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Indian Oil Corporation Ltd. Vs. Thakur Shipping Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtDelhi High Court
Decided On
Case NumberOriginal Miscellaneous Petition No. 151 of 1973 and Interim Application No. 68 of 1974
Judge
Reported inILR1974Delhi650
ActsIndian Arbitration Act, 1940 - Sections 20 and 41; Compensation Act, 1939
AppellantIndian Oil Corporation Ltd.
RespondentThakur Shipping Co. Ltd.
Advocates: Panjwani,; V.M. Tarkunde and; G.N. Aggarwal, Advs
Cases ReferredSee Sandeman v. Scurr
Excerpt:
injunction - charterparty agreement - shipowner withdrawing his ship on default of payment of advance rent by the charterers - charterers seeking to restrain the shipowner from withdrawing the ship - injunction refused.;that a charterparty creates no right of property in a ship. all that a charterer has under a voyage or time charterparty (even if of long duration) is a personal right that the shipowner should continue to use the ship to perform the services which he has covenanted to perform. in a charterparty by demise, however, a charterer can be said to acquire 'possessory interest' in the vessel.;that two tests have been applied to find out whether the charter is by demise. one test is : who pays the master and the crew? the second test is : has the shipowner parted with the whole.....avadh behari, j.(1) this case is of contemporary retevance. it is of topical interest. the world oil crisis is the backdrop for this intensely fought case. against, that background the facts assumed an added significance and immediacy.(2) on february 5, 1973, the indian oil corporation limited (hereinafter called the characters) entered into a charterparty agreement with thakur shipping company limited (hereinafter called the shipowners) for the carriage of oil from iraq to india. the ship which was hired is known as varuna kanchan. it is an oil tanker. 'the charterparty was for a period of 24 months, two weeks more or less at the charterers' option. the period of the charterparty commenced on november 1, 1972, and on that date the vessel was delivered by the shipowners to the charterers......
Judgment:

Avadh Behari, J.

(1) This case is of contemporary retevance. It is of topical interest. The world oil crisis is the backdrop for this intensely fought case. Against, that background the facts assumed an added significance and immediacy.

(2) On February 5, 1973, the Indian Oil Corporation Limited (hereinafter called the characters) entered into a charterparty agreement with Thakur Shipping Company Limited (hereinafter called the shipowners) for the carriage of oil from Iraq to India. The ship which was hired is known as Varuna Kanchan. It is an oil tanker. 'The charterparty was for a period of 24 months, two weeks more or less at the charterers' option. The period of the charterparty commenced on November 1, 1972, and on that date the vessel was delivered by the shipowners to the charterers. The charterparty provides that the , monthly hire shall be at the rate of Rs. 24 per ton of 20 C.W.T. cm the vessel's total dead weight tonage of 22,994 tons. At this rate the monthly hire comes to Rs. 5,51,856. This hire is strictly payable in advance at the commencement of the calendar month.

(3) The ship was placed at the disposal of the charterers. In terms of the time charterparty it undertook some voyages. Hire was paid by the charterers in advance till July Ii, 1973. After the commencement of the charterparty the period of hire was altered by consent to the parties and began from 12th of each month and ended with the 11th of the following month. This happened in April, 1973, when advance rent was paid for the period from April 12 to May II. Everything went well till July 12, 1973. On July 6, 1973, the shipowners sent their bill for advance hire for the period from July 12, 1973, to August Ii, 1973, to the charterers. The bill was for Rs. 5,51,856 and for Rs. 6,000 on account of overtime; in all for Rs. 5,57,856. On July 12, 1973, the charterers gave a cheque to the representative of the shipowners for Rs. 2,05,506.13 after deducting the following amounts from the hire charges:

Less: (1) Recovery on account of actual time being more than standard time as per charterparty agreement. Rs. 3,02,349.87 (2) Ad hoc recovery on account of value of 304.682 M.T. of Iraqi crude over carried by your vessel due to defect in pump. Rs. 50,000.00

(4) On July 19, 1973, the charterers sent a detailed statement showing performance of the ship in respect of the actual time taken by her which, it was said, was more than the standard time as stipulated in the charterparty agreement. The representative of the shipowners first took the cheque from the office of the charterers but then later in the course of the same day returned the cheque as it was not acceptable to them. The charterers, however, sent the cheque by post to the office of the shipowners at Maharani Bagh. New Delhi. This cheque was received at their office and was encased by them.

