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Status of P&I Club Claims towards expenses under MLC, 2006

Updated: Nov 5, 2021


 

The Bombay High Court (“Court”) in its order dated 21st June 2021,[1] while dealing with an application filed by a P&I Club, held that expenses incurred by the Club under its cover and the Maritime Labor Convention, 2006 (“MLC”) are not deemed to be Sheriff’s expenses. The Club’s expenses can be recovered by filing a separate suit or by joining in an existing crew suit, and not by a mere application as filed by the Club in this case. Thereafter, the status of the Club’s expenses as Sheriff’s expenses is to be decided at the stage of determination of priorities.


Background of the case and Arguments advanced by the parties:

The case concerns an application filed by the Swedish Club, i.e. the P&I Club for the Vessel GP Asphalt-I (“Vessel”), inter alia, seeking those expenses incurred by it under MLC be treated as Sheriff’s expenses and paid out first in priority from the sale proceeds of the Vessel. The Club pointed out various provisions under the MLC that requires it to provide four months’ wages and other entitlements due from the shipowner to the seafarer, costs of repatriation etc. It argued that it would require leave from the Court to pay the four months’ wages, other entitlements and incur expenses.


On the other hand, Claimants in the suits under which the Vessel was arrested objected to the Club’s expenses being treated as Sheriff’s expenses on the ground that such expenses were incurred under contractual/legal obligations of the Club. They argued that being contractual obligations, performance of the same by the Club does not require the leave of the court.

On humanitarian grounds, expenses incurred by the Club in providing food, drinking water, medical expenses, costs of repatriation, etc. was amicably agreed between the parties to be paid out in priority out of the sale proceeds. Therefore, the question in particular was with respect to the Club’s expenses towards the four months’ wages.


The Court’s findings:

Upon hearing the submissions made by all parties, the Court held that


(a) The P&I Club’s certificate of entry for the Vessel is evidence of a contract of indemnity insurance between the Vessel owner and the P&I Club. Therefore, the Club’s obligation to provide for wages, provisions, repatriation expenses is not only under the Convention, but also contractual;


(b) The Club does not require leave of the Court for discharging its obligations under the contract (i.e., the P&I cover) and/or the MLC and for incurring expenses in that regard. However, if a prior leave is sought from the court before incurring expenses the same is consented by the plaintiff, then the court may allow the same as an exception;


(c) Once the Club has incurred expenses towards payment of wages, etc., it is free to apply to the Court for reimbursement of the same from the sale proceeds. Whether the said application would be by a separate suit filed by the Club or by joining in a crew suit will be decided by the Court at such stage. However, it is not open for the Club to claim its expenses from the sale proceeds of the Vessel, without filing a suit, proving its claim and standing in queue with other creditors at the time of determination of priorities;


(d) Status of priority of the Club’s expenses shall be decided at the time of determination of priorities. The Court also observed that in any event, expenses incurred by the Club towards payment of wages and provision of other assistance under the MLC cannot be treated as Sheriff’s expenses.


In view of the above, the Court disposed of the application filed by the Club, only allowing the expenses incurred by it towards food, drinking water, medical expenses, costs of repatriation, etc., to be treated as Sheriff’s expenses (based on the consent of the contesting Plaintiffs) and not the expenses incurred towards crew wages. The Court clarified that in an application of the present nature, it will never be in a position to ascertain the correctness of the Club’s claim towards crew wages. On the contrary, if a suit had been filed, the crew member would have to prove its claim.

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[1] Interim Application (L) No. 2227 of 2021 (“Application”), in the Commercial Admiralty Suit (L) No. 9620 of 2020

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