Rainbow Ace Shipping S.A. Panama v. M.V. Rainbow Ace

Mr. Prashant Pratap, Senior Advocate a/w Ms. Trupti Agarwal & Mr. Ashwini Sinha for the Plaintiff.

Mr. Amitava Majumdar a/w. Mr. Shivkumar Iyer & Mr. Sujan Malhotra, Advocates i/b. Bose and Mitra & Co. for the Applicant/Original Defendant No.1.

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CORAM : K.R.SHRIRAM,J ig Reserved on : 6th May, 2014.

Pronounced on : 9th June, 2014.

:-

1. This Notice of Motion is taken out by the Applicant, as Owner of Defendant No. 1 vessel, claiming compensation for losses/damages/prejudice suffered in view of the order of arrest dated 28th January, 2013 obtained by the Plaintiff against Defendant No. 1 Vessel - m.v. Rainbow Ace. At the time of obtaining the order of arrest, the plaintiff had given an undertaking to this Court as required under Rule 941 of the Bombay High Court (O.S.) Rules. The Applicant is seeking relief to direct the Plaintiff to pay to the Applicant a sum of USD 2,310,225/- with interest at the rate of 18% per annum from the day it accrued till payment and/or realisation plus reasonable legal costs towards damages and in the alternative to appoint a Gauri Gaekwad 3/35 NMS - 1646-2013.doc Commissioner for taking accounts to quantify the Applicant's losses and damages and direct the Plaintiff to pay for the sum found due and payable upon such finding of the Commissioner. At the hearing, the counsel for the Applicant did not argue the alternative plea.

2. The Applicant submitted that the Plaintiff had sought arrest of the 1st Defendant-vessel on the basis that the Plaintiff had a maritime claim against Defendant No. 2 arising out of a voyage charter party in respect of m.v. J. Tong owned by the Plaintiff and as Defendant No. 1 vessel was in the same beneficial ownership as Defendant No. 2, the Plaintiff could arrest the Defendant No. 1 vessel. The Plaintiff had claimed that one Mr. Wang Wendong is the beneficial owner of Defendant No. 1 vessel and is also at least, prima facie, the beneficial owner of Defendant No. 2.

3. After hearing the parties, Kathawala, J, had held that the Plaintiff had miserably failed to establish that the said Mr. Wang Wendong was the beneficial owner of the company which owned Defendant No.1 vessel. The Court has also held that the Defendant No. 1 vessel is not in the beneficial ownership of Defendant No. 2 as the Plaintiff had even failed to make out a prima facie case in support of its contention that Mr. Wang Wendong who was 100% owner of the Applicant also was the beneficial owner of Defendant No. 2.

Hence, the order of arrest could not be sustained.

4. This order has been upheld by the Division Bench which has also held that as prima facie case cannot be built merely on suspicion and as the onus was upon the Plaintiff to show that the person against whom it has sought to invoke Admiralty Jurisdiction is the person who beneficially owns the vessel in respect of which a maritime claim has arisen as well as the vessel which is sought to be arrested, and the plaintiff had failed, the order of the Single Judge was correct. Even the Supreme Court dismissed the SLP that was filed by the Plaintiff. In the circumstances, it is the Applicant's case that the Courts have set aside the order of arrest of Defendant No.1, the Plaintiff had obtained the order of arrest of Defendant No. 1 vessel wrongfully, recklessly, maliciously and in gross negligent manner by gross misrepresentation/ suppression of facts and hence, the Plaintiff by virtue of the undertaking given under Rule 941 of the Bombay High Court (O.S.) Rules, should be directed to pay damages to the Applicant.

5. The counsel for the Applicant also submitted that in view of the judgment of this Court in the matter of Navbharat International Ltd. vs. Cargo Onboard m.v. Amittes - Notice of Motion No. 2853 of 2010 in Admiralty Suit No. 19 of 2010 dated 19 th March, 2014 (Best Gauri Gaekwad 5/35 NMS - 1646-2013.doc Food case), the liability of the Plaintiff has got triggered under Rule

941. The counsel also submitted that now what is required to be gone into is only determining the quantum and according to the counsel for the Defendant No. 1 all the amounts claimed in this Notice of Motion as damages have to be paid.

6. The counsel submitted that Defendant no.1 Vessel arrived at Pipavav on 26th January, 2013 and commenced discharge. On 28th January, 2013 the order of arrest was passed and was served on 29th January, 2013. The vessel completed discharge on 5th February, 2013. The charterers put the vessel off hire w.e.f. 6th February, 2013.

The Single Judge vacated the order of arrest by a judgment pronounced on 6th May, 2013. When Appeal was preferred by the Plaintiff on 8th May, 2013, Division Bench of this Court by an Order dated 2.7.2013 upheld the order of the Single Judge. Against this, the Plaintiff filed a SLP in the Apex Court which came to be dismissed on 16th July, 2013 and the vessel was directed to be released. The order of release was ready and received from the Supreme Court Registry on 18th July, 2013 and on the same day the order of release was served and vessel sailed on 19th July, 2013. In the meanwhile on 27th May, 2013 the charter party was terminated by the charterers.

7. The Applicant states that the vessel was detained by the Plaintiff's wrongful action from 28 January, 2013 till 18th July, 2013, for 164.1229 days because of which the Applicant has suffered losses under various heads which are listed in para 10 of the affidavit in support. These losses can be generally classified as (a) loss of hire and bunker costs; (b) cost incurred while under arrest at Pipavav Port; (c) cost incurred at Mumbai Port and (d) costs incurred at Singapore for cleaning the vessel's bottom.

