Order Sheet

IN THE HIGH COURT OF SINDH, KARACHI.

Admiralty Appeal No. 05 of 2011

________________________ ________________________________________

Date Order with signature of Judge

Present:

1. Mr. Justice Faisal Arab

2. Mr. Justice Nadeem Akhtar

Appellant : F.T. SELNES,a fishing trawler / vessel,

throughMr. Naeem Ahmed , advocate.

Respondents : Mega International Commercial Bank Company Limited, Taiwan, Republic of China, and 3 others, through

Mr. Mohammad Ahsan Ghani Siddiqui, advocate.

Date of hearing : 21-03-2012.

J U D G M E N T

NADEEM AKHTAR, J.- Through this Admiralty Appeal, the appellant vessel has impugned order dated 19.04.2011 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 08.12.1999 in favour of respondent No.1 (formerly M/S International Commercial Bank of China) to a tune of Japanese Yen 996,600,000.00 in consideration of the finance provided to respondent Nos. 3 & 4 for acquisition of the vessel. It was the further claimed in the suit that a loan agreement dated 08.12.1999 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 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 dated15.07.2011.

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 08.12.1999 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.1's claim is based squarely on the loan agreement and other documents executed on 08.12.1999. 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.1'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. Learned counsel for the appellant submitted before us that there was a previous financing dated 17.07.1999 between respondent 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 respect of the appellant vessel through the loan agreement and other documents dated 08.12.1999, due to which financing arrangement between respondent 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 respondent 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 of 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) any claim in respect of a mortgage of or charge on a ship or any share therein ;

………………

………………" (emphasis added)

Sub-Section 5 of Section 3 provides that the preceding provisions of Section 3 applies to cases given in clauses (a) to (c) of this Sub-Section. 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.

Sub-Sections (2) & (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 by an action in rem against the ship or property in question.

(3) In any 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 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 bottomry or respondentia bond or to the possession of the ship, Admiralty Jurisdiction of High Court may be invoked by an action in personam against the owners of the property. We have referred to this Sub-Section here because of its importance as it clearly distinguishes actions in rem and from those in personam. After examining the above quoted relevant provisions of the Ordinance of 1980 and respondent No.1's claim in Suit, we are convinced that respondent No.1'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 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 respondent Nos. 3 & 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.1'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.1's 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 Article12.04, jurisdiction of Taiwanese courts was expressly non-exclusive and not exclusive and that the Courts of Taiwan had non-exclusive jurisdiction alongwith 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 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/S 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/S 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 personam, 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) of 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, aircraft 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 (l) 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. Merriel ((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 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 (l) 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 'I'), 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 fori (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/S 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 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 mortgagee 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, can not 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/S M.T. Eastern Navigator and 2 others.

i) Paragraph 29 of the above authority of the Hon’ble Supreme Court is important and very relevant for the purposes of this appeal and as such the same is reproduced below :-

" 29. The Admiralty jurisdiction of the High Court is to hear and determine the causes, questions or claim enumerated in clauses (a) to (r) of subsection (2) of Section 3 of the Ordinance. It includes any claim in respect of a mortgage or charge on ship or any share therein. The suit, therefore, is covered by clause (c) subsection (2) of Section 3 and subsection (2) of Section 4 of the Ordinance. The mortgage is the base of subject suit and word mortgage has repeatedly been used in the plaint of the suit i.e. in its heading and also in paras 2, 8, 11, 16, 19 and 20 and in the prayer clauses Nos. 1 and 2. Title body of the suit states "Admiralty Jurisdiction". The title of the suit also states that these are proceedings in rem against the ship 'M.T. Eastern Navigator". In prayer clauses there is a prayer for auction and auction took place on the request of the respondent No.3 / plaintiff. Accordingly, we hold that Suit No.123 of 1996 falls within the Admiralty Jurisdiction of the High Court and the respondent No.3 holds priority over the claim of the petitioner." (Emphasis added)

ii) In the instant case, respondent No.1 had specifically mentioned in the title of the plaint that the suit was filed against the appellant vessel as an action in rem under the Admiralty Jurisdiction of this Court under Section 3(2)(c) of the 1980 Ordinance. Mortgage of the vessel was also specifically pleaded in the plaint, and prayers for arrest and auction of the appellant vessel were also made in the plaint by respondent No.1. The above cited authority is, therefore, fully applicable in the instant case, whereby the Hon’ble Supreme Court was pleased to hold that mortgagee's suit against the ship in rem was covered under Sections 3(2)(c) and Section 4(2) of the Ordinance of 1980.

