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Petitioner: F.T. SELNES VS Respondent: MEGA INTERNATIONAL COMMERCIAL BANK and 3 others
Court Name: Sindh High Court Judge(s): Faisal Arab, Nadeem Akhtar Title: F.T. SELNES vs MEGA INTERNATIONAL COMMERCIAL BANK and 3 others Case No.: Admiralty Appeal No, 5 of 2011 Date of Judgment:2012-07-30 Reported As: 2013 CLD 362 Result: Appeal dismissed
Judgment ORDER ' NADEEM AKHTAR, J.---Through this Admiralty Appeal, the appellant vessel has impugned order dated 19-4-2011 passed by a learned single judge of this Court in Admiralty Suit No,29 of 2010 filed against the appellant vessel and its owners by respondent No,1 bank. By the impugned order, C.M.A. No,1314 of 2010 filed in the aforesaid Suit by respondent No,1 bank/mortgagee has been allowed wherein it was prayed by the respondent No,1/mortgagee that the appellant vessel should be arrested and be detained until the respondent No, 1/mortgagee receives all its outstanding dues and claims from the appellant vessel to the satisfaction of the Nazir. 1. The background of this case is that respondent No,1 /plaintiff filed Admiralty Suit No, 29 of 2010 on 28-12-2010 against the appellant vessel and its owners claiming that the appellant vessel executed a first preferred mortgage dated 8-12-1999 in favour of respondent No,1 (formerly Messrs International Commercial Bank of China) to a tune of Japanese Yen 996,600,000.00 in consideration of the finance provided to respondents Nos,3 and 4 for acquisition of the vessel. It was further claimed in the suit that a loan agreement dated 8-12-1999 was executed by the parties, but ultimately the owners/borrowers committed default of the said agreement. In the above background, respondent No,1 /plaintiff prayed inter alia for a decree against the respondents for US $ 1,240,000 with interest thereon at the rate of 15% per annum from the date of default; for issuance of warrant of arrest of the appellant vessel; and for sale of the appellant vessel as well as for realization of such sale proceeds towards the outstanding dues. 2. Along with the plaint, respondent No,1/plaintiff filed C.M.A. No,1314 of 2010 under Rule 731 of the Sindh Chief Court Rules (O.S.) for issuance of warrant of arrest of the appellant vessel and for its detention till payment of the entire outstanding amount. By an interim order dated 30-12-2010
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passed in Suit on the aforesaid application, warrant of arrest of the appellant vessel was ordered to be issued, the appellant vessel and its owners were directed to furnish security for an amount of US $ 1,240,000, and the port authorities were directed not to allow the appellant vessel to leave their territorial jurisdiction. This interim order remained in the field till the passing of the impugned order dated 15-7-2011. 3. The appellant vessel and its owners filed their counter affidavit in reply to appellant's C.M.A. No,1314 of 2010 opposing the same and by submitting inter alia that they did not obtain any loan from respondent No,1 bank; that the loan agreement dated 8-12-1999 filed and relied upon by respondent No,1 bank was forged; that the court did not have Admiralty Jurisdiction under the said agreement ; etc. In its rebuttal, respondent No,1 bank filed its detailed rejoinder wherein the stand taken in the plaint was strongly reiterated and the assertions made by the appellant were denied. 4. Mr. Naeem Ahmed, learned counsel for the appellant, has strongly challenged the impugned order by agitating before us all those grounds which were urged before the learned single judge. The impugned order is an exhaustive order wherein the learned single judge has not only examined each and every aspect of the case, but has also given his detailed findings with reasons after discussing the contentions of both the parties. The learned single judge has left hardly any thing for us to add or supplement in his findings. However since the said order has been impugned before us in this appeal, we are of the opinion that the grounds urged by the learned counsel for the appellant and the findings in the impugned order should be dealt with simultaneously in order to avoid repetition. 5. In the impugned order, from paragraph 4 onwards the learned Single Judge has discussed in detail all the aspects and important clauses of the agreement as well as respective contentions of both the parties, and has. Also discussed relevant Articles of the loan agreement by observing that respondent No, l's claim is based squarely on the loan agreement and other documents executed on 8-12-1999. It has been observed in the impugned order that Article 1.02 required creation of first preferred mortgage over the appellant vessel in favour of respondent No,1 bank; Article 2.05 provided repayment of loan in 84 consecutive instalments spread over a period of seven years; there was a specific provision in Article 7.09 with regard to mortgage being registered over the appellant vessel; events of default were defined in Article 10; Article 