the goods, were short delivered at Bombay to the purchasing merchants. The suggestion made on behalf of the defendants that the evidence of the officers of the defendants-company would be relevant in connection with their having taken due care of the goods appears to us at present to be only far-fetched. Even if such evidence is relevant, there would be no difficulty in having the evidence of such officers re-corded de bene esse when the defendants' ship arrive at Bombay.

13. Mr. Madan, however, contends that where parties have made with eyes open a contract of the kind represented in Clause 2 of the Bills of Lading, it is appropriate that such a contract should be specifically enforced and stay should be granted. There is no doubt that the principle is well established that agreements, made between parties as regards their disputes being decided by particular Courts are generally enforced. In this connection it is important to bear in mind that sales on c.i.f. terms are not infrequent and large business is carried on by merchants in this country and other countries by purchases which are made on c.i.f. terms. The shipping documents include Bills of Lading made by diverse shipping companies at diverse Ports. The foreign shippers have very often no direct relation with the purchasers on c.i.f. terms in India. The shipping documents pass from different purchasing parties and go to an ultimate purchaser who is more often than not unaware at the date of the purchase of the terms and condition in the relevant bill of lading. In cases of such purchases, to enforce contracts of this kind must cause great hardship and inconvenience: it must also restrain international trade in a large way. The more important factor in these two suits, which are stayed by the lower Court, is that the claims are extremely small amounts of damages. If the plaintiffs in these cases are referred to Courts in Denmark, it is obvious that the whole of their claim would be lost in the costs that they would have to incur. They might have probably to spend larger out of pocket expenses than the damages claimed in the suits. This fact has weighed on us in a large way. It appears to us that in cases where claims are for (very) small amounts of damages and parties have purchased goods in transit on c.i.f. terms, it cannot be appropriate to enforce contracts of the kind contained in the Clause 2 of the Bills of Lading, The hardship involved to the plaintiffs in these cases overweighs the sanctity of the contract contained in Clause 2 of the Bills of Lading. We are, therefore, of the view that these suits ought not to be stayed and must be allowed to proceed.

14. It is necessary to add that the defendants' application was merely based on Section 34 of the Indian Arbitration Act and Section 3 of the Arbitration (Protocol and Convention) Act, 1937, which were never applicable to the facts. The application was therefore liable to be 'dismissed as misconceived. Even so, we have heard Mr. Madan so that injustice may not be caused.

15. The revision application is, therefore, allowed. The rule is made absolute with costs in that application. The appeal from Order is also allowed with costs. The suits to proceed in both the lower Courts. The defendants will pay costs of the plaintiffs of the lower Courts.

16. Revision allowed.


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