(Court Decision in MV Thermopylae Sierra Case)

The Admiralty High Court of Sri Lanka, delivered a landmark order in the MV Thermopylae Sierra Case. This order sheds clarity on the scope of the in rem jurisdiction under Admiralty Law in Sri Lanka.

The Plaintiff in this case, Scarlet Shipping Company Limited, filed action seeking an arrest of cargo on board the MV Thermopylae Sierra on the basis that the cargo owners failed to provide security for their general average contribution, in accordance with general average declared by owners.

The cargo owners raised the following preliminary objections:

1.Preliminary Objection 1

Law of Admiralty Law in Sri Lanka does not permit a claim for general average to be instituted against the arrest of cargo. Such a claim for general average may only be instituted against the arrest of a vessel.; and

2.Preliminary Objection No. 2

The Court had no jurisdiction to determine the Plaintiff’s claim against the cargo owner as the Fixture Note relating to the cargo sought to be arrested contained an arbitration clause.

In considering Preliminary Objection 1 the Court observed that contributions in General Average are recognized as maritime liens under Sri Lankan law. Accordingly, the Court was of the view that an action in rem can be instituted for the arrest not only of ships but also the whole or part of any cargo on board a ship, which is deemed to be (maritime) property.

Preliminary Objection No. 1 was therefore rejected.

Preliminary Objection No. 2 raised by the cargo owner was founded on the basis that the Fixture Note relating to the cargo, evidencing the contract of carriage with the charterer, contained an arbitration clause. Therefore, the High Court had no jurisdiction over such dispute.

It was not in dispute that the Fixture Note contained an Arbitration Clause.However, the matter for consideration before the Court was whether the Arbitration Clause served as an ouster of the jurisdiction of the Court.

In considering Preliminary Objection 2, the court examined the provisions of the Arbitration Actof Sri Lanka which provides that jurisdiction of Sri Lankan courts is ousted where a party to an arbitration agreement institutes legal proceedings in a court against another party to such agreement and the other party objects to Court exercising jurisdiction over the dispute (which the parties have agreed to refer to arbitration). The court also examined the Admiralty Law of Sri Lanka which was enacted before the Arbitration Act, where it expressly provides that the High Court can exercise jurisdiction in respect of disputes arising out of maritime claims recognized under such law notwithstanding anything to the contrary contained in any other law. The Admiralty Law did not contain similar provisions on the ouster of jurisdiction as the Arbitration Law.

In its findings, the Court relied on the judgment dated 5th May 2015 in the Court of Appeal Case of Colombo Commercial Limited v. MV “SCI Mumbai” – where it was held that the Admiralty Law of Sri Lanka enacted prior to the Arbitration Law of Sri Lanka was a special statute that was not subject to implied repeal by a subsequent general statute such as the Arbitration Law of Sri Lanka by operation of the maxim ‘generalia specialibus non derogant’. Therefore, in Admiralty matters, any agreement by parties to a dispute to settle their disputes by arbitration will not oust the jurisdiction of the High Court, invoked under the Admiralty Law.

Applying the rationale of the SCI Mumbai Case, the Court refused Preliminary Objection No. 2 raised by the cargo owner.

TACIT EFFECT OF THE ORDER

Sri Lanka is not a party to the International Convention on the Arrest of Ships of 1999. The Admiralty Law does not contain express provisions permitting parties to arrest a vessel as security in respect of pending proceedings instituted overseas.

In the case under review, the substantive relief sought by the Plaintiff related to the provision of security by the cargo owners in respect of their General Average contribution. Therefore, such claim was in effect only in relation to the provision of security, and not substantive in the sense of a general claim.

In light of this Order, there is now an element of uncertainty as to whether in rem proceedings/arrest actions can be instituted purely for security of claims; and further, whether such security claims will be entertained where the substantive dispute is reserved for resolution in a foreign jurisdiction.