A cargo of prime hot-rolled steel sheets in steel coils was loaded onto the MV Khalijia 3 at Jingtang, PRC, to be discharged at Kandla, India.

During discharge, the vessel's cranes failed. The vessel was shunted out of its berth. Further, the master of the vessel signed off, and another master took command of the vessel. The new master had not previously sailed to Mumbai as the master of any vessel. During cast off, the windlass motor burned out and the vessel grounded. The crew reported water ingress into the vessel and were evacuated. As the vessel was sinking, the shipowner signed a salvage agreement. Salvage services commenced and the crew rejoined the vessel. Whilst heaving up both anchors the vessel's windlass motors burned out again. The motors were repaired and the vessel was ordered to proceed to Mumbai. However, whilst proceeding, it collided with another vessel. After the collision, the shipowner abandoned the vessel.

The salvors filed arbitration proceedings in order to seek security, and obtained interim orders restraining the cargo interests from their cargo which was on the vessel. The arbitrator issued an order requiring the cargo interests to provide security of USD 7 m. This Court vacated those interim orders. The salvors filed an appeal against this decision. The Division Bench of this Court partly allowed the appeal and directed the cargo interests/shipowner to deposit bank guarantees aggregating to INR 140 m in proportion to their cargo share. The cargo interests provided these guarantees.

By the order of this Court, the cargo was discharged in Mumbai instead of Kandla as the vessel was unseaworthy and not in a condition to proceed to Kandla.

The salvage services terminated and the salvage award was published. The salvors filed further arbitration proceedings to enforce their salvage arbitration award. A few of the cargo interests challenged the contribution sought by the salvors. The guarantees were encashed and deposited into this Court. The cargo interests and the salvors reached an amicable settlement and the salvor’s claim was paid.

The plaintiffs were the holders/consignees/indorsees of bills of lading issued on behalf of the master of the vessel and its owner. They filed this suit against the vessel and its owner, seeking the arrest and sale of the vessel in view of the failure on the part of the defendants to deliver the cargo which at that time was lying inside the abandoned vessel. They claimed all incurred and potential damages/losses to their cargo, which they alleged occurred as a result of seawater ingress into the vessel and its unseaworthiness. They also reserved their rights to seek indemnity/reimbursement of all costs/expenses/damages/losses towards salvage and whatever was incidental thereto.

The plaintiffs relied upon the 'clean on board' bills of lading, evidencing that the cargo was shipped in apparent good quality and condition. In particular, the plaintiffs argued that the Hague Rules applied to their bills of lading. Article 2 of the Hague Rules provides that the carrier shall be subject to the responsibilities and liabilities of the Rules. Further, art 3.1 of the Rules provides that the carrier shall be bound before and at the beginning of the voyage to exercise due diligence to make the ship seaworthy. Article 3.2 of the Rules provides that the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. The Hague Rules were enacted in India, the country of destination, by virtue of the Carriage of the Goods by Sea Act 1925 (India) and were applicable to the shipment. The plaintiffs argued, among other things, that the inspection carried out after the collision implied that the safety management system of the vessel was not in order. They submitted that everything that could possibly have gone wrong with the vessel did go wrong.

The defendants did not make any oral arguments or lead any evidence in the matter. They cross-examined the plaintiffs' witness and stated that they did not desire to rely on any evidence.

Held: The defendants shall pay the plaintiffs the amounts of the bank guarantees, bank charges, and legal expenses.

The plaintiffs' claim is supported by the surveyors' report, which found 37 deficiencies, 15 of which were detainable deficiencies, mostly related to safety aspects, indicating that the vessel's safety management system was not in order.

The vessel was unseaworthy right from the outset. The owner failed and neglected to properly staff and equip the vessel which resulted in its collision. The vessel clearly did not fall within the definition of 'seaworthiness'.

The plaintiffs were required to furnish a bank guarantee as salvage security only because of the ingress of seawater into the hold of the vessel and its listing, and the basic reason for that was the vessel's unseaworthiness. The defendants are liable for indemnifying the plaintiffs for the salvor's claim. The plaintiffs are entitled to a decree against the vessel and its owner to the extent of the quantum of the bank guarantee.