(5) What happened immediately is of considerable interest. On July 13, 1973, the shipowners sent a telex to the charterers saying that the amount of Rs. 2,05,506.13 was not acceptable to them and was contrary to the provisions of the charterparty. They called upon the charterers to make immediate payment of the charter hire failing which, the shipowners said, they would withdraw the ship from the service of the charterers in terms of the charterparty agreement. The charterers replied to the shipowners both by telex and by notice that ship could not be withdrawn from their service. The charterparty provides for a notice of seven days by telex before the ship can be withdrawn by the shipowners. The shipowners repeated their notice regarding withdrawal of the vessel in their telex dated July 19, 1973, saying that the period of the notice will expire on July 20, 1973. On July 21, 1973, another telex message was sent in which they told the charterers that in default of payment they would withdraw the vessel. On July 20, 1973, notice period of seven days expired. The ship at that time was engaged in unloading and, thereforee, could not be withdrawn immediately. The unloading operations ended on July 28, 1973, and immediately the ship owners withdrew the ship from the service of the charterers.

(6) On July 25, 1973, the ship owners sent another telex to the charterers saying that they were encashing the cheque of Rs. 2,05,506.13 'under protest' against their 'various dues'.

(7) The charterers rushed to the court and made an application on August 16, 1973, for the grant of an interim injunction. It was said that the charterparty contains an arbitration clause and the charterers have referred the dispute to arbitration. The arbitration clause (clause 39) is in the following terms: Any and all differences and disputes of whatsoever nature arising out of the charter shall be referred to arbitration in accordance with the provisions of the Indian Arbitration Act, 1940. All matters for arbitration shall be referred to the Central Board of Arbitration (Joint Consultative Machinery) Ministry of Labour, Employment and Rehabilation, Government of India. All arbitration proceedings shall be held in Delhi and Court in Delhi shall have the jurisdiction in respect of such disputes and differences'.

(8) On August 14, 1973, the charterers asked the Central Board of Arbitration to enter upon the reference. The Board declined. In their letter dated November 23, 1973, the Government of India did not agree to the Board entering upon the reference of this dispute. They, however, said that they had no objection if the reference is made to Shri K. N. Wanchoo, retired Chief Justice of the Supreme Court of India, in his individual capacity. Shri K. N. Wanchoo is the Chairman of the Central Board of Arbitration. The charterers then made an application under Section 8 and 20 of this Court on January 3, 1974 praying that Shri K. N. Wanchoo may be appointed as the arbitrator.

(9) On August 23, 1973, Chawala, J. granted an ex parte ad interim injunction to the charterers restraining the shipowners from hiring out the vessel 'Varuna Kanchan' to anyone other than the charterers. This order was served on the shipowners on August 28,1973.

(10) On December 10, 1973, the shipowners made an application under order 39 Rule 4, Code of Civil Procedure for the discharge of the order of injunction. After withdrawing the ship from the service of the charterers the shipowners entered into charter-party agreements with their hirers. Now the ship is in the service of Ganda Lines Copenhagen. This agreement was made on August 7, 1973, according to the shipowners and on October 15, 1973, they placed the vessel at the disposal of Ganda Lines in pursuance of the charterparty. The charterparty with Ganda Lines gives an option to renew the voyage charterparty at the end of January, 1974.

(11) By this order I propose to decide the two applications of the Oil Corporation against the Shipping Co. One is an application under Section 8 read with Section 20 of the Arbitration Act for the appointment of an arbitrator. In the other application which is under Section 41 of the arbitration Act read with Schedule Ii the Corporation has prayed for an injunction against the Shipping company restraining them from withdrawing their ship from the Corporation's services and from delivering the same to any other party on hire or otherwise till the expiry of the period of the charterparty.

(12) This case raises interesting questions regarding the shipping law. Two questions have been canvassed with regard to the application for injunction. The first question is whether the injunction issued by Chawla, J. should be confirmed. This question involves whether the charterparty contains a negative covenant and whether an injunction can be isuued to enforce the negative covenant. The second question, which in my opinion, is more important, is: What are the rights of the parties with regard to the withdrawal of the ship? The shipowner claimed that they have a right to withdraw the ship and their action was perfectly lawful. The charterers, on the other hand claimed that the shipowners have no right to withdraw the ship and she must be put at their command and disposal.

(13) I propose to take up the second of the two questions first and examine the charterers' case. The controversy between the parties is about the deductions made by the charterers from the shipowners' bill. 'The shipowners' case is that the deduction of Rs. 3,52,349.87 on the two counts set out hereinabove is unlawful and in terms of the charterparty they were entitled to withdraw the ship in default of payment of hire due to them after service of seven days notice by telex. The charterers, on the other hand, claim that these deductions are valid and in any case the shipowners had no right to withdraw the ship. This is the main question which calls for my decision.