D. 2007 CLD 143 (Karachi) (paragraph 29 at pages 151&152)

Port Qasim Authority, a statutory body having its Head Office at Bin Qasim, Karachi and others

V/S Official Assignee of Karachi and others.

By a common judgment reported as above, seven Admiralty Suits were decided by one of us (Faisal Arab, J), wherein Hon’ble Supreme Court's authority PLD 2000 SC 57 (supra) was followed, and it was held that Admiralty Jurisdiction of High Court was to hear and determine the causes, questions or claims enumerated in clauses (a) to (r) of Section 3(2) of the Ordinance of 1980, which included any claim regarding mortgage or charge on ship or any share therein.

E. PLD 1989 Karachi 65 (paragraphs 13 &14 at pages 70 &71)

Inham Refrigerator B.V. V/S The owners of "F.T. Parivash"

and "Transocean Holdings Ltd."

i) In the above noted case, a number of suits were filed against a vessel in the Admiralty Jurisdiction of this Court, and during the pendency of the suits, the vessel was sold and a number of decrees were satisfied. In one suit, the plaintiff obtained a decree as the mortgagee of the vessel. In another suit,the plaintiff obtained a decree in respect of an agreement loaning out the services of an engineer to the owner of the vessel. A supplier also obtained a decree for supplies provided to the ship. The question of priority of claims of all the above mentioned decree holders came up before the court. Paragraphs 13 and 14 of the above mentioned reported case are relevant wherein it was

heldinter alia that since the first suit was not for wages by a seaman, it can not have priority over the suit of the mortgagee, and that the mortgagee of the vessel will have priority. It was further held that the mortgagee's decree will have priority over the other decrees obtained by claimants for supplies of necessaries etc.

ii) Consideration of priority of mortgagee's claim and priority given to his claim / decree over the claims / decrees for supply of necessaries etc. again proves that mortgagee can invoke Admiralty Jurisdiction under the Ordinance of 1980 against the mortgaged ship. The above referred reported case 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.

13. In addition to the above mentioned authorities and cases, we would like to refer to the following relevant extracts from the book 'Maritime Liens and Claims' by William Tetley which show that under Admiralty Jurisdiction courts have power to entertain claims under mortgage of a ship, and how such jurisdiction and law has developed :

Chapter 13 (Ship Mortgages and Hypothecs) :-

" Bottomry therefore became extinct in the nineteenth century and the ship mortgage emerged.

The modern ship mortgage is one of the three major contributions of the common law to the law of maritime liens, claims and mortgages. In the eyes of the civil law, a mortgage on a ship violated the basic principle that only immovable property (i.e. buildings and land) could be hypothecated, and ships had been deemed to be movables by art. 190 of the French Code de Commerce of 1807. Only in the last half of the nineteenth century did civil law jurisdictions modify this position and it was to require a statute in each case : France in 1874, Portugal in 1856, Prussia in 1861, Spain in 1893." (Chapter 13, page 205)

" England, on the other hand, knew the ship mortgage quite early but the Admiralty Court had no jurisdiction over ship mortgages and only in 1840 and 1861 did statutes give the Admiralty Court concurrent jurisdiction over mortgages. Finally, amendments to the Merchant Shipping Acts culminating in the 1894 Act, established the ship mortgage as an effective means of securing financing in the United Kingdom."