8. It is correct that this Court has under the Best Food case held that in view of the undertaking given under Rule 941, if any party sustains prejudice pursuant to the ex-parte order of arrest passed by this Court, the party obtaining the order of arrest was to pay such sum by way of damages, as the Court may award as compensation.

Therefore, if the order has been obtained either without jurisdiction and/or order held to be wrongful and the order of arrest is vacated, the liability under the undertaking is triggered. The next step, as liability is established, is to determine the quantum of damages to be awarded as compensation. Para 10 of the said judgment reads as under :-

"The undertaking given by the Plaintiff therefore, is in accordance with the rules which are a 'special law'. Rule 941 does not provide for any pre-condition. The rule is very clear that if any party sustaining prejudice pursuant Gauri Gaekwad 7/35 NMS - 1646-2013.doc to the order passed by this Court, the party obtaining the order shall pay such sum by way of damages as the Court may award as compensation. In effect it is a blank cheque which the Plaintiff gives to the Court and what is required is only to write the date, the name of the payee and the amount. It is an unconditional, unqualified, irrevocable undertaking. The judgments relied upon by the Plaintiff to submit that there was no malice and the Court can award damages only if there was malice or there was malafides in obtaining the order etc. are totally incorrect. None of the judgments deal with Rule 941 of the Bombay High Court (Original Side) Rules. None of the judgments also deal with a situation where an undertaking like the one given in this Suit has been given. Therefore, if the order has been obtained either without jurisdiction or if the order is held to be wrongful and the order of arrest is vacated, the liability under the undertaking is triggered. The next step, once liability is established, is to determine the quantum of damages to be awarded as compensation.

Rule 941 provides "... such sum by way of damages as the Court may award as compensation...". Therefore, all these factors of no malice or no malafides or no gross negligence etc. come into play at this stage, i.e., the stage where the Court determines the quantum of damages to be awarded as compensation by exercising its judicial discretion.

9. Before I proceed to deal with each heads of claim, it is necessary to deal with the preliminary submissions raised by the counsel for the Plaintiff. Mr. Pratap, counsel for the Plaintiff submitted that though the orders of arrest have been vacated, the findings of the Single Judge and the Division Bench are only prima facie findings and though there is no security, he is entitled in the trial to prove his case that Defendant No. 1 was beneficially owned the Defendant No.2 and hence could be arrested. He also submitted that even if the Gauri Gaekwad 8/35 NMS - 1646-2013.doc Court holds otherwise, before each heads of claim is considered, the Court has to see whether the Applicant fulfilled its legal obligation to mitigate its losses.

10. At the outset, it is necessary to record that Mr. Pratap, has denied all the documents relied upon by the Applicant in support of its claim for compensation. Mr. Pratap submitted that in view thereof the Defendant No. 1 should be directed to file a Suit and cannot expect to be paid damages summarily. His submissions are in the alternative and without prejudice to this point.

11. Mr. Pratap also submitted that the Applicant ought to have taken all necessary steps to mitigate his losses. But in reply/rejoinder, the Applicant in paras 5 and 24 has in effect refused to mitigate its losses. He submitted that the Applicant has proceeded in an ill advised manner that there was no mandatory requirement to furnish security and it was only an option which it chose not to exercise.

12. It will be better to reproduce what is stated by the Plaintiff in its affidavit in reply and by the Applicant in the rejoinder on this issue of mitigation. In the affidavit in reply, the Plaintiff has, in paras 20,21,22 and 33 stated as under :-

20. There has been abject and complete failure on the part of the Applicant to mitigate its alleged losses by furnishing security on such terms and in such sum as the Court may order. It was always open to the Applicant to furnish security on a "without prejudice" basis and also apply to this Hon'ble Court for moderating the amount and fixing the form and manner in which security is to be given. This, the Plaintiff deliberately and singularly failed to do so.

21. It is almost unheard of for a Plaintiff to keep its vessel under arrest for over six months in the hope and expectation that its application to vacate the same will be decided by the Court sooner or later. In this manner, the Plaintiff would have kept its vessel under arrest for several years and claimed more than the value of the vessel itself as damages in the event the suit was dismissed. It is also self-defeating and uncommercial to do so. This is why in most cases of arrest of ships, the owner of the vessel provides security on a "without prejudice" basis and then contests the matter in any manner he deems fit including applying to the Court to vacate the order of arrest. The cause of the Applicant's alleged loss is the Applicant's own failure to mitigate by providing security or even offering security at any stage of the proceedings. On this ground alone, the Applicant's claim ought to be dismissed.

22. Lastly it is submitted that the arrest of the vessel is a judicial act of the Court and any damage suffered from the continuance of the arrest and custody of the vessel with the Sheriff is on account of the delay in the legal process for determination of the rights of the parties. The Plaintiff cannot be held liable for this particularly when it was open to the Applicant to avoid the delay by furnishing security and applying to the Court for release on such terms as this Hon'ble Court may deem just and convenient.