(14) The right of withdrawal of the ship by the shipowners from the charterers' service is contained in clause 8 of the charterparty and is in these terms:

'CLAUSE 8

PAYMENTof Hire PAYMENTof the said hire shall be made in Delhi monthly in advance less any amounts disbursed on owners' behalf and less any hire paid or expenses incurred by Charterers as may reasonably be estimated by them to relate to off-hire periods, and less any amounts due or estimated to become due to Charterers under the terms of clause 24 thereof, any adjustment to be made at the due date for 'the next monthly payment after the facts have been ascertained. In default of such payment owners may withdraw the vessel from the service of Charterers, without prejudice to any claim owners may otherwise have on Charterers under this Charter. owner however, will give written notice by telex to Charterers before taking the action and would give a minimum of seven days notice before actually withdrawing the vessel on this ground'.

'THEshipowners say that the deductions from their bills are contrary to the terms of the charterparty in the following respects:

Firstly, was said that there is no justification for deduction of Rs. 50,000. The charterers plead that on account of the failure of pump the ship could not discharge 304.682 M.T. This is a total loss to them they said and they deducted the value of the crude oil estimating it at an ad hoc basis at Rs. 50,000. This deduction, it seems to be clear, cannot be justified either under clause 21 or clause 24 of the charterparty. Clause 21 deals with off-hire. Clause 24 deals with three guarantees-guarantee of speed, guarantee of fuel consumption and guarantee of fuel performance. It is not the charterers' case that this deduction is relatable either to off-hire or to any of the guarantees. Mr. Panjwani, the learned counsel for the charterers contends that under other terms of the charterparty they were entitled to deduct the. value of the crude by reason of the default of the ship because she did not dicharge the oil. Clause 8 of the charterparty does not contemplate a deduction like this from the monthly advance hire. In my opinion this deduction is not justified.

(15) Secondly, the shipowners say that the ship was delivered to the charterers on November 1, 1972 and she commenced her voyage. The charterers in their application said 'the vessel, however, performed a voyage on behalf of M/s. Caltex before coming into our service with effect from 1300 hours on 4-12-1972'. In the statement of account sent by them they have taken the period commencing from December 4, 1972 till May 12, 1973 into account to find out the performance of the ship as regards speed. The charterers have totally ignored the period of November 1, 1972 to December 4, 1972 though they admit that the charterparty commenced on November I, 1972. The charterparty was executed on February 5, 1973. In my opinion, the charterers are not entitled to say that the vessel came into their service on 4-12-72. If this had been so it would have been stated in so many words in the charterparty. The shipowners have pleaded that they never gave the ship to Caltex. There is no denial to this pleading. In the circumstances I should assume that the ship was in the service of the charterers as from November 1, 1972 and if she was doing any voyage for the Caltex it must be on account of the charterers and not the shipowners.

(16) Clause 24 provides that in order to judge the performance of the ship there shall be a review at the end of six months and at that time it will be seen whether she has lost or gained time or account of her speed. This has to be done in a six monthly basis. If she lost time the charterers are entitled to make deduction from the 8th month's charter hire immediately after the last month of the review period. This means that the period of six months would have been taken into account for performance. This period would end on April 30, 1973 as the charterparty commenced, on November 1, 1972. The review should have been made in May, 1973. From the bill of June, 1973, the deduction could have been made by the charterers from the hire payable in June as advance hire. The charterers having not taken into account the period from November 1, 1972 to December 4, 1972 could not, thereforee, judge the performance of the ship correctly. For all we know she may have gained time during this short period. The charterers did not disclose this fact and on the other hand alleged that the ship was at the disposal of the Caltex. This is not in my opinion a correct statement of facts and it seems that the charterers have not come to court with clean hands. This appears to be an inescapable conclusion from such material as has been placed before me and the counsel was unable to offer any Explanationn.

(17) Thirdly, in details supplied to the shipowners the charterers omitted to take into account another period commencing from January 20, 1973 to April 11,1973. On January 19, 1973, the ship arrived at Vizag and on April 12, 1973, she sailed from Bombay. The counsel for the charterers says that during this period she was in docks possibly for repairs. If it is so, it is not dear how after having arrived at Vizag she sailed from Bombay. The charterers had in their possession four joint statements signed by the Master of the ship and the representative of the charterers showing the nautical miles which had been covered in the course of the voyages. This appears to have been the basis of the charterers' accounting in their statement. They never looked into the log book of the Master. Clause Ii of the charter- party provides that the Master shall keep (l)a log book (2) loading and unloading statements and (3) voyage report. Only the joint statements were taken into account. No effort was made to see as to what are the entries contained in the log book. The charterers were entitled to have copies from the Master. The log book would have shown (1) when was the ship hired? (.2) when was she in motion? (3) when was she stationary? and , the nautical miles covered by her during a particular period. We know the speed of the ship. It was 12 knots per hour. It was the measures of her rate of motion. lf the above facts had been ascertained from the log book it was possible to arrive at a correct judgment with regard to her performance as to speed. In my opinion without the log book you cannot find out performance of the ship at the end of every six months.