10.02 specifically provided that if an event of default occurred, there would be an acceleration i,e, all amounts due and payable under the loan agreement would become due and payable immediately without any "presentment, demand, protest or notice of any kind"; Article 12.04 provided the law and jurisdiction, clause (b) of this Article specifically provided that the parties had irrevocably agreed for the benefit of the lender (respondent No,1 bank) that any legal action or proceedings in connection with the agreement against the borrower/co-borrower or guarantor or any of their respective assets may be brought in the Kaohsiung District Court which shall have non-exclusive jurisdiction along with any other court of lender's (respondent No,l's) choice to settle any dispute arising out of or in connection of the loan agreement. In paragraph 6 of the impugned order, it has been observed that the first preferred mortgage in favour of respondent No,1 bank over the appellant vessel was duly recognized. 6. 6. Learned counsel for the appellant submitted before us that there was a previous financing dated 17-7-1999 between respondents Nos,3 and 4 whereby the former had provided financing to the latter for acquiring the appellant vessel, and in consideration thereof, a mortgage had been created in favour of respondent No,4. According to the learned counsel, respondent No,1 bank had no locus standi to file the suit or to claim charge on the vessel in view of the above. This aspect has been dealt with in detail by the learned single judge in paragraph '7 of the impugned order wherein it has been observed inter alia that subsequently fresh/alternative financing 'was arranged in
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respect of the appellant vessel through the loan agreement and other documents dated 8-12- 1999, due to which financing arrangement between respondents Nos,3 and 4 came to an end and was replaced by fresh financing provided by Central Finance, and thereafter all the rights of Central Finance as lender stood assigned to respondent No,1 bank which also acquired a first preferred mortgage over the appellant vessel. All the above was done with the express consent of respondents Nos,3 and 4. On the basis of the above findings, the learned single, judge has held in paragraph 7 of the impugned order that respondent No,1 bank is not merely a mortgagee or the appellant vessel, but it also stands in the shoes of the lender by way of the above mentioned Assignment, and therefore the respondent No,1 bank does have a Claim against the appellant vessel which can be pursued in rem against it under section 3(2)(c) of the Admiralty Jurisdiction of the High Courts Ordinance, 1980, (Ordinance of 1980). Similar findings are contained also in paragraph 8 of the impugned order. 7. In order to appreciate the above findings of the learned Single Judge, which have been challenged in this appeal by the appellant, we have examined the following relevant provisions of sections 3 and 4 of the. Ordinance of 1980:- "Section 3(2): The Admiralty jurisdiction of the High Court shall be as follows, that is to say, jurisdiction to hear and- determine any of the following causes, questions or claims:- (a) (b) (c) anti claim in respect of a mortgage of or charge on a ship or anti share therein; ......................................... " (emphasis added) ' Subsection (5) of section 3 provides that the preceding provisions of section 3 applies to cases given in clauses (a) to (c) of this subsection. Clause (c) is relevant, which is reproduced below:-- "(5) The preceding provisions of this section apply (a) ................................ (b) ................................ (c) so far as they relate to mortgages and charges, to all mortgages or charges, whether registered or not and whether legal or equitable, including mortgages and charges created under foreign law." (emphasis added) ' Section 4(1) provides for an action in personam in the Admiralty jurisdiction of High Court. ' Subsections (2) and (3) of Section 4 are relevant and important, which are reproduced below:-- "4. Mode of exercise of Admiralty jurisdiction: (1) ........................................ (2) The Admiralty jurisdiction of the High Court may in the cases mentioned in clauses (a) to (d), (i) and (r) of subsection, (2) of section 3 be invoked bu an action in rem against the ship or property in question. (3) In anti case in which there is a maritime lien or other charge on any ship, aircraft or other property of the amount claimed, the Admiralty jurisdiction of the High Court may be invoked by an action in rem against the ship, aircraft or property. ........................................ " (emphasis added) 8. We have noticed that under Clause (c) of section 3(2) of the Ordinance of 1980, High Court has Admiralty Jurisdiction to hear and determine any claim in respect of a mortgage of or charge on a ship or any share therein, and such jurisdiction in respect of mortgages and charges has been further extended under Clause (c) of section 3(5). This position is further strengthened by the above quoted section 4(2) whereby Admiralty Jurisdiction of High Court can be invoked under Clause (c) of section 3(2) by an action in rem against the ship or property, and also by section 4(3) whereby Admiralty Jurisdiction of High Court can be invoked by an action in rem against the ship in any case in which there is a maritime lien or other charge on the ship. It would not be out of