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33. Without prejudice to what has been stated above, it is submitted that even if for argument sake it is for a moment considered that the Applicant may have been exposed to some kind of commercial/operational difficulty once their vessel was arrested, the Applicant themselves failed to mitigate their losses by not exercising the option of getting their vessel released by furnishing security, as is done by Gauri Gaekwad 10/35 NMS - 1646-2013.doc most ship owners in case of an arrest. It is further submitted that Rule 954 of the Bombay High Court (O.S.) Rules provides for release of the arrested property by furnishing security for the amount claimed in the suit or as directed by this Hon'ble Court. The Applicant, for reasons best known to them, chose not to furnish security, made no effort to apply to the Court for moderating the security and did not offer any security in any form or amount whatsoever including a P&I Club (Protection and Indemnity Association) Letter of undertaking to the Plaintiff which is normally offered for release of vessels from arrest. It is clear that the Applicant failed to mitigate its alleged losses which could have been easily avoided, had they furnished security and obtained release of their vessel. The Applicant cannot claim losses for its own failure to mitigate and which could have been avoided by the simple expedient of furnishing security on a "without prejudice" basis for release of the vessel."

Paras 5 and 24 of the affidavit in rejoinder of the Applicant reads as under :-

5. I say that the above submissions of the Plaintiff in paras 5,11,20,21 and 33 of the Affidavit in reply are without any substance and deserve to be rejected. I say that the contents of the said paragraphs are denied as if the same are specifically set out herein and traversed. I say that it is not a mandatory requirement that whenever an arrest of vessel is effected, it is obligatory on the part of the party, who applies for vacating such ex-parte order of arrest of the Vessel, to offer security in terms of the claim made by the Plaintiff in Suit. It is submitted that such an interpretation would encourage filing of dishonest actions upon frivolous grounds. It is submitted that when an order of arrest is obtained on unsustainable and erroneous assumptions and in malice/bad faith (like in present case)-on vacation of such order-the aggrieved party becomes entitled to claim the losses suffered on account of such a wrongful order of arrest obtained in bad faith and it can never be argued that merely because the 'option' of furnishing a security and getting the vessel released not been exercised-the party prejudiced by the wrongful order of arrest is not entitled to Gauri Gaekwad 11/35 NMS - 1646-2013.doc the damages which it has suffered. It is, therefore, submitted that these contentions ought to be rejected by this Hon'ble Court. I say that when a ship is arrested the Owners are put to immense pressure and loss and if it is found that the arrest was on fraudulent or frivolous grounds, because of which the arrest order has come to be vacated, it cannot be an answer (especially at the instance of a dishonest Plaintiff who has snatched an ex-parte order on malicious grounds) that losses suffered by the successful party/ship-owner could have been mitigated by furnishing security (which is not even a mandatory requirement) to secure a patently untenable and dishonest claim. It is submitted that where furnishing of security is an option but not a mandate the question of taking recourse to that course of action does not arise at all. Further, the contentions regarding mitigation of loss especially at the instance of a Plaintiff who has failed miserably to establish even a prima facie case, is unjustified and unreasonable as, on the one hand by maliciously and wrongfully obtaining the order of arrest the ship-owner is restrained from carrying out its business activities and on the other hand, the ship-owner who is out of business is unreasonably expected to put in security to secure a dishonest claim. The Plaintiff's submission that the Applicant kept Defendant No. 1 vessel under arrest deliberately is absurd and is denied. The above contentions are therefore without any substance and ought to be rejected.

24. With reference to para 22 of the affidavit in reply, it is submitted that the contents of the same are irrelevant in view of the undertaking given by the Plaintiff under Rule

941. It is submitted that the Rule 941 assumes that the party who obtains interim relief is, by such relief, likely to cause loss or damage to the defendant or it owners which is why the rule requiring the undertaking has been enacted to ensure that "an act of the Court shall prejudice no man". The rule requiring the undertaking is a manifestation of the Court's anxiety to ensure that its act prejudices more."

13. Mr. Pratap submitted that Defendant No. 1 vessel had a Protection and Indemnity (P&I) Cover which is a mutual insurance Gauri Gaekwad 12/35 NMS - 1646-2013.doc cover and in all cases when a vessel is arrested, the P&I Club with whom the vessel is entered for P&I Cover, puts up the security. He also submitted that it is not the case of the Applicant that they were unable to furnish security but they were not obliged or bound to furnish security. Mr. Pratap submits that even though the order of arrest was served on 29th January, 2013, the vessel continued to be on hire until 5th February, 2013 because she was discharging cargo.

He stated that the Applicant had 8 days to furnish security but the Applicant only moved on 9th February, 2013 for setting aside the order of arrest. He submitted that when the Applicant knew that the vessel will be off hired or the charter party could even get terminated, the Applicant should have immediately, on without prejudice basis, furnished security and got the vessel released so that it could earn and not lose on charter hire or incur further expenses. Infact it is unbelievable that the Applicant would chose not only to lose out on its assured daily charter hire of USD 7,500/- per day but would also incur an additional USD 5,000/- per day approximately on an average and keep his vessel idling for about 162 days. He submitted that it is absolutely uncommercial on the part of the owner to behave in this manner. He also submitted that the P&I Club of the owner could have even offered a letter of undertaking for which there is no cost, let alone furnishing a bank guarantee or cash deposit. He submitted that Gauri Gaekwad 13/35 NMS - 1646-2013.doc it is all the more shocking because the 1st Defendant-vessel was a brand new vessel delivered in September, 2012 and the owner would chose to lose out not only USD 7,500/- per day but also spend an additional USD 5,000/- per day on an average.