(18) Another corrollary of this argument is that the charterers have not taken into consideration 108 hours to which the shipowners are entitled per quarter in terms of clause 21 Clause 21 provides that the owners shall compensate the charterers for the lost time if it is in excess of 108 hours on a cumulative quarterly basis. Any time in excess of 108 hours has to be treated as off-hire. It may well be that by reason of deficiency of personnel, breakdown of machinery, accident, etc. the efficient performance of the vessel may have been prevented. The shipowners are entitled to the maximum 108 hours as an allowance and this loss of time cannot be deducted from them as off-hire. Only the logbook will show when was the ship in motion and when stationary. The joint statement will not give any indication of the loss of 108 hours or any part thereof.

(19) The charterers' counsel submits that in judging the performance as to speed the span of 108 hours has not to be taken into account. He says that clauses 21 and 24 are separate and distinct and in the reading of clause 24 clause 21 should not be imported, I do not agree. Clause 24 though it does not specifically refer to clause 21 clearly indicates that the guaranteed speed will be determined 'at the end of each quarter by taking the total mileage by actual sea course which the vessel had made during the currency of the charterparty divided by the total hours at sea...as shown in the vessel's log book.' What was the actual sea course the vessels covered during a particular quarter has to be determined in order to judge the performance. It has to be found out whether the ship maintained the average speed of 12 knots per hour. Clause 21 also speaks of the cumulative quarterly basis. I think both the clauses are to be read together. Unless we know how much distance was covered by the ship and how much time was lost on account of any of the contingencies specified in clause 21 (for example breakdown of machinery etc.) it is not possible to arrive at the average speed which the ship maintained during a particular quarter.

(20) Fifthly, clause 24 provides that the guaranteed speed will be calculated from outer anchorage to outer anchorage. What the charterers actually did was that they calculated the loss of speed not only from outer anchorage to outer anchorage as could be gathered from the joint statement but also from outer anchorage to the inside port. In the statement supplied to the shipowners time taken by the ship from Sand Heads to Haldia was also taken into account. Sand Heads is the outer anchorage at the Calcutta Port. Haldia is the inside port or what is described as the berth in the joint statement. This distance in the joint statement is shown as 67 miles. The charterparty directs that this should not be taken into account if there is loss of speed or loss of time in reaching the inside port. Time lost or gained in going from outer anchorage to inside port is to be entirely disregarded in the calculation in accordance with clause 24.

(21) Sixthly, in judging the pumping performance in respect of crude oil at Bombay the charterers show in their statement that 8 hours and 36 minutes were lost due to lower discharge rate at Bombay because the ship had pumping trouble. The charterparty does not provide for the pumping performance of crude at Bombay though it provides in respect of black oil and white oil. The charterers wrongly applying the performance test of white oil or black oil debited this loss of time to the account of the shipowners. The shipowners never guaranteed pumping performance in respect of crude in the charterparty at Bombay.

(22) The charterparty provides for a review on a six monthly basis. Commencing from November 1, 1972, the period of six months would naturally end on April 30. The review period which was taken into account ended on May 12, 1973. The shipowners' complaint is that the period of six months could not be extended to May 12, 1973. The counsel for the charterers submits that since the period of billing had been changed from 12th of each inoath to 11th of the succeeding month, thereforee, there was nothing improper in reviewing the performance for the period ending May 12, 1973. On a plain reading of the charterparty it appears to me that that cannot be title correct basis. The charterparty uses the term ''calendar month or six monthly basis'. The period must end with April 30. 1973 and cannot be taken beyond that These are some of the glaring errors which were made in making the deduction from the monthly advance hire and these errors appear to me to be quite fundamental and the deductions were contrary to the express terms of the charterparty. The counsel for the shipowners has submitted that the deductions were arbitrary and capricious. On a prima fade view I am inclinded to agree with him.

(23) The shipowners' counsel, Mr. V. M. Tarkunde, then submitted that the joint statement could not be the basis for judging the performance of speed because title four joint statements which were produced were not accurate in all respects. There were some overwritings and one of these statements was signed by the Master of the ship 'under protest'. It is not necessary to pursue this aspect as on any account no deduction as to performance could be made with regard to speed unless the log book or the voyage reports are seen. It seems to me that nobody cared to look at the log book or to call for information which would have assisted in a correct judgment as to speed.