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place to observe here that under section 4(6) where the claim is in the nature of a maritime lien, other than a claim on a bottom or respondent bond or to the possession of the ship, Admiralty Jurisdiction of High Court may be invoked by an action in person am against the owners of the property. We have referred to this Subsection here because of its importance as it clearly distinguishes actions in rem and from those in person am. After examining the above quoted relevant provisions of the Ordinance of 1980 and respondent No, l's claim in Suit, we are convinced that respondent No, l's claim in Suit was/is a claim in rem against the appellant vessel under sections 3(2)(c), 3(5)(c),4(2) and 4(3) of the Ordinance of 1980. Therefore, we do not see any infirmity in the finding of the learned single judge that the respondent No,1 bank does have a claim against the appellant vessel which can be pursued in rem against it under section 3(2)(c) of the Admiralty Jurisdiction of the High Courts Ordinance, 1980. 9. The next ground urged before us by the learned counsel for the appellant was that the name of respondent No,1 bank had been changed from International Commercial Bank of China to its present name, therefore, the respondent No,1 bank could not sue in its present name. This ground/objection of the appellant was rejected by the learned single judge in paragraph 9 of the impugned order on the ground that the material placed on record by respondent No,1 bank, such as, banking business licence issued to respondent No,1 and its Articles of Incorporation were sufficient to show that respondent No,1 is duly incorporated, has the power to conduct its business, and changed its name as stated above. We may add here that the appellant never denied or disputed that the above material was not placed on record by the respondent No, 1 bank. We, therefore, feel that this finding of the learned single judge is also correct as per the record of this case. 10. Mr. Naeem Ahmed then submitted before us that there was nothing on record to show that beneficial ownership of respondents Nos,3 and 4 on the one hand, and of the owner of respondent No,1 bank as per maritime record of the Philippines, that is, Full Harvest on the other, is the same. In paragraph 10 of the impugned order, the learned single judge has discussed this objection of the appellant about ownership of the vessel and has held the same to be without substance. The learned single judge has specifically observed that respondent No,1 bank is pursuing a claim in rem against the appellant vessel on account of the mortgage created in its favour over the vessel, and that respondent No, l's claim in rem falls under the relevant provisions of the Ordinance of 1980. There is nothing wrong in this finding as we have already held above that respondent No, is claim in Suit was/is a claim in rem against the appellant vessel under the provisions of the Ordinance of 1980. We would like to add here that where a right to an action in rem is created, such right can be invoked without any restriction as to ownership. (See paragraphs 12-A(ii) and 12-A(v) post). 11. Learned counsel for the appellant then contended that under Article 12.04 of the loan agreement the suit was not maintainable as the exclusive jurisdiction in respect of this dispute was only before the courts of Taiwan. This objection has also been decided against the appellant by the learned Single Judge. After carefully examining the said Article 12.04 of the loan agreement, we are in full agreement with the findings of the learned single judge contained in paragraph 11 of the impugned order that, as specifically provided in the said Article 12.04, jurisdiction of Taiwanese courts was expressly non-exclusive and not exclusive and that the Courts of Taiwan had non-exclusive jurisdiction along with any other court of lender's choice to settle any dispute arising out of or in connection with the loan agreement. We may add here that this mutual arrangement was irrevocable, and further that as the said Article neither provided exclusive jurisdiction to courts in Taiwan nor lender's choice was restricted or limited to settlement of disputes in Taiwanese courts, it cannot be assumed that the parties had agreed in the manner as averred by the appellant. We may further add here that according to the principle of lex fori (the law of the forum), this Court