14. Mr. Pratap further submitted, had the Applicant furnished security and taken the vessel away, he could have earned and also saved money. It is unacceptable that a person against whom a claim of approximately USD 1.6 million is made would have chosen to lose USD 2.5 million. He states that if the Court had taken longer to decide the matter that USD 2.5 million could have been even USD 10 million or it could be any other amount. Therefore, it was a conscious decision on the part of the Applicant that "I shall not furnish security" and it is that decision that led to its losses. The owner ought to have secured because it was a brand new ship and owner had an assured income as the charter party was for a period of 5 to 9 months, +/- 15 days at Charterers Option as per the charter party relied upon by the Plaintiff.

15. Mr. Pratap first relied upon extracts from Chapter 7 The Mitigation of damage, from the book McGregor on Damages (2003 edition) published by Sweet and Maxwell, London. He submitted that Gauri Gaekwad 14/35 NMS - 1646-2013.doc the principal meaning of the term "mitigation" concerns the avoiding of the consequences of a wrong, whether in tort or breach of contract.

He submitted that the first and most important rule is that the claimant must take all reasonable steps to mitigate the loss to him consequent upon the Defendant's wrong action and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid. He said that the claimant cannot recover for avoidable loss. Part II of the said chapter deals with the rules as to avoidable loss. In para 7-014, 7-015 and 7-

016 the author has written as under :-

7-014. The extent of the damage resulting from a wrongful act, whether tort or breach of contract, can often be considerably lessened by well-advised action on the part of the person wronged. In such circumstances the law requires him to take all reasonable steps to mitigate the loss consequent on the defendant's wrong, and refuses to allow him damages in respect of any part of the loss which is due to his neglect to take such steps. Even persons against whom wrongs have been committed are not entitled to sit back and suffer loss which could be avoided by reasonable efforts or to continue an activity unreasonably so as to increase the loss. This well-established rule finds its most authoritative expression in the speech of Viscount Haldane L.C. in the leading case of British Westinghouse Co. v. Underground Ry where he said :( 1912)AC 673 "The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a claimant the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps." ......................................

7-015. (a) Application to contract and tort. Lord Haldane Gauri Gaekwad 15/35 NMS - 1646-2013.doc referred only to pecuniary loss but presumably because he was dealing with a breach of contract and not a tort. Most cases do indeed stem from contract and concern the mitigation of pecuniary loss; but the principle applies equally to non-pecuniary loss and to tort, as in the case of a claimant who, having been physically injured, fails to take reasonable steps to obtain medical aid and thereby fails to cut down the pain and suffering resulting from the injury. Lord Sumner in Admiralty Commissioners v. S.S. Chekiang and against in Admiralty Commissioners v. S.S. Susquehanna clearly recognised the application of the mitigation doctrine to tort and in The Liverpool (No.2) Lord Merriman P. said similarly: "The classic statement (namely of Lord Haldane), although made in an action arising out of a breach of contract, applies equally, mutatis mutandis, to tort."

7-016. (b) A question of fact or a question of law. In Payzu v. Saunder both Bankes and Scrutton L.JJ. said that the question of mitigation of damage is a question of fact; in The Solholt Sir John Donaldson M.R. Said that "whether a loss is avoidable by reasonable action on the part of the claimant is a question of fact not law" and that "this was decided in Payzu V. Saunders." It has never been doubted since; today it tends to be regarded as trite law....................................."

(emphasis supplied)

16. In support of his submissions on mitigation, Mr. Pratap also submitted that clause 71 of the charter party on which the Plaintiff is relying upon itself provided that there were possibilities of the vessel getting arrested. Clause 71 reads as under :-

Clause 71 :

"Should the vessel be seized, detained or requisitioned by any authority, or arrested at suit of any person having or purporting to have a claim against or any interest in the vessel during the currency of this Charter, for any reason attributable to Owners, the hire shall not be paid for all time Gauri Gaekwad 16/35 NMS - 1646-2013.doc lost whilst the vessel remains unemployed as a result of such seizure, detention, requisition or arrest and all expenses in this connection shall be for Owners' account.

If the vessel is off-hire for thirty (30) consecutive days by reason of the above seizure, detention, requisition or arrest, Charterers have the option of canceling the balance period of this Charter."

17. Mr. Pratap submitted that when the Owner/Applicant knew that in any shipping trade, vessels do get arrested or detained, the owner should be prepared to furnish security. He cannot say that the arrest was wrongful and therefore, does not have to furnish security but sit tight doing nothing and claim damages. He also relied upon the judgment of the English Court of Appeal in the matter of Darbishire vs. Warran.

18. Mr. Pratap submitted that these principles find approval by our Apex Court in the matter of Murlidhar Chirangilal Vs. Harishchandra Dwarkadas2 and the Delhi High Court in the matter of Tower Vision India Pvt. Ltd. vs. Procall Private Limited3.

Mr. Pratap also submitted that the Defendant No. 1 not

1. [1963] Vol. 2, LLR. 187

2. AIR(1962) SC 366

3. C.P. No. 458 of 2010; C.A. No. 2179 of 2010 dated 24th August, 2012 Gauri Gaekwad 17/35 NMS - 1646-2013.doc having taken any steps to mitigate its losses and chosen to sit tight and do nothing and in other words refusing to mitigate, he cannot do so at the expense of the Plaintiff and should not be awarded any damages. Mr. Pratap also submitted that the Plaintiff's obligation to mitigate is an obligation in law. He cannot say that the act was wrongful or deliberate and hence there is no obligation to mitigate. He also submitted that challenging the order of arrest is not mitigation. It is not an act to reduce the loss. The nature of the act of the Plaintiff has no relevance to the Applicant's duty to mitigate. He also submitted that let us assume that the vessel was arrested by a party whose cargo had been carried by the vessel for damage to cargo or loss of cargo or let us say the vessel had been arrested by the Port for damages to the Port property or oil spillage, whatever, would the owner not have furnished security and then challenged the order of arrest? Therefore, the nature of the act of the Plaintiff is not material for the Applicant to mitigate. In every case, the Claimant has to act honestly and reasonably and not spare any efforts to mitigate its loss.