(24) The counsel for the charterers submitted that though it may be that there were some wrong deductions or deductions which were not within the scope of clauses 23 or 24 it was, be said for the shipowners to bring the deductions to the attention of the charterers. For this submission he strongly relied on clause 8 and contended that in any event that clause does not give to the shipowners a right to withdraw the vessel immediately on deductions. According to him the charteresr are entitled to deduct the amounts due or estimated to become due to them under the terms of clause 24. The charterers, he says, made an estimate and deducted the amounts. The shipowners should have objected to the deduction and in the next monthly payment the charterers would have settled the account after ascertaining the facts. I will illustrate this point. He says that rent was paid for July 12, 1973 to August Ii, 1973. Clause 8, he says, provides for adjustment. In the bill for the period from August 12, 1973 to September Ii, 1973 the adjustment could have been made and the charterers would have refunded whatever was rightfully due to the shipowners. When this procedure, he argues, is prescribed the shipowners had no right to withdraw the vessel from their service. I do not agree. Clause 8 firstly provides that rent shall be paid in advance. Secondly it provides that the charterers may deduct amounts either due or estimated to become due to the. charterers under clause 24. The time for settlement of disputes in respect of deductions is not to be postponed to another month. The clause provides for two things: (1) the quantum of .. deduction, namely, the allowable deduction and (2) time of adjustment.

(25) The charterers styled their deduction as 'recovery'. They do not say that it is a provisional deduction subject to settlement. Another item of Rs. 50,000 is styled as ad hoc though there is no provision whereunder the charterers could make an ad hoc deduction.

(26) Clause 8 clearly provides that in default of payment of hire the owners may withdraw the vessel from the service of the charterers. That is the clear right of a shipowner. If monthly hire in advance is not paid strictly in terms of clause 8 the only thing he has to do is to serve a notice of seven days and if the amount is not paid within that period the shipowner has a right to withdraw the vessel. The shipowner need not make a demand for payment before exercising his right of withdrawal) ; see Scrutton on Charterparties,. 17th edition, page 354). All that is required is (1) default of payment and (2) the service of notice.

(27) The counsel for the charterers then argued that the owners waived their right to withdraw the ship because ( 1 ) they did not withdraw the ship on the expiry of the period of notice, i.e. July 21, 1973 and (2) because they appropriated Rs. 2,05,506.13 on July 25, 1973 towards their dues. From these two facts I cannot infer waiver. The ship was engaged in unloading. As soon as she was free from that operation, the shipowners withdrew the ship. The amount of Rs 2,05,506.13 was appropriate under protest towards other dues. The ship obviously remained in the service of the charterers from July 12 to July 28. The owners were clearly entitled to hire for this period and they appropriated the amount after having informed the charterers of their intention to withdraw. From these two unequivocal acts it cannot be said that the shipowners intended to abandon their right of withdrawal.

(28) This, in my opinion, should have been sufficient for the court to come to a conclusion that the plaintiff has no prima fade case and that they were not discharging their obligations under the charterparty. Since the first question which I have posed above was argued at some length it will be my duty to express my conclusions.

(29) The counsel for the charterers Mr. Panjwani argued that courts in England since the judgment of Knight Bruce L. J. in De Mattos v. Gibson, (1895) 124 R. R. 250, have always been enforcing negative conve^nt. He said that if the owners use and employ the ship inconsistent with the charterparty the court can restrain them by issuing an injunction and by prohibiting them from doing so though specific performance of a charterparty could not be ordered. It was argued that this principle enunciated by Knight Bruce L. J. was followed by the Privy Council in Lord Strathcona Steamship Company Limited v. Dominion Coal Company, Limited (1926) A.C. 108. The counsel also cited The Messageries Imperiales Company v. Baines and others, (1863) 7 L T R 763, Collins v. Lemport, (1864) Ii L T R 497 and Sevin v. Deslandes, (1961) 39 L J 457 to show that in cases of ships the courts have always granted injunctions. The counsel urged that a ship is a chattel of peculiar value to the charterer and the interest which a charterer has In the performance of his charter is quite unique. In view of the world oil crisis, he said, the Indian Oil Corporation today needs ships and if injunction is refused the charterers will suffer irreparable injury as they will not be able to bring crude to India.

(30) The cases cited by the learned counsel for the charterers are all cases where the ship had either been mortgaged or sold by the shipowners and injunction was granted after the sale of the ship though the vendor was in possession and was able to perform the charterparty. In this case it is an admitted fact that the ship has been withdrawn from the service of the charterers and is now on a voyage for Ganda Lines. The ship is no longer inpossession of the charterers. The counsel argues that I should grant injunction so that the shipowners may not put it to a use inconsistent with the terms of the charerparty and this, he says, will put economic pressure on them and they will be compelled to come to terms with the charterers. In my opinion it cannot be done for reasons more than one.

(31) To understand the principles of law relating to injunctions in cases of ships three notable decisions have to be examined.