(Chapter 13, pages 205 and 206)

" The ship mortgage is derived from the common law and not from the lex maritime or the lex mercatorial. The latter had the benefit of the bottomry bond which by the nineteenth century had become inadequate to the needs of financing large ships, particularly as the debt was extinguished if the ship were lost. Mortgages, in consequence, emerged as a viable form of security on ships as it had become on other chattels but the Admiralty Court did not have jurisdiction over the ship mortgage. As a result, neither the Admiralty writ in rem, nor the Admiralty writ in personam could be used to enforce the mortgage. Jurisdiction over ship mortgages lay in the courts of equity and of common law." (Chapter 13, page 207)

" Limited jurisdiction over mortgages was granted to Admiralty by sect. 3 of the Admiralty Court Act 1840, which jurisdiction was extended to cover any claim in respect of a registered mortgage by sects. 11 and 35 of The Admiralty Court Act 1861."

(Chapter 13, page 207)

" Presently, the Supreme Court Act, 1981 at sect. 20(2)(c) provides complete jurisdiction over "any claim in respect of a mortgage of or charge on a ship or any share therein ;". Admiralty jurisdiction, therefore, is not limited to registered mortgages but extends to unregistered mortgages as well as foreign mortgages." (Chapter 13, page 207)

14. In the end, learned counsel for the appellant agitated the most important ground, which was also argued before the learned single judge, that respondent No.1's suit was barred by time under Section 6 of the Ordinance of 1980 as limitation for bringing an action before High Court to enforce a maritime lien is two years from the date of arising of maritime lien. This ground / objection was raised by the appellant in view of the assertion that respondent No.1's suit was based on maritime lien and respondent No.1 itself had mentioned in paragraph 13 of the plaint that cause of action arose in its favour for the first time on 03.09.2002, whereas the suit was filed in the year 2010. It has two important aspects, first, whether Section 6 was applicable in this case and the suit was barred by time, and second, whether respondent No.1's claimas a mortgagee against the appellant falls within the definition of maritime lien. This is the core issue in this case, and because of its importance and relevance, Section 6 of the Ordinance of 1980 is reproduced below:-

"6. Limitations of maritime lien :-

No action shall be brought before the High Court to enforce a maritime lien for the damage sustained in consequence of collision wheresoever occurring or any other maritime lien unless proceedings therein are commenced within two years from the date of the damage occurring or the maritime lien arising, subject to the discretion of the High Court to extent this period. "

15. The learned single judge has rightly held in paragraph 12 of the impugned order that Section 6 of the Ordinance of 1980 is applicable only in respect of maritime liens, and has observed that it has to be seen as to what categories of claim come within the scope of maritime liens. A reported Division Bench case of this Court (2004 CLD 286) has been discussed in detail by the learned single judge and relevant portion thereof has been reproduced in paragraph 12. In the said reproduced portion, it was held that "appellant's claim falls under respondentia, a legal term applied to Maritime contract mortgaging the ship and their cargo for money advance, as the appellants paid amount in instalments for purchase of the respondent ship and for repayment the said ship was mortgaged." The above reported case was cited and relied upon before the learned single judge and before us also by the appellant claiming that respondent No.1's claim falls under maritime lien as the appellant vessel was mortgaged in consideration of the finance provided by respondent No.1 for its acquisition. By relying on the above mentioned reported case of this Court, it was the case of the appellant before the learned single judge and before us also that since respondent No.1's claim as mortgagee of the appellant vessel is a claim in rem and such claim is a claim in respondentia, the claim of respondent No.1 is in the nature of maritime lien attracting full consequences of Section 6 of the 1980 Ordinance.

16. The learned single judge has disagreed with the above mentioned reported Division Bench case of this Court (2004 CLD 286 supra). Main discussion about the said case and the reasons for disagreeing with the same are contained in paragraph 14 of the impugned order. According to the learned single judge, the key portion in the above quoted passage is where the learned Division Bench of this Court had observed that a claim in respondentia is "a legal term applied to Maritime contract mortgaging the ship and their cargo for money advance". The learned single judge has then referred to the definitions of "Bottomry Bond" and "Respondentia Bond" contained in the Stamp Act 1899. The reasoning given by the learned single judge for distinguishing the said reported Division Bench case (2004 CLD 286 supra) with the instant case is that the term respondentia refers to a lien on the cargo laden or to be laden on board a ship, while the term bottomry relates to money borrowed by the master of a sea going ship on the security of the ship to enable him to preserve the ship or prosecute (to continue) the voyage. On the basis of these findings, the learned single judge has held that a mortgage or charge simplicitor on a ship, especially one relating to the financing of its purchase or acquisition, does not come within the concept of "bottomry" or "respondentia" as defined in the Stamp Act. The learned single judge has also referred to the definitions of the terms bottomry, bottomry bill or bond and respondentia contained in Black's Law Dictionary (sixth edition 1990), Words and Phrases (Permanent Edition) and Maritime & Shipping Dictionary (By Agha Faquir Mohammad, 2006).