The test, therefore, is whether the Defendants act of not furnishing security was reasonable or not and according to Mr. Pratap it was not reasonable or honest because the Defendant No. 1 could have offered even a letter of undertaking from the P&I Club and then take out the application for vacating the order of arrest.

19. Mr. Pratap concluded that in addition to this, the Court should also consider the situation as to what would happen if the Applicant had filed a Suit to recover damages for the claims as made now in this Notice of Motion, would the Court have allowed the same.

20. On this preliminary issue of mitigation, Mr. Majumdar submitted that a wrong-doer cannot ask the claimant to show proof of mitigation. He submitted that the Court's ought to be very slow in countenancing any attempt by a wrong-doer to make captious objections to the methods by which those whom he has injured have sought to repair the injury. He submitted that the Court has to only see whether the Applicant acted honestly and reasonably and to furnish security and mitigate is only an option and the Applicant chose not to exercise that option.

21. Mr. Majumdar, counsel for the Applicant relied upon the judgment of House of Lords in the matter of Lodge Holes Colliery Company Limited vs. Wednesbury Corporation4. He also relied upon a very old judgment of the Calcutta High Court in the matter of Rogers Pyatt Shellac Co. v. John King & Co. Ltd.5 Relying on these

4. 1908 AC 323

5. 1925 ILR 249 Gauri Gaekwad 19/35 NMS - 1646-2013.doc two judgments, he submitted that the Applicant was under no obligation to furnish security and how can a wrong doer be heard to complain that the person injured has not laid out money for the wrong-doer's benefit and in order to minimise the damages. He notably read out the following portion from the judgment at page no.

250 which is as under :-

"How can a wrong doer be heard to complain that the person injured has not laid out money for the wrong-doer's benefit, and in order to minimise the damages which he is liable to pay by reason of the tort which he has committed? I can conceive of no ground in reason or in equity why the injured party should incur expenditure, or invest money which otherwise he might employ for his own benefit, in order that a possible advantage thereby may accrue to the wrong-doer."

22. Mr. Majumdar also relied upon another yet to be reported judgment dated 11th February, 2014 of this Court in the matter of Coromandel International Ltd. v/s. m.v. Glory I & Ors.6 where, the Court has observed that the owner of the vessel if he was really interested in getting the vessel released would have acted immediately because every day delay is costing him substantial amount of money. Mr. Majumdar submitted that the order of arrest was served on 29th January, 2013 and immediately thereafter on or about 9th February, 2013 the application for release of the vessel was

6. NMS/1026/2011 in ADMS/33/2010 Gauri Gaekwad 20/35 NMS - 1646-2013.doc taken out. Mr. Majumdar submitted that the matter was heard on various dates. The single Judge reserved the matter for judgment on 6th March, 2013 but the judgment was pronounced only on 6th May, 2013. On 8th May, 2013 the Plaintiff preferred an Appeal which was heard and the Division Bench reserved the Appeal for judgment on 17th June, 2013 and pronounced the judgment on 2nd July, 2013. The judgment was stayed at the request of the Plaintiff's counsel upto 10th July, 2013 by which time the Plaintiff preferred an SLP in the Apex Court which came to be dismissed on 16th July, 2013 and the order of release obtained on 18th July, 2013 and the vessel sailed on 19th July, 2013. Therefore, according to Mr. Majumdar the Applicant had taken all steps and that is mitigation. He submitted that the Plaintiff is a person who has used the Court for an ex-parte order by giving an undertaking for an arrest of an unrelated vessel and the Plaintiff cannot ask the Applicant to minimise damages which the Plaintiff is liable to pay by reason of his wrongful action.

23. Mr. Majumdar, counsel for the Applicant also submitted that the Plaintiff had not approached the Court in good faith. He relied upon the judgment of the Bombay High Court in the matter of The Union of India v. M.K.C. Kutty7 and submitted that parties should not be permitted to make all kinds of averments in the plaint and get

7. (1962) SC 366 Gauri Gaekwad 21/35 NMS - 1646-2013.doc away with it otherwise it would ultimately turn out to be an abuse of the process of the Court. The Court should, in such cases where people have obtained injunction or order of arrest wrongfully should be made to pay substantial compensation to the affected party otherwise it would not prevent possible abuse of process or litigation which thrives only in the process of interim reliefs. He also submitted that in the matter of S.K. Sundaram : In Re Suo Moto Contempt Petition8, the Apex Court has discussed the expression good faith in criminal jurisprudence. He submitted that before a person makes an averment in the plaint based on which he obtained an ex-parte order of arrest, the person should first make an enquiry into the factum of averments which he proposes to make and the enquiry expected on him should be of such a depth as a reasonable and prudent man would make with genuine intention in knowing the real truth and if he does not do so, he cannot claim any benefit that is done in good faith.