(32) In De Mattos (1) (supra) in 1858 it was decided that, though a charterparty was incapable of specific enforcement, equity would grant an injunction to restrain the use of a, ship in a manner inconsistent with its terms. In that case A chartered a ship from X. During the currency of the charterparty X mortgaged the ship to B, who knew at the time that the charterparty existed. A alleged that B now threatened, as mortgagee, to sell the ship in disregard of his contract rights and hs applied for an interlocutory injunction to restrain B from doing so. The course of the proceedings is intriguing and significant. The application was refused by Vice-Chancellor Wood, but allowed on appeal by Knight Bruce and Turber, L. J. Knight Bruce, 1.. J. preffered a general principle with equal lack of diffidence and of authority:

REASONand justice seem to prescribe that, at least as a general rule, where a man by gift or purchase acquires property' from another, with knowledge of a previous contract lawfully and for valuable consideration made by him with a third person to use and employ the property for a particular purpose in a specified manner, the acquirer shall not, to the material damage of the third person, in opposition to the contract and inconsistently with it, use and employ the property in a manner not allowable to the giver or seller.

(33) TURBER. L. J. was careful not to be involved in so comprehensive a principle. He would not go further than to grant an interlocutory injunction 'until the hearing of the cause' because of the 'difficult and important questions to be tried at the hearing'. The case then went back to Wood, V. C., for the cause to be heard; and he ruled that, on the facts before him, no injunction should be granted. This ruling was upheld by the Lord Chancellor, Lord Chelmsford, and the plaintiff's application thus finally failed. Lord Chelmsford emphasized, however, that his decision was based on the finding that the defendant had not in fact interfered with the performance of the charter-party. Had he done so, an injunction might well have been granted.

(34) The judgment of Lord Justice Knight Bruce has been the subject of considerable criticism both by academic writers and judges. His observations have been described as 'sweeping assertion' and as 'the most oblique of obiter dicta' (Chashire & Fifoot-Law of Contract, 8th Edition page 444).

(35) In 1926 the observations of Lord Justice Knight Bruce were adopted by the Judicial Committee and formed the basis of their decision in Lord Strathcona Ss Co. (supra) (2).

(36) In the Privy Council decision A chartered B's ship. B sold the ship to C, who had notice of the charterparty. It was held tha,t C was bound to let A have the ship according to its terms. The Privy Council said that the charterers 'have, and continue to have, an interest in the subject-matter of the contract'. Judges have looked askance at the principles laid down in the Strathcona case (2). This decision gave rise to much controversy and was subjected to much criticism. It was viewed with some misgiving by Lord Wright in Close v. Theatrical Properties, (1936) 3 All. E.R. 483 and by Lord Greene M. R. in Greenheigh v. Mallard, (1943) 2 All. E.R. 234.

(37) In 1958 Diplock, J. in Port Line v. Ben Line Steamers (1958) 2 Q.B. 146 reviewed the earlier cases and repudiated the decision of the Judicial Committee in the Strathcona case (2). He thought that this case was wrongly decided and he refused to follow it.

(38) Early in 1956, B sold to C a ship, which was under a time charter to A for a period of about 30 months, beginning on 9 March, 1955. Simultaneously, B and C made provision for A's time charter by the expendient of C chartering the ship back to B by demise, to cover the period of it. The charterparty between C and B provided for its termination in case the ship were requisitioned by the Government, and though C may have wrongly assumed that A's charterparty with B contained a similar clause, he had no knowledge on the point. In August, 1956, the Suez crisis caused the Government to requisition the ship under prerogative powers, the rate of compensation payable to C being agreed as that payable under the Compensation Act, 1939. The ship was under requisition for three months, during which A continued to pay B the agreed amount of charter hire, despite B's contention that the charterparty had been frustrated by the requisition. It was held by Diplock, J. that A was not entitled to recover from C any part of the compensation paid to him by the Crown. Referring to Strathcona (2) case, Diplock, J. said:

IF.as the Board state, the ship is 'subject-matter' of the convenant of which the violation by another is to be restrained, it is difficult to see in what sense a charterer under a gross time charter has an interest in that subject-matter except in the broad sense that it is to his commercial advantage that his covenantor should continue to use the ship to perform the services which he has covenanted to perform. But the time charter is a contract for services. The time charterer has no proprietory or possessory rights in the ship, and if the covenantee's commercial advantage in the observance of the covenant is sufficient to constitute an 'interest' in the chattel to which the covenant relates, it is difficult to see why the principle does not apply to price fixing cases such as Dunlop Pneumatic Tyre Co. Ltd. v. Selfrige and Co. Ltd.' 1915 A.C. 847. The importance of this case lies in the above observations of Diplock, J. it is true that in a charterparty by demise the charterers have interest in the ship and in the enforcement of the charter against any one who is using the ship inconsistent with the terms of the charter-party, but none, as Diplock, J. said in an ordinary time charter or gross time charter.