17. Main conclusion drawn by the learned single judge and findings given by him are in the operative part in the first paragraph at page 12 of the impugned order, relevant portion whereof is reproduced below :-

" A claim in respondentia does not include a claim by way of a general mortgage or charge on the ship itself, especially one in relation to financing its acquisition, and the case is likewise with a bottomry bond. It therefore necessarily follows that since such a mortgage is not a claim in respondentia, it is not a maritime lien, and hence section 6 of the 1980 Ordinance has no application in respect thereof. A suit based on a claim that falls under clause (c) of section 3(2) of the 1980 Ordinance can not therefore be regarded as barred by limitation on account of section 6. This section has no application in the facts and circumstances of the present case, given the nature of the mortgage claim being made by the plaintiff. Whether the suit would be otherwise barred by limitation is a matter that can only be considered at a subsequent stage, once the parties have led their evidence at the trial. However, at the present time the specific objection raised by learned counsel for defendant vessel can not be accepted. "

18. We are inclined to agree with the above findings of the learned single judge to the extent that a claim in respondentia does not include a claim by way of a general mortgage or charge on the ship itself ; that Section 6 of the Ordinance of 1980 shall have no application in respect a mortgage which, not being a claim in respondentia, is not a maritime lien ; and that a suit based on a claim that falls under clause (c) of Section 3(2) of the Ordinance of 1980 can not be regarded as barred by limitation on account of Section 6. However with respect to the learned single judge, we disagree with his observation that likewise respondentia this is not a case of bottomry though the finance was admittedly provided by respondent No.1 to the appellant for its acquisition. In order to appreciate the general concept of bottomry, and particularly in the context of this case, we have examined some authentic and well known books on Admiralty Law and definitions / terms contained in Shipping / Admiralty dictionaries, which are referred hereunder :

A. Words and Phrases (Permanent Edition) describes bottomry bond as under, which in our opinion is relevant and applicable in this case :-

" A bottomry bond is a contract for a loan of money on the bottom of a ship at an extraordinary interest upon maritime risks, to be returned by the lender, for a voyage or a definite period".

"A bottomry bond is a bond given to secure the loan of money, and pledging the keel or bottom of ship as security therefor".

" A bottomry bond is a bond given for a loan of money upon the security of a vessel and its accruing freight, its payment being dependent upon maritime risks to be borned by the lender".

B. Bottomry has been defined in the "Dictionary of Shipping Terms", Fourth Edition, by Peter Brodieas "The borrowing of money by the master of a ship using his ship as security. Also called a bottomry loan. The document in which the ship is pledged is known as bottomry bond ".

C. In the impugned order at page 11, the learned single judge has referred to the definitions of bottomry given in Black's Law Dictionary and of bottomry bill or bond in Maritime & Shipping Dictionary (by Agha Faqir Mohammad).In our humble opinion, the said definitions of bottomry and bottomry bill or bondare fully applicable in this case.

19. From all the above definitions, as well as from the definitions referred to in the impugned order, it appears that when a loan is obtained by offering the ship itself or the cargo / freight etc. thereon as security, it is called bottomry. Whereas, when a loan is obtained by using only the freight / cargo etc. on the ship as security, it is called respondentia. It further appears that this is definitely not a case of respondentia as the loan for acquisition of the appellant vessel was admittedly not obtained against security of its freight / cargo. But this case does fall within the definition of bottomry as the appellant vessel was admittedly mortgaged as a security for repayment of the loan. It is important to note that it is nowhere defined or mentioned that the loan has to be for acquisition of the ship. Since loan for acquisition of ship is neither specifically mentioned in the definitions of bottomry nor the same is a mandatory condition or prerequisite to constitute bottomry, it can not be said that bottomry comes into existence only when loan is provided for acquisition of ship. Resultantly, whenever a loan is obtained for any purpose against mortgage of a ship, the transaction shall be that of bottomry. In such an event, an action in rem shall be enforceable against the ship under the Admiralty Jurisdiction under Clause (q) of Section 3(2) of the Ordinance of 1980. The above observation of our learned bother that likewise respondentia this is not a case of bottomry shall not affect the merits or maintainability of respondent No.1’s Suit as we have already held in paragraph 8 above that respondent No.1'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. The Suit was also maintainable under Section 3(2)(q) as held above.