While dealing with the expression good faith in relation to the criminal jurisprudence, the Apex Court reproduced a passage from another judgment of the Apex Court in the matter of Harbhajan Singh vs. State of Punjab9 and the same reads as under :-

"The element of honesty which is introduced by the definition prescribed by the General Clauses Act is not introduced by the definition of the (Penal) Code; and we

8. (2001)2 SCC 171

9. AIR 1966 SC 97 Gauri Gaekwad 22/35 NMS - 1646-2013.doc are governed by the definition prescribed by Section 52 of the Code. So, in considering the question as to whether the appellant acted in good faith in publishing his impugned statement, we have to inquire whether he acted with due care and attention. There is no doubt that the mere plea that the accused believed that what he stated was true by itself, will not sustain his case of good faith under the Ninth Exception. Simple belief or actual belief by itself is not enough. The appellant must show that the belief in his impugned statement had a rational basis and was not just a blind simple belief. That is where the element of due care and attention plays an important role. If it appears that before making the statement the accused did not show due care and attention, that would defeat his plea of good faith."

Mr. Majumdar also submitted that it was not mandatory that whenever an arrest of vessel is affected, it is obligatory on the part of the party that applies for vacating such order of arrest of the vessel to offer security in terms of the claim made by the Plaintiff in a Suit. He submitted that when a party has obtained an order of arrest wrongfully, the aggrieved party is entitled to claim the losses suffered on account of such wrongful arrest and it can never be argued that the aggrieved party not having exercised the "option" of furnishing security and getting the vessel released, is not entitled to damages which it has suffered. He submitted that a ship owner could have mitigated his losses by furnishing security cannot be the answer to an untenable and dishonest claim. He concluded by saying that furnishing security is an option but not a mandate.

I have to add here that at no stage did any order of the Court or pendency of proceedings prevent the Applicant from furnishing security and taking the vessel away. In fact, all Judges order does provide 'upon the Defendant furnishing of security the vessel need not be arrested and if already arrested, should be released'.

It must be noted that the consistent stand of the Applicant to the Plaintiff's submission on mitigation, in the affidavits and during the course of argument is not that they were unable to take steps to mitigate or they took all reasonable steps to mitigate but furnishing of security is only an option which they chose not to take.

25. On the judgments relied upon by Mr. Pratap, Mr. Majumdar submitted that none of these judgments are applicable. He submitted that the Darbishire vs. Warran judgment was a collision case and Murlidhar vs. Harishchandra was a contractual claim. He also submitted that the judgment of the Delhi High Court in Tower Vision India was a company case.

26. Having heard the respective counsels and after considering the affidavits and the precedents cited, I am satisfied that the position in law is 'all claimants have a duty to mitigate'. In Gauri Gaekwad 24/35 NMS - 1646-2013.doc Darbishire Vs. Warran, Lord Justice Pearson after reproducing the principle laid down in British Westinghouse Electric and Manufacturing Company Ltd. v. Underground Electric Railways Company of London Ltd. held as under :-

"The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James L.J. In Dunkirk Colliery Co. v. Lever, (1878) 9 Ch.D. 20, at p. 25, "The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business."

For the purposes of the present case it is important to appreciate the true nature of the so-called "duty to mitigate the loss" or "duty to minimize the damage". The plaintiff is not under any actual obligation to adopt the cheaper method: if he wishes to adopt the more expensive method, he is at liberty to do so and by doing so he commits no wrong against the defendant or anyone else. The true meaning is that the plaintiff is not entitled to charge the defendant by way of damages with any greater sum than that which he reasonably needs to expend for the purpose of making good the loss. In short, he is fully entitled to be as extravagant as he pleases, but not at the expense of the defendant."

(emphasis supplied)

27. In my view, it is immaterial whether the matter has arisen out of a collision or a contractual claim or whether it was relating to a company case matter. The fact is all Courts have held that a claimant has a duty to mitigate. There is no compulsion that he should mitigate Gauri Gaekwad 25/35 NMS - 1646-2013.doc but he cannot claim those additional amounts from the Defendant No.1, if he chose the more expensive method, i.e., leave the vessel idling.

28. The Apex Court in the Murlidhar Chiranjilal vs. Harishchandra Dwarkadas10 matter (Supra) at para 9 has observed as under :-

"The two principles on which damages in such cases are calculated are well-settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps: ( British Westinghouse Electric and Manufacturing company Limited v. Underground Electric Railways Company of London)."

(emphasis supplied)

29. Though that matter was relating to breach of contract, the principle of mitigation which concerns avoiding of the consequences of a wrong applies equally to claim of tort as it applies in a claim for breach of contract. Therefore, even if the Applicant proves a breach or the Applicant is entitled to damages due to wrongful arrest, that principle is qualified by a second, which imposes on the Applicant the duty of taking all reasonable steps to mitigate the loss consequent

10. (1962) SC 366 Gauri Gaekwad 26/35 NMS - 1646-2013.doc on the breach and by debarring any part of the damage which is due to his omission or failure to take such steps. Even in the mater of Tower Vision India Pvt Ltd. (Supra), the Division Bench of the Delhi High Court has relied upon another judgment of Delhi High Court in which it is held as under :-

"12 We have already extracted.......... In the opinion of the Court:-

" 10. .........

11. ........

12. It may be also noted that the Doctrine of Unavoidable Consequence or Mitigation of Damages is applicable in cases of un-liquidated damages....

