JOY THATTIL, THE HINDU BUSINESS LINE
SECURITY FOR RELEASE
May 5, 2013:
In India, the law relating to arrest of a ship has been evolved mainly by the judiciary rather than the legislature. Indian judiciary has witnessed a steady rise in the number of maritime disputes in which the involved parties explore the possibility of getting the vessel arrested. Although the procedure is cumbersome, it is relatively quick to obtain an arrest in urgent situations.
Immediately after an order of arrest is issued by a court of law, the ship becomes security in the custody of the court until an alternative security is furnished or the ship is sold. The main purpose of arrest of the vessel is to obtain security for the satisfaction of a judgment in the action in rem. The arrest of the vessel is only a provisional remedy and its purpose is merely to detain the ship until the matter has been finally settled by a competent court. In other words, the real purpose of arrest, in both the English and the Civil Law systems, is to obtain a security or a guarantee for satisfaction of the Decree.
Courts in several countries accept the letter of undertaking (LoU) issued by Protection and Indemnity (P&I) Clubs as security for release of arrested ship. International P&I Clubs, most of which are over 100 years-old, provide insurance cover to ocean-going vessels. Getting an LoU from them is faster than getting a bank guarantee.
BANK GUARANTEE
However, the Indian courts exercising admiralty jurisdiction recognise and accept only bank guarantees issued by nationalised and scheduled banks or foreign banks in India with an office in Kolkata, Chennai or Mumbai where the warrant of arrest is issued.
The Indian courts maintain the view that security for the claim in the suit is to be furnished by cash deposit in the registry or a bank guarantee for the amount stated in the warrant of arrest. However, the plaintiff in an admiralty suit is at liberty to accept a letter of indemnity issued by a P&I club.
Indian courts normally decline to accept letter of undertakings from P&I Clubs, delaying the release of arrested ships since obtaining a bank guarantee takes more time. Interestingly, a bank giving a guarantee will itself require an acceptable counter-guarantee from a bank abroad.
Getting a bank guarantee for release of the arrested vessel is also more expensive since banks charge 0.25 to 1 per cent of the amount as commission. Besides, it takes more time to obtain a bank guarantee, especially when more than one bank is involved.
The principal advantage of a Club LoU, from the ship-owners’ point of view, lies in its ease of issue and flexibility regarding content. Once a security demand is put forward, a Club LoU can be issued as soon its terms have been agreed, formulated and signed, then communicated by fax or e-mail around the globe in minutes. Another advantage of a Club LoU, from the claimant’s perspective, is that he or she obtains a right to recover his claim directly from the Club. It is important that a Club LoU balances the respective interests, that is, securing the claim without jeopardising the defendant’s rights and defenses.
There are many instances in which even the English Courts have shown the reliability of P&I letter of undertaking, In the recent case of The Durban Court, following the ratio decidendi of the Supreme Court of Appeal which had held, in a different context that “security” under the Act included a bank guarantee, stated that, “…the bank guarantee as well as the P&I Club Letter of Undertaking are couched in similar terms. They are both private contractual undertakings given by either the bank or Club/insurance company to secure an applicant’s claim against a respondent either before or after arrest.”
The Courts in India have a history of following pragmatic customary precedents in rest of the world and there is hope that bank guarantees would be substituted by LoUs from P&I Clubs, thereby obviating complicated procedures involved in settlement of maritime claims to a considerable extent.
(The author is a Kochi-based maritime lawyer.)
SECURITY FOR RELEASE
May 5, 2013:
In India, the law relating to arrest of a ship has been evolved mainly by the judiciary rather than the legislature. Indian judiciary has witnessed a steady rise in the number of maritime disputes in which the involved parties explore the possibility of getting the vessel arrested. Although the procedure is cumbersome, it is relatively quick to obtain an arrest in urgent situations.
Immediately after an order of arrest is issued by a court of law, the ship becomes security in the custody of the court until an alternative security is furnished or the ship is sold. The main purpose of arrest of the vessel is to obtain security for the satisfaction of a judgment in the action in rem. The arrest of the vessel is only a provisional remedy and its purpose is merely to detain the ship until the matter has been finally settled by a competent court. In other words, the real purpose of arrest, in both the English and the Civil Law systems, is to obtain a security or a guarantee for satisfaction of the Decree.
Courts in several countries accept the letter of undertaking (LoU) issued by Protection and Indemnity (P&I) Clubs as security for release of arrested ship. International P&I Clubs, most of which are over 100 years-old, provide insurance cover to ocean-going vessels. Getting an LoU from them is faster than getting a bank guarantee.
BANK GUARANTEE
However, the Indian courts exercising admiralty jurisdiction recognise and accept only bank guarantees issued by nationalised and scheduled banks or foreign banks in India with an office in Kolkata, Chennai or Mumbai where the warrant of arrest is issued.
The Indian courts maintain the view that security for the claim in the suit is to be furnished by cash deposit in the registry or a bank guarantee for the amount stated in the warrant of arrest. However, the plaintiff in an admiralty suit is at liberty to accept a letter of indemnity issued by a P&I club.
Indian courts normally decline to accept letter of undertakings from P&I Clubs, delaying the release of arrested ships since obtaining a bank guarantee takes more time. Interestingly, a bank giving a guarantee will itself require an acceptable counter-guarantee from a bank abroad.
Getting a bank guarantee for release of the arrested vessel is also more expensive since banks charge 0.25 to 1 per cent of the amount as commission. Besides, it takes more time to obtain a bank guarantee, especially when more than one bank is involved.
The principal advantage of a Club LoU, from the ship-owners’ point of view, lies in its ease of issue and flexibility regarding content. Once a security demand is put forward, a Club LoU can be issued as soon its terms have been agreed, formulated and signed, then communicated by fax or e-mail around the globe in minutes. Another advantage of a Club LoU, from the claimant’s perspective, is that he or she obtains a right to recover his claim directly from the Club. It is important that a Club LoU balances the respective interests, that is, securing the claim without jeopardising the defendant’s rights and defenses.
There are many instances in which even the English Courts have shown the reliability of P&I letter of undertaking, In the recent case of The Durban Court, following the ratio decidendi of the Supreme Court of Appeal which had held, in a different context that “security” under the Act included a bank guarantee, stated that, “…the bank guarantee as well as the P&I Club Letter of Undertaking are couched in similar terms. They are both private contractual undertakings given by either the bank or Club/insurance company to secure an applicant’s claim against a respondent either before or after arrest.”
The Courts in India have a history of following pragmatic customary precedents in rest of the world and there is hope that bank guarantees would be substituted by LoUs from P&I Clubs, thereby obviating complicated procedures involved in settlement of maritime claims to a considerable extent.
(The author is a Kochi-based maritime lawyer.)
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