20. A view was taken by a learned single judge of this Court in the case of Messers Sun Line Agencies Ltd. V/S Vessel M.V. “Psiloritis” and 2 others reported as 1984 CLC 1553 (Karachi) that irrespective of the fact whether the claim gives rise to a maritime lien on the ship or not, it can be enforced under the Admiralty Jurisdiction of this Court if it falls in any one of the categories of cases mentioned in clauses (e) to (h) and (j) to (q) of Section 3(2). [Note : Clause (q) relates to claims arising out of bottomry or respondentia]. We hereby approve this view as we deem it to be the correct view. Relevant portion of the above cited case is reproduced below :-

" In the light of the above discussed English cases I have carefully considered the provisions of section 4(4) of Ordinance XLII of 1980 and I am of the view that before an action in rem against a ship is instituted under the aforesaid provision of law, it must be shown that : (i) the claim in the suit falls in any one of the categories of cases mentioned in clauses (e) to (h) and (j) to (q) of subsection 2 of section 3 of the Ordinance ; (ii) the claim arises in respect of a ship ; and (iii) on the date of accrual of cause of action the person who would be liable in an action in personam was either the owner of charterer or in possession or in control of the ship. If all the above mentioned three conditions are shown to exist, then such a claim is also enforceable in an action in rem against that ship or any other ship beneficially owned as respect the majority shares therein by that person on the date of filing of the claim in rem irrespective of the fact whether the claim gives rise to a maritime lien on the ship or not under the Admiralty jurisdiction of this Court. "……….…. ('A' at pages 1556 & 1557)

(Emphasis added)

21. As observed above, the core issue in this case is appellant’s ground that the Suit was barred by time which has two important aspects, first, whether respondent No.1's claim as a mortgagee against the appellant falls within the definition of maritime lien, and second, whether Section 6 was applicable in this case. If it is established that respondent No.1’s charge on the appellant vessel as a mortgagee thereof is not a maritime lien, then both the above questions will be answered. To understand whether mortgage is also one of the types of maritime lien or both the said terms are distinct having entirely different consequences, privileges, rights and liabilities, we have examined the following references, extracts whereof are reproduced below for convenience and ready reference :-

In the book 'Maritime Liens' by D. R. Thomas (Volume 14) mortgage and maritime lien have been discussed as follows :

" Mortgage and maritime lien contrasted :

3. A mortgage and a maritime lien are similar in that under both there is created a charge on a ship which may be enforced against the original owner and any subsequent purchaser. Notwithstanding this similarity the two concepts are quite distinct and unrelated. The charge of a mortgagee arises solely by virtue of the mortgage agreement which must be in a form prescribed by statute, whereas the charge of a maritime lienee arises by operation of law, and without any formal requirement, from the moment of the circumstances which give rise to the claim. The right of a mortgagee to pursue his security into the hands of a third party is founded on notice which is secured by a public scheme of registration. The same right of a maritime lienee arises again by operation of law and is independent of notice. No scheme of registration exists in relation to maritime liens which are throughout secret and invisible. It is the absence of public visibility which causes many to view the law of maritime liens as a particularly "Severe" area of law. The right of a mortgagee under the Admiralty jurisdiction is in the nature of a statutory right of action in rem. "

" Efficacy of maritime liens :

4. Maritime lienees also enjoy a high priority and in circumstances where a multiplicity of competing claims exist against a res the claim of a maritime lienee is generally the first to be satisfied. The same advantages are also enjoyed by statutory lienees except that a statutory lienee enjoys a lower priority and a more restricted right in rem."