13. A person therefore, must take reasonable steps to minimize the loss and refrain from taking unreasonable steps which would increase the loss. Defence cannot be held liable to pay a loss which the claimant could have avoided or which arises due to the neglect and failure of the claimant to take such reasonable steps. Damages is compensation for the wrong suffered by the claimant and the loss incurred by him but this is subject to the rule that the claimant must take reasonable steps to avoid their avoidable accumulation. It is difficult to accept that the petitioner was unable to rent out the premises for the lock-in-period of three years despite the highly commercially viable location of the premises. Decline in the rate of rent is not pleaded. The onus in this regard is on the petitioner and no evidence and material has been placed on record to show that the premises could not be rented out. Even the date on Co.Pet.458/2010 & connected cases Page 15 of 42 which the premises was subsequently rented out has not been stated. ............................"

Gauri Gaekwad 27/35 NMS - 1646-2013.doc

30. Therefore, even our Courts have followed the principles that the claimant must take reasonable steps to minimise the loss and refrain from taking unreasonable steps which will increase the loss.

Our Courts have also held that the Defendant cannot be asked to pay the loss which the claimant could have avoided or which arises due to failure to take reasonable steps. Furnishing security by way of a bank guarantee or even a letter of undertaking from the P&I Club would have been a reasonable step. Even the judgments relied upon by the counsel for the Applicant also support this principle. In Lodge Holes Colliery (Supra), the Court has held that the claimant cannot be called to account by the wrong-doer in a minute scrutiny of the expense provided the claimant acted honestly and reasonably. And what is this expense? This expense is the expense incurred or the injured have sought in repairing the injury. Repairing the injury is mitigation of loss. Even here the Court is talking of mitigation of loss. The Court in page 325 has held as under :-

"Now I think a Court of justice ought to be very slow in countenancing any attempt by a wrong-doer to make captious objections to the methods by which those whom he has injured have sought to repair the injury.

When a road is let down or land let down, those entitled to have it repaired find themselves saddled with a business which they did not seek, and for which they are not to blame. Errors of judgments may be committed in this as in other affairs of life. It would be committed in Gauri Gaekwad 28/35 NMS - 1646-2013.doc this as in other affairs of life. It would be intolerable if persons so situated could be called to account by the wrong-doer in a minute scrutiny of the expense, as though they were his agents, for any mistake or miscalculation, provided they act honestly and reasonably. In judging whether they have acted reasonably, I think a Court should be very indulgent and always bear in mind who was to blame. Accordingly, if the case of the plaintiffs had been that they had acted on the advice of competent advisers in the work of reparation and had chosen the course they were advised was necessary, it would go a very long way with me; it would go the whole way, unless it became clear that some quite unreasonable course had been adopted."

ig (emphasis supplied).

31. So also in the Rogers Pyatt Shellac matter(supra), the Court relied upon the earlier judgment of Lodge Holes Colliery(supra) and reproduced this part:-

"It is true, of course, that -

"even those who have been wronged must act reasonably, however wide "the latitude and discretion that is allowed of them within the bounds of "reasons"; per Lord Loreburn (Lord Chancellor) in Lodge Holes Colliery Co. V. Wednesbury Corporation(1), Smith v. McGuire(2)."

32. From all these judgments it is all clear that the nature of the act of the defendant has no relevance to a claimants duty to mitigate. Therefore, the test is whether the action of the Applicant in not furnishing security even by way of letter of undertaking through its Gauri Gaekwad 29/35 NMS - 1646-2013.doc P&I Club and let the brand new vessel which had an assured income of USD 7,500/- per day and in addition to that spend another USD 5,000/- per day approximately (on an average) for about 162 days is reasonable or not.

33. Whether to put up security and take the vessel away which would continue to earn or not put up security but leave the vessel idling is entirely up to the Applicant to decide. If the Applicant choses to adopt a more expensive method of keeping the vessel idle and thereby lose an assured income of USD 7,500/- per day and incur an additional expenditure of USD 5,000/- per day on an average is entirely up to the Applicant. The Applicant is at liberty to do so and by doing so has committed no wrong on or against the Plaintiff or any one else. At the same time the meaning of duty to mitigate the loss or duty to minimise the damage is that the Applicant was not entitled to charge the Plaintiff by way of damages with any greater sum than that which the Applicant reasonably needs to extend for the purpose of making up the loss. Borrowing the expression used in Darbishire vs. Warran (Supra),

Applicant is fully entitled to be as extravagant as he pleases but not at the expense of the Plaintiff.

34. Now the question is did the Applicant take all reasonable steps to mitigate the loss consequent on the arrest of the Defendant No. 1 Gauri Gaekwad 30/35 NMS - 1646-2013.doc vessel?

35. The Applicant always knew from the time he entered into the charter party and being in the shipping industry, that a vessel during the currency of the Charter is likely to be arrested in an action in rem in any Suit by any person having or purported to have claim against the vessel or its owner. That is why clause 71 in the charter party was provided for. Moreover, for this reason clause 103 of the charter party provides

owners guarantee that the vessel is entered with a first-class Protection & Indemnity Club throughout the period of this Charter. Charterers have the benefit of Owners' P&I Club as far as rules permit.

The reason why the P&I clause is provided is because should the vessel be arrested and there is likelihood of the vessel to be detained, by virtue of clause 71, the owner will immediately furnish security to have the order of arrest lifted and the vessel continues to perform its obligations under the charter.

