The Calcutta High Court has ruled that a consent decree passed in an admiralty action in rem is binding on all parties interested in the arrested vessel, including the charterer, and cannot be circumvented by invoking a foreign arbitration agreement during execution proceedings. Justice Arindam Mukherjee, sitting as a Single Judge, allowed an execution application filed by Emami Paper Mills Limited, holding that the consent decree dated 9 September 2024 was executable against DAVA Pte Ltd, the charterer.
Background of the Dispute
Emami Paper Mills Limited engaged DAVA Pte Ltd, Defendant 2, under a fixture note dated 26 June 2024 for the transportation of bleached Hardwood Kraft Pulp from Indonesia to Haldia Port. The fixture note contained an arbitration clause providing for arbitration in London under English law. The vessel employed for the carriage, M.V. PH Giang Minh, was owned by Pham Hai Trading Transport and Import Export Company Limited, Defendant 1, which had entered into a separate charter party agreement with DAVA Pte Ltd on 28 February 2024. That charter party contained its own arbitration provision for disputes between owners and charterers, referencing the Inter-Club New York Produce Exchange Agreement 1996 for cargo claims.
Upon the cargo's arrival at Haldia Port, the plaintiff discovered damage and instituted a suit on 4 August 2024 against the vessel and all parties interested therein. The Court passed an ex parte order for the arrest of the vessel the same day. The proceedings were instituted as an action in rem.
Consent Decree and Settlement Terms
Defendant 1 secured the vessel's release by entering into a settlement with the plaintiff, paying Rs 6,51,70,000 in full satisfaction of the claim. The suit was decreed on consent on 9 September 2024 under Order 23 Rule 3 of the Code of Civil Procedure. The terms of settlement, specifically Clause 1(viii), incorporated into the decree, explicitly barred the head owners, charterers, disponent owners, and any party interested in the vessel from raising or pursuing any claim, grievance, or cause of action against the plaintiff in any jurisdiction worldwide.
Charterer's Section 45 Application
DAVA Pte Ltd subsequently filed an application under Section 45 of the Arbitration and Conciliation Act, 1996, seeking a reference to arbitration in London pursuant to the arbitration clause in the fixture note. The charterer contended that the dispute arose from the fixture note and was therefore subject to the arbitration agreement contained therein.
Court's Reasoning on Action in Rem and Binding Effect
The Court emphasised the fundamental distinction between actions in rem and contractual actions in personam. It observed that the suit was instituted as an action in rem against the vessel M.V. PH Giang Minh and all parties interested in her for cargo damage. The conversion of such a suit into an action in personam necessitates submission to the Court's jurisdiction by appearing and depositing security for the release of the ship. Since no security was furnished by the charterer for the release of the vessel, the suit remained an action in rem throughout.
Consequently, the consent decree passed in the action in rem bound all parties interested in the vessel, including Defendant 2. The Court held that the decree extinguished the claims under the fixture note, rendering the arbitration clause unenforceable in the context of the execution proceedings.
Rejection of Collateral Challenge and Estoppel
The Court dismissed the Section 45 application, ruling that the execution court cannot reopen a final decree. The charterer's application constituted an impermissible collateral challenge to the consent decree. The Court noted the absence of any proceedings to set aside the decree.
Furthermore, the Court applied principles of estoppel. It found that DAVA Pte Ltd had participated in settlement-related activities and benefited from the vessel's release. Having accepted the fruits of the settlement, the charterer was barred from disputing its validity or binding nature.
How does a consent decree in an admiralty action in rem affect a charterer's right to invoke arbitration?
A consent decree passed in an admiralty action in rem binds all parties interested in the vessel, including the charterer, even if they did not sign the settlement, provided the suit remains in rem due to the absence of security for release. The decree extinguishes underlying contractual claims and arbitration clauses, and a party benefiting from the vessel's release is estopped from challenging the decree collaterally via a Section 45 application.
Operative Order
The Single Judge allowed the execution application to the extent of holding the consent decree binding and executable against DAVA Pte Ltd. The application under Section 45 of the Arbitration and Conciliation Act, 1996, filed by the charterer seeking reference to London arbitration was dismissed.