" Maritime Liens, Mortgages and Statutory Liens :

449. Maritime liens are frequently described as "privileged claims" and this phrase well serves to describe the general priority they enjoy over the other principal classes of claims within the jurisdiction of the Admiralty Court. The general order of preference among the various claims may be stated thus :

(a) Maritime liens.

(b) Mortgages.

(c) Statutory liens. "

" Maritime liens :

450. Maritime liens rank before a mortgage whether the maritime lien accrues prior or subsequent to the date of the mortgage. The only occasion when this order of priority is disturbed is when a maritime lienee introduces his personal liability in favour of a competing class of claimant.

Maritime liens also take priority over statutory liens, but here again the superiority of the maritime lien may be displaced when a master voluntarily assumes a personal obligation."

" Mortgages :

451. As observedabove a mortgage is generally subordinate to a maritime lien. In the cautionary language of Dr. Lushington:

" Where money is advanced on mortgage of the ship, the mortgagee must always be aware that he takes his security subject to all legal liens, and if he suffers therefrom, his only remedy must be against the owners."

In contrast, mortgagees enjoy a high priority over statutory liens. The mortgage charge is created vis-à-vis third parties at the data of registration and all such charges take priority over any subsequent security which may accrue to the benefit of a statutory claimant in rem. "

" Statutory Liens :

452. In relation to maritime liens and mortgages a statutory lien is of lowly priority."

In the book 'Modern Admiralty Law' by Aleka Mandaraka-Sheppard, maritime liens and other statutory rights in rem have been discussed as follows:

Chapter 2 : Nature of the Admiralty Jurisdiction.

2. " Maritime liens contrasted with other statutory

rights in rem :

Although a maritime lien is similar to a mortgage, in that both are charges on the ship and can be enforced against the owner and any subsequent purchaser, it is quite distinct from it for the following reasons : first, unlike a maritime lien, a mortgage is created by an agreement in a form prescribed by statute ; second, a mortgage needs registration which functions as a notice to third parties and the date of registration determines its priority over subsequent registered mortgages ; third, while a mortgage has priority over other statutory rights in rem, a maritime lien has priority over all other maritime claims ; fourth, a maritime lien travels with the ship from the moment of its creation, even when the ship is transferred to a bona fide purchaser without notice."

22. From the above analysis there is hardly any doubt that claims of maritime lienee is superior than those of a mortgagee ; that mortgagee’s claim is always subject to satisfaction of maritime lien ; and that mortgage cannot be equated with maritime lien. This reason alone is sufficient to establish that maritime lien and mortgage are distinct and unrelated rights having altogether different privileges, rights and liabilities of maritime lienee and mortgagee. The learned single judge was, therefore, right in holding that respondent No.1’s claim in Suit based on mortgage was not that of a maritime lien and as such was not hit by Section 6 of the Ordinance of 1980. We would like to add here that the words "maritime lien" and"or any other maritime lien" are specifically mentioned in Section 6 (limitation) of the Ordinance of 1980, whereas the words "mortgage", "charge" or "claim" are not mentioned in the said Section. Therefore, the limitation prescribed in Section 6 shall apply only to "maritime lien" and "or any other maritime lien".

23. In view of the above discussion, we hold that respondent No.1's claim in Suit was/is a claim in rem against the appellant vessel under Sections 3(2)(c), 3(2)(q), 3(5)(c), 4(2) and 4(3) of the Ordinance of 1980, and as such the Suit was maintainable under the above mentioned provisions of the Ordinance of 1980 as well as under the principle of lex fori (the law of the forum). We further hold that the claim / charge of the respondent No.1 as the mortgagee of the appellant

vessel was not that of a maritime lien as the charge of respondent No.1 / mortgagee arose solely by virtue of the mortgage agreement, whereas the charge of a maritime lienee arises by operation of law. We also hold that Suit filed by respondent No.1 was not barred by limitation as Section 6 of the Ordinance of 1980 shall apply only to "maritime lien" and "or any other maritime lien" as specifically provided therein, and not to "mortgage", "charge" or "claim", which are not specifically provided therein. With the above findings, the appeal is dismissed with no order as to costs.

Judge