(39) The editors of Scrutton are also of the opinion that the view taken by Diplok, J. of the Privy Council decision was correct. They say: 'The charter is a contract by which the shipowner during a certain period agrees to do certain work for the charterer. but. is not a contract under which the charterer has any interest in the ship except that it is the vehicle with which shipowner is to do the agreed work.'

(SCRUTTON-CHARTERPARTIES,17th Edition edited by Me-Nair and Mocatta JJ. and Mustill, page 43 and pp. 101-102).

(40) It is plainly wrong to say that a charterer has an interest in the ship. In Carver on Carriage by Sea (11th edition), page 30, it is said regarding the decision of the Privy Council in Lord Strathcona Steamship Co.'s case (supra) (2):

THEBoard appears to have been misled by words of Knight Bruce L. J., speaking of the charterer o a trading ship as 'the possessor' and 'having control of' it. Except in the case of a charter by demise-and the charter in that case was not-the charterer has no interest in the vessel but only a contractual right to its services.

(41) The Strathcona (2) and Port Line (8) cases both concerned time 'charterparties. Under such contracts the charterer does not get possession of the ship. The shipowner simply engages to carry cargo in the ship for the charterer for the stipulated time. Diplock, J. said in Port Line (8) case:

THEtime charterer has no proprietory or possessory rights in the ship.

(42) If, as is well established that a charterparty creates no right of property in a ship, there cannot be an injunction : See Bailhache J. in Federated Coal and Shipping Co., v. R (1922) 2 K.B. 42 and cases there cited. All that a charter has under a voyage or time charterparty (even if of long duration as in the Strathcona's case) is a personal right that the shipowner should continue to use the ship to perform the services which he has covenanted to perform. In a charterparty by demise a charterer can be said to acquire 'possessory interest' in the vessel.

(43) The question which immediately arises for consideration is whether this is a case of charter by demise. A reading of the various provisions of charterparty shows that it is not a charter by demise. As Scrutton says:

THEessence of the modern form of time charter, on the other hand is that under it the shipowner agrees with the time charterer that during a certain named period he will render services by his master and crew to carry the goods which are put on board his ship by or on behalf of the time charterer. In this case, notwithstanding the temporary right of the charterer to have his goods loaded and conveyed in the vessel, the ownership and also the possession of the- ship remain in the original owner through the master and crew, who continue to be his servants.' (Scrutton-Charterparties, page 5).

(44) In the cases two tests have been applied to find out whether the charter is by demise. One test is: Who pays the master and the crew? The second test is : Has the shipowner parted with the whole possession and control of the ship? In a way these two tests are one. The question is: Has the charterer a power and right independent of the shipowner and without reference to him to do what he pleases with regard to the crew and the management and employment of the ship? The words 'delivery' and 'redelivery' are really only apt in charter by demise and though they are universally employed in modern time charters (not by way of demise) they are not indicative of a demise : see Scrutton on Charterparties, 17th Edition, pages 4 and 5, and Carver on Carriage by Sea, 11th Ed. Volume I, page 266.

(45) The charterparty may amount to a complete demise of the ship, that is to say, it may put the vessel altogether out of the power and control of the owner and vest that power and control in the charterer, so that during the hiring the master and crew are servants of the charterer and the shipowner is under no liability with regard to the cargo carried under the demise. Baurnwool v. Fumess 1893 A.C. 8. The charterer here becomes for the time the owner of the vessel; the master and crew become to all intents his servants and through them the possession of the ship is in him. However, a charterparty by demise is uncommon and generally the ship remains in the possession of the owner, the charterer acquiring the right only to put his goods in the vessel, and to have them carried: See Sandeman v. Scurr (1867) L.R. I Q.B. 86. It is a matter of construction whether the charterparty is one by demise or not.

(46) The test, thereforee, is : Whose servants are to be in charge? Apply this test to the facts of this case. On the whole instrument taken together the shipowners' servants are to be in charge of her. They are not the servants of the charterers. owners' liability to pay the master, officers and crew is clearly provided in clause 5. The master was to be appointed by the owners. The owners were to pay for insurance and were to remain liable to the charterer in other respects. The contract is really one of hiring as. the shipowners have agreed to act as carriers of goods for charterers. Nowadays time charters are not charters by demise. Charter as a demise or lease is absolute.