36. During the course of argument to a query put by the Court, the counsel for the Applicant stated that the vessel did not have a P&I Cover for these kind of arrests and hence they could not furnish security. However, from mere perusal of the affidavit in re-joinder shows that the reason for not furnishing security was not non-

availability of P&I Cover, but the Applicant opted not to furnish Gauri Gaekwad 31/35 NMS - 1646-2013.doc security. If there was no P&I Cover available and if there was no way security in the sum of USD 1.6 million was possible to be furnished due to financial difficulties of the owner or non availability of P&I Cover, the same would have been explained in the affidavit in re-joinder, particularly when in the affidavit in reply the Plaintiff has taken a stand that the owners had an obligation to mitigate by furnishing security. The stand of the Applicant in its affidavits and during the hearing was "why should we furnish security?" We were not bound to furnish when the arrest later has been held wrongful.

The Plaintiff was not entitled for an order of arrest against Defendant No. 1 and had obtained the order of arrest wrongfully and the stand of the Defendant No. 1 has been vindicated by the orders of the single Judge, the Division Bench and the Apex Court and hence, the applicant cannot be asked why they did not mitigate their loss by furnishing security. The counsels stand was a wrong-doer cannot insist that the person who was wronged should have attempted to cut its losses. I am afraid that is not the position in law.

37. In my opinion, the action/inaction/stand of Applicant was totally ill advised. It is settled law that any claimant who has a claim in any given situation either for breach of contract or tort has an obligation to mitigate its losses. In my view it will equally apply even Gauri Gaekwad 32/35 NMS - 1646-2013.doc in situation like in this case by virtue of the undertaking given by the Plaintiff. Compensation for pecuniary loss imposes on the claimant a duty of taking all reasonable steps to mitigate the loss and debars the claimant from claiming any part of the damage due to his neglect to take such steps. As held in the Best Food case, the Court also would consider the claim of the Applicant owner of the vessel on the basis that if the Applicant filed a Suit for damages what would the Court have done. Certainly the Court would have considered the issue of mitigation as well. A claimant has to be put as far as possible in as good a situation as if the arrest had not taken place. But this principle is qualified by a second, which imposes on a claimant the duty of taking all reasonable steps to mitigate its loss.

38. The order of arrest was served on the vessel on 29 th January, 2013 whereas the vessel continued to discharge the cargo and earn charter hire until 5th February, 2013. The Applicant had 8 days to furnish security. Owners of a vessel that is arrested always furnished security immediately upon the arrest order being served so that the vessel is released. Rule 954 of the Bombay High Court (O.S.) Rules provides as under :-

"954. Release of arrested property - Subject to the provisions of Rule 952, property arrested under a warrant may be ordered to be released.

Gauri Gaekwad 33/35 NMS - 1646-2013.doc

(i) at the request of the plaintiff, before an appearance in person or a Vakalatnama is filed by the defendant; or

(ii) on the defendant paying into Court the amount claimed in the suit;or

(iii) on the defendant giving such security for the amount claimed in the suit as the Court may direct; or

(iv) on any other ground that the Court may deem just."

Therefore, under this rule when a vessel is arrested, she may be ordered to be released on the owner giving such security for the amount claimed in the Suit as the Court may direct. This is done by considering the vessel's commercial needs and to allow the owner to use the vessel for profit making by substituting the vessel with security. The owner of the vessel arrested exercise this option and furnish security to get their vessel released till such time the action or an application for vacating the order of arrest and return of security is adjudicated upon.

39. In this case also the Defendant No. 1 vessel had a first class P&I Cover. The Applicant could have furnished security by way of a bank guarantee when it had an assured fixed charter earning USD 7,500/- per day. The Applicant could have atleast offered a club letter of undertaking. It is not the Applicant's case that it offered a club letter of undertaking but the Plaintiff rejected. However, for reasons best known to the Applicant, they chose not to furnish security and Gauri Gaekwad 34/35 NMS - 1646-2013.doc thereby lose its assured USD 7,500/- per day income. In addition the applicant also claim to have spent/incurred an additional USD 5,000/-

per day on an average. It is difficult to fathom the intention of the Applicant because the claim is for USD 1.6 million, security for which could have been furnished either by way of a bank guarantee or even by way of P&I Club letter of undertaking particularly because the Defendant No. 1 vessel was entered for P&I Cover with a first-class P&I Club and she was a brand new vessel. Still by not furnishing such a security for USD 1.6 million, the Applicant in its wisdom claim to have lost in excess of USD 2.3 million which they want the Plaintiff to pay. In this claim of USD 2.3 million loss of charter hire itself is in excess of USD 1.3 million which was assured under the charter party.

I do not wish to question the wisdom of Defendant No. 1 in taking such a stand but it cannot be at the expense of the Plaintiff.

40. In my view, Mr. Majumdar's submissions that the Applicant's action to have the order of arrest vacated has to be taken as a step towards mitigation is also not correct. When the Applicant was aware that this was a highly contested matter, it should have furnished security and enjoyed its assured earnings. It would have made better sense to incur costs on furnishing security which would have been for less and claiming it from the plaintiff than sit tight and Gauri Gaekwad 35/35 NMS - 1646-2013.doc claim millions of dollars.

41. Therefore, since it is not the case of the Defendant No. 1 that it was unable to mitigate its losses or it took all steps to mitigate its losses but still ended up suffering prejudice to the amount as it claims herein, I am not inclined to grant summarily any amount as damages to the Applicant. And the Applicant did not put forth an alternative claim of the earliest they could have furnished security.

In view of my above conclusion, the need to go into the various head of claim or the other points raised by Mr. Pratap and Mr. Majumdar does not arise.

42. Accordingly, the Notice of Motion is disposed of as dismissed.

43. In view of the facts and circumstances of the case, I am not inclined to grant any cost to the parties.

( K. R. SHRIRAM, J) Gauri Gaekwad