Detention of cargo as security for international commercial arbitration

Disputes arose between Allianz Bulk CFR8 PTE LTD (Owners) and Kutch Chemical Industries (Charterers) under a fixture note dated 8.10.2022.

Gujarat High Court decides whether cargo can be detained as security for International Commercial Arbitration seated outside India for disputes arising under a Fixture Note¹.

Brief Facts:

Disputes arose between Allianz Bulk CFR8 PTE LTD (Owners) and Kutch Chemical Industries (Charterers) under a fixture note dated 8.10.2022. The Owners invoked arbitration in Singapore before the Singapore International Arbitration Centre (SIAC) for recovery of damages (USD 462,000) and legal costs (USD 180,000).

The Owners sought to secure their claims in the arbitration proceeding before SIAC by filing an S. 9 – arbitration petition before the Gujarat High Court seeking detention of Coal owned by the Charterers lying at Kandla port.

The Owners moved the Gujarat High Court on ex-parte basis seeking detention of cargo. The Gujarat High Court by way of interim measure directed cargo lying at Kandla Port to be detained and further directed status quo to be maintained as regards the un-lifted cargo.

Charterers application to vacate order of detention of Cargo:

Charterers moved an application to vacate the order of detention on the following grounds:

1. The Parties were not at ad-idem as regards the fixture note as only the draft of the fixture note was circulated.
2. The Owners ought to have invoked SIAC rules for emergency arbitration and sought interim reliefs before emergency arbitrator.
3. The Owners ought not to be allowed to invoke the jurisdiction of the Court under S. 9 of the arbitration and conciliation Act, 1996 for interim measures when alternative remedy is available before the emergency arbitrator under SIAC Rules.
4. The Owners ought to have invoked section 17 of the arbitration and conciliation Act 1996 for interim measures.

Decision of the Gujarat High Court

The Gujarat High Court dismissed the application to vacate the order of detention of cargo on the following grounds (amongst others):

1. Whether the parties were ad-idem regarding the fixture note. The court framed two issues:

Hence, from the correspondence, this Court is required to arrive at two conclusions namely (i) whether there was any meeting of minds?, and (ii) whether the parties were ad idem to the terms of the contract?

2. Thus, in the considered opinion of this Court, as per the law laid down by the Hon’ble Apex Court in Govind Rubber Limited², from the correspondences exchanged between the parties, this Court is of the opinion that even though there was no signed contract between the parties, yet, there was a meeting of minds between the parties and the parties were ad idem to the terms of the agreement and thus, there subsists an agreement in the eyes of law between the parties.
3. Furthermore, the above also fulfils the requirement as laid down by the Hon’ble Apex Court in its dicta in Karnataka Power Transmission Corporation Limited³e. a proposal being made which having been accepted and the consideration given for the promise and the promise must be accepted and communicated and whereas, the acceptance must be unqualified. In the instance case, the email dated 09.10.2022 from the broker of the charterers to the charterers themselves intimating about the draft agreement between the parties denotes the proposal. The proposal i.e. the agreement itself at Clause A denotes the consideration for the promise. Emails from the broker date 10.10.2022 to the charterers i.e. respondents and the reply thereto denotes the unqualified acceptance. Thus, the requirement for a concluded contract, as per the above referred decision, also stand fulfilled in the instant case. Again, at the cost of repetition, it is required to be mentioned that the parties had started taking steps in furtherance of the concluded contract.
4. Section 17 could not be invoked by a party to an International Commercial Arbitration seated outside India and whereas under such circumstances, even without going into the aspect whether the provisions of Emergency Arbitrator are akin to powers under Section 17, it would be clearly observed that Section 17 is out of bounds for parties to an International Commercial Arbitration seated outside India. Consequently, if Section 17 could not be made applicable or if the parties could not invoke jurisdiction of Section 17 in case of an International Commercial Arbitration, foreign seated, then the bar of Section 9(3) itself pales into insignificance.
5. Considering the law laid down by the Hon’ble Apex Court⁴ and having regard to the fact that the petitioner had made out a strong prima facie case in his favour and whereas since it also appears that a balance of convenience is also leaning in favour of the petitioner, this Court had deemed it appropriate to grant ad interim relief in favour of the petitioner and whereas since no extenuating circumstance has been submitted on behalf of the respondents, this Court deems it appropriate not to vacate the interim relief.

Conclusion:

The decision of the Gujarat High Court is a step in the right direction when the court looked at the intention of parties to act on fixture note including WhatsApp communication rather than a word in the fixture note in determining whether a contract was concluded or not.

As regards the detention of cargo, the court applied the correct principles in deciding that remedy under S. 9 for interim measures would be available for an International Commercial Arbitration seated outside India.

Footnotes

1. Allianz Bulk CFR8 PTE LTD V. KUTCH CHEMICAL INDUSTRIES LTD – Arbitration Petition No. 77 of 2023.

2. (2015) 13 SCC 477

3. (2023) 5 SCC 541

4. 2022 SCC OnLine SC 1219

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