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had/has the Admiralty jurisdiction in respect of the appellant vessel as discussed in paragraph 12- A(v) post. This ground having no force is therefore rejected. 12. Before proceeding further, we would like to discuss the following relevant and interesting authorities of the Hon'ble Supreme Court and reported cases of this Court in relation to the above mentioned grounds urged by the appellant, because in our considered opinion the same shall not only set the controversies involved herein at rest, but will also support our findings as well as the findings of the learned single judge:-- A. PLD 1993 SC 88 (Full Bench) Atlantic Steamer's Supply Company v. M.V. Titisee and otheRs, (i) In the above mentioned authority, the Hon'ble Supreme Court was pleased to discuss in detail the case of Bankers Trust International Ltd. v. Todd Shipyards Corporation decided by the Judicial Committee of the Privy Council and reported in Lloyd's Law Reports 1980 Volume 2 AC 221. Brief facts of the said case were that repairs of a British ship were carried out in New York and the repairers were entitled to maritime lien for the price of repairs under the U.S. Law. The ship sailed from New York and reached Singapore, where the ship repairers as well as the mortgagees' initiated admiralty action in rem against the ship in the High Court., The ship was arrested in Singapore and was then sold by order of the court in mortgagees' action. As the sale proceeds were not sufficient to satisfy all the claims made by owner's creditors, the ship repairers applied to the High Court for a declaration that they were entitled to a maritime lien for price of the repairs, whereas the mortgagees applied for determination of the priority of payment from sale proceeds. The High Court decided that the ship repairers were not entitled to maritime lien and mortgagees' claim was entitled to priority over the claim of ship repaireRs, Upon an appeal filed by the ship repairers, the Court of Appeal reversed the above decision, where after the matter came up before the Privy Council which, by majority view, set aside the judgment of the Court of Appeal and restored the original judgment of the High Court, whereby priority was given to mortgagees' claim. In paragraph 16 at page 101 of the above cited authority, the Hon'ble Supreme Court was pleased to hold that the above majority view was in consonance with the provisions of the Ordinance of 1980 in force in Pakistan. (ii) In paragraphs 17 and 19 at pages 105, 106 and 107 of the above cited authority, the Hon'ble Supreme Court was pleased to observe and hold as under:- " 17 It may be observed that section 4 deals with the mode of exercise of Admiralty jurisdiction. ' Subsection (1) thereof provides that subject to the provision of section 5, the Admiralty jurisdiction of the High Court may in all cases be invoked by an action in person am, whereas subsection (2) of it lays down that the Admiralty jurisdiction of the High Court may in the cases mentioned in clauses (a) to (d), (i) and (r) Subsection (2) of section 3 be invoked in rem against the ship or property in question. It may further be stated that subsection (3) of above section 4 provides that, in any cases, in which there is maritime lien or other charge on any ship, aircraft or other property of the amount claimed, the Admiralty jurisdiction of the High Court can be pressed into service by action in rem against the ship, aireraft or property (emphasis added) "19. We may also observe that the words "or other charge" appearing in subsection (3) of section 4 after the words "a maritime lien " would not cover a case falling under the above clauses (1) and (m) of subsection (2) of section 3 of the Ordinance. The above words, "other charge" have been subject matter of interpretation in the case of Smith's Dock Co. Ltd v. Owners of the m. v. St. Morriel ((1963) 1 All ER 537)), wherein Hewson, J. Of Probate, Divorce and Admiralty Division, has made the following observations:- As I read in this context, 'charge' refers to a charge in the nature of a mortgage. I am fortified in this opinion by the wording of section 1(4)(c) of this Act. Such claims are confined to the High Court. I now turn to section 3(3), which provides for similar jurisdiction 'In any case in which there
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is a maritime lien or other charge on any ship of the amount claimed Those clauses of claims are not confined to the High Court. (2) A maritime lien does not in English law attach to a ship in respect of a claim such as is made in the case, that, a claim in respect of repairs to a particular ship. Where a maritime lien exists, this subsection gives a right to an action in rem without any restriction as to ownership. The words which have to be considered in this section are, "or other charge on any ship.... Of the amount claimed": and "other charge" is not defined. But be it noted that the words are not "other claims". Claims in general are dealt with in subsection (4)." (Emphasis added) (iii) It may be noted that above cited authority of the Hon'ble Supreme Court was the outcome of an Admiralty Suit for recovery of the amount of