(47) The counsel for the charterers submitted that the charterers have a lien on the ship and that they have a right to sublet. From this he wanted me to infer that there is a demise. Lien is not a demise. The right or the power to sublet given in clause 16 is circumscribed. The charterers may sublet the vessel but shall always remain responsible to the owners for the due fulfillment of the charter. This only means that the charterers can allow another person to use the vessel but subletting cannot be in contravention of the terms of the charter. If I am right on the construction of the charterparty then it means that the charters have no interest in the ship except a contractual right to its services. Injunction cannot be issued to prevent the breach of a contract. Damages will be a sufficient remedy if the arbitrator comes to the conclusion that the shipowners were in breach of the contract. Injunction at all event is not an appropriate remedy for specific performance cannot be ordered and enforcing the negative covenant may do great injury to the shipowners if the arbitrator ultimately comes to the conclusion that the charterers and not the shipowners were in breach of the contract.

(48) Section 41 of the Specific Relief Act provides : '41 An injunction cannot be granted-

(E)to prevent the breach of a contract the. performance of which would not be specifically enforced ;

SECTION 42 of the Specific Relief Act is an exception to this section.

Section 42 is in these terms:

'NOTWITHSTANDINGanything contained in Clause (e) of section 41, where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement:

Provided that the plaintiff has not failed to perform the contract so far as it is binding on him.'

(49) The principle underlying the proviso is that where one party to a contract containing mutual covenants fails to perform his part, the other party will not be restrained from committing a breach of a negative covenant on his part.

(50) The proviso to Section 42, in my opinion, applies to this case. The charterers have failed to perform the contract so far as it is binding on them. The charterers are not entitled to injunction if they do not pay the advance hire in terms of clause 8 or make arbitrary and capricious deductions there from. Justice does not require that the charterers should not pay rent as well as have the ship at their service. He who seeks equity must do equity. An unlawful deduction or de- duction in violation of the terms of the charterparty is as good as refusal to pay though there may be a semblance of payment. I have already come to the conclusion that the deductions were unlawful and unjustified and the charterers' conduct amounted to 'default of payment' as used in clause 8 and the shipowners were entitled to withdraw this ship from the service of the charterers.

(51) The argument of irreparable injury is no less unsound. Crude is in short supply but not ships. One would have thought that there is not enough crude to go round but there is no dearth of ships to go round the world. The shipowners say that they offered their another ship Varuna Vahini to the charterers but they would not have it as they said they had no need for it. The shipowners also allege that the charterers engaged two other ships during this period. This was also not denied by the charterers.

(52) There will be no irreparable injury to the charterers if injunction is refused. They can be compensated in damages. The charterers themselves specify in their petition Rs. 50,000.00 as damages which will accrue to them and which they expect on a decision of the arbitrator.

(53) The question is: should there be an injunction in the facts and circumstances of this case? My answer is in the negative and my reasons are these:

(I)The charterparty not being a demise the charterer has no proprietory or possessory interest.

(II)That the negative covenant should not be enforced as the charterer has not been ready and willing to perform his part of the contract.

(III)'Negative specific performance' should not be ordered because of (i) the impossibility of continual supervision by the court and (ii) the invidiousness of keeping persons tied to each other in business relations when the tie has become odious.

(IV)That damages are an adequate remedy.

(V)That if injunction is issued and the arbitrator finally holds that the charterers were in breach of contract the shipowners will not be able to get compensation from the charterers .in arbitration proceedings except perhaps by an independent legal proceeding.

(54) I have considered the argument of both the sides at some length in order to see whether the charterers have a prima facie case. My conclusions, I hope, will not embarrass the arbitrator as these are tentative conclusions arrived at for the purpose of deciding this application and nothing more. The arbitrator to whom the matter will be referred will be free to come to his own conclusions for it is for the arbitrator ultimately to decide all the disputes and differences between the parties in terms of clause 39.

(55) In the result O.M.P. 151 is dismissed and the ex parte injunction granted on August 23, 1973 is vacated I now turn to the application under Section 8 read with Section 20 of the Arbitration Act. The clause which I have set out in an earlier part of this judgment clearly provides that disputes and differences are to be settled by the Central Board of Arbitration. The charterers approached the Board. The Board has declined to arbitrate. Under Section 8, a vacancy has been caused- The court has to fill up the vacancy unless it was intended that the vacancy should not be filled. On a plain reading of the agreement in the context of the various terms of the charterparty the arbitration agreement, in my view, does not show that it was intended that the vacancy should not be supplied: see M/s. Parbhat General Agencies, etc. v. Union of India and another, etc., 1971 (1) Supreme Court Cases 79(12).

(56) I would, thereforee, accept the application (IA 68 of 1974) and refer the matter to arbitration. I appoint Shri K. N. Wanchoo, retired Chief Justice of the Supreme Court of India as the sole arbitrator to decide the disputes between the parties. The parties are, however, left to bear their own costs.


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