necessaries supplied to a vessel. That is why it was held by the Hon'ble Supreme Court in the above quoted paragraph 19 that the words "or other charge" appearing in section 4(3) of the Ordinance of 1980 after the words "a maritime lien" would not cover a case falling under clauses (1) and (m) of section 3(2) of the Ordinance of 1980 which relate to claims in respect of necessaries supplied to a ship or to claims in respect of its construction, repair, or equipment of a ship or dock, charges, or dues. (iv) The above cited authority is relevant for the purposes of this appeal and the reason for relying on the same is that in the above quoted paragraph 17, the Hon'ble Supreme Court was pleased to hold very clearly that section 3(2) lays down that the Admiralty Jurisdiction of High Court may in the cases mentioned inter alia in clauses (a) to (d) be invoked in rem against the ship or property in question, and that section 4(3) provides that where there is maritime lien or other charge on any ship of the amount claimed, the Admiralty jurisdiction of the High Court can be pressed into service by action in rem against the ship. In view of the above, this authority of the Hon'ble Supreme Court shall apply with full force to the present case falling under clause (c) of section 3(2) which specifically relates to any claim in respect of a mortgage of or charge on a ship. The above authority of the Hon'ble Supreme Court clearly lays down that claim against mortgage of a ship is a charge of the mortgagee on the ship, and High Court has power to adjudicate such claims in respect of such mortgage or charge under its Admiralty jurisdiction. (v) Another reason for relying on this authority is that in paragraph 15 at page 99 (side line T), the Hon'ble Supreme Court was pleased to hold that whether a party is entitled to claim a particular remedy is to be determined with reference to lex fori. Lex fori has been defined in the Shipping/Admiralty Law as "the law of the forum". This is relevant in this appeal because the appellant vessel has challenged Admiralty. Jurisdiction of this Court. According to the principle of lex Pori (the law of the forum), this Court had/has the Admiralty Jurisdiction in respect of the appellant vessel as it came and is still now within the territorial/Admiralty jurisdiction of this Court. Accordingly, all the provisions of the Ordinance of 1980 are fully applicable in this case. This authority of the Hon'ble Supreme Court also answers the objection of the appellant vessel about change in its ownership in view of the English case (discussed by the Hon'ble Supreme Court) wherein it was held that where a maritime lien exists, a right to an action in rem is created without any restriction as to ownership. (See paragraph 12-A(ii) ibid). B. PLD 1991 SC 1021 (Full Bench) Hong Leong Finance Limited v. M.V. Asian Queen through Nazir High Court. (i) In the above cited authority, appellant before the Hon'ble Supreme Court as a mortgagee of a vessel registered in Singapore filed an Admiralty Suit in the Admiralty Jurisdiction of this Court for arrest and sale of the vessel for satisfaction of the mortgage claim. The vessel was arrested by this Court, but in the meantime several other Admiralty Suits and Execution proceedings were filed for Admiralty claims for wages of the crew members of the vessel, wages and disbursement by the Masters of the vessel, recovery of necessaries supplied to the vessel and charges for repair of the vessel. Mortgagee's Suit was decreed and other Suits were compromised. The Court then
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determined priorities by holding that claim for wages of crew and Master had priority over the mortgage claim, and also 'awarded interest to them. The mortgagee filed Admiralty Appeal before this Court which was dismissed. The mortagee then filed appeal before the Hon'ble Supreme Court wherein it was held inter alia that the crew and Master had precedence over the mortgagee whose claim ranks inferior to their claim, but it was held that crew members and Master, after satisfaction of their entire claim, cannot on equitable grounds ask for further amount by way of interest which was not granted to them under the decree. Mortgagee's appeal was allowed by the Hon'ble Supreme Court in the above terms. (ii) Consideration of priority of mortgagee's claim in the above cited authority proves that mortgagee can invoke Admiralty Jurisdiction under the Ordinance of 1980 against the mortgaged vessel even if priority of his claim is inferior to that of other claimants. The above authority of the Hon'ble Supreme Court also shows that claim against mortgage of a ship is a charge of the mortgagee on the ship, and High Court has power to adjudicate such claims in respect of such mortgage or charge under its Admiralty Jurisdiction. C. PLD 2000 SC 57 (Division Bench) (available in PLD 2001 Supreme Court volume/part) Yukong Ltd. South Korean Company, Seoul, South Korea v. M.T. Eastern Navigator and 2…
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