Assimilating Conversion Rate and Balancing Priority for Claims of Interests & Costs

By Mohammad Atik Saiyed & Pooja Shukla

1. Introduction

We are not changing in a continuous sequence, rather we are transforming in an irreversible rhythm and with the exponentially propagating trade and commerce, the world is now a global village[1] and the dynamic dimensional waves of the seas determine the driving force of the universal economy. As society has evolved and the structure of interdependent and intertwined utility alternatives has changed, new perspectives, disagreements, questions, and legal mechanisms have also emerged. Contemporarily, Admiralty Law has developed as a core effective means for dealing with disputes relating to vessels and commerce in navigable waters and the expanding increase in application unveils questions revolving around the priority of payments of crew wages, interests as well as costs and ascertaining the conversion amount for realizations, which was recently unsettled and further settled by the Bombay High Court in the case of Slovesnov Vadym & Ors. v. OSV Beas Dolphin[2].

1. Constructing the sub-structure with brief relevant facts

Constructing the sub-structural root of the legal questions before the court, a defendant – vessel named OSV Beas Dolphin (IMO No.9413482) (hereinafter referred to as the “Vessel”), was sold by an order of the Court and thereby, interim applications were filed by erstwhile crew members for payment out of their claim towards crew wages, interest, and costs, out of the sale proceeds of the Vessel. Particularly, two interim applications (IA No. 9949/2020 & IA No. 1557/2021) were decreed in the favor of crew members, wherein, the Court allowed the claim of:

• Firstly, for the sum of US$ 108,810, along with interest at the rate of 8% p.a. from the date of the institution of the suit till the date of payment as well as costs of US$ 15,000 in Interim Application (L) No. 9949/2020; and
• Secondly, for the sum of Rs.22,53,753/- along with interest at the rate of 8% p.a. on the sum from the institution of the suit till payment as well as costs of Rs.1,85,000/- in Interim Application No. 1557/2021.

After hearing the applicants as well as other claimants, including the Board of Trustees of the Port of Mumbai and HAL Offshore Ltd., the Court determined the priorities in accordance with the provisions contained in Section 9 r/w Section 10 of theAdmiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017[3], (“the Admiralty Act, 2017”). As highlighted earlier, the applicants were crew members with unpaid wages, and undisputedly, in alignment with the priorities which the Court determined, the applicants in both the applications, being the crew members and decree holders, stood first in the order of priority and their claims ranked equally. Ergo, in the prism of determining the amount of payment towards the claim, the unresolved central dilemma revolved around the aspects of priority to interests & costs and the date for the rate of conversion.

1. Balancing disagreements of ‘Priority’ and ‘Conversion’

The legal and logical conundrum settled by the Court essentially revolves around three central questions:

1. Whether the interest awarded by a court on unpaid wages also commands the same priority as crew wages?
2. Whether the litigation costs to crew members awarded by the Court also command the same priority as crew wages?
3. In a circumstantial latitude where the decree for a claim has been passed in US Dollars, what should be the date for determining the rate of conversion in the event the money is to be paid in Indian Rupees?

1. Analyzing anatomical and precedential interpretations

Paramountly, the facets of priority of claims with reference to the interests and costs and the date for conversion rate have not been furnished in the parent act, and since the issue whirls around the same, to lucidly settle the question, it is foremost to comprehensively understand ‘Interests’ and ‘Costs’ along with their nature and character in the decree of a claim. In order to address the question of interpretation, the Court consulted various sources of legal precedent, which are touched hereinbelow.

1. Priority of claims of wages and interest

The Court underlining the literal understanding of the text from Section 9(1)(a) of the Admiralty Act, 2017, highlighted the highest priority conferred to the claim for wages and other sums due to the crew members as they are entitled to proceed against the vessel and its sale proceeds irrespective of the change in ownership of the vessel, in rem. Furthermore, the Court took the insight of the legislative intent for according the highest priority to wages and timely payment to a seaman by noting provisions contained in the Merchant Shipping Act, 1958[4], and the Merchant Shipping (Maritime Labour) Rules, 2016[5], wherein, Section 129 and Rule 9 m

arks an obligation of payment to seaman within four days of the discharge along with the sanction for any unreasonable delays in payment. In a conjoint understanding, the Court dissolved an indication that the legislature has taken care to provide for a definite timeline for payment of wages of the crew members on board, and at the time of discharge.

Moving further in the prism, the Court referred to the case of Dr. Sham Lal Narula vs. The Commissioner of Income Tax[6], adverting to the judgment of the House of Lords in Westminster Bank Ltd. vs. Riches[7] derived that ‘Interest’ has a familiar connotation in law and on that premise, made an observation that the award of interest cannot be considered independent to the unpaid wages. The Court rejected the obscurity created by the submission of the defendants between the contractual rate of interest and award of interest by the Court and established that even in the absence of a stipulation in the contract of employment for payment of interest on the unpaid wages, the interest component resolved by the Court will stand in parity with the character of wages.

• Priority of costs

Unfolding extensive analysis relating to costs, the Court touched on the definition advanced in P. Ramanatha Aiyar’s Advanced Law Lexicon Dictionary, 3^rd Edition[8] accompanied by a recent pronouncement by the Apex Court in the case of Uflex Limited v. Government of Tamil Nadu and Ors.[9] and the Law Commission’s Report No.240[10] to apprehend the nature, object, and necessity of awarding costs. In a congruent sense, the Court drew sheer impracticability of dissecting the components of a decree for the purpose of determination of priorities by citing the provisions contained in Section 10(1) of the Admiralty Act, 2017 and arrived at an analogy that since the costs are awarded by the Court as a measure to compensate a party for having been compelled to approach the Court for enforcement of a legitimate claim, costs ought to get the same color as the claim, for the enforcement of which the proceedings, in which it was awarded, were instituted.

• Date for ascertaining the forex conversion rate

Parallelly, propelling to the third dimension of conversion of the decretal amount which is in US Dollars into Indian currency, the Court explicitly concentrated on the case of FORASOL vs. Oil and Natural Gas Commission[11], wherein, the Supreme Court was confronted with a question as to the date to be selected by the Court for converting Indian rupees in French Franc part of the award in respect of which no rate of exchange had been fixed either by the contract between the parties or the award. On this touchstone which evidently sets out that where money is expressed to be payable in foreign currency, the plaintiff has the option to claim the amount in Indian currency or foreign currency in which it was payable and emphasis was highly placed on Section 134 of the Merchant Shipping Act, 1958, which prescribes the rule as to payment to seamen in foreign currency. In analyzing the paradigm, the Court drew a deduction that notwithstanding anything in the agreement between the owner or master of the ship and the seaman if the seaman has agreed to receive the wages in a specified currency, the seamen shall be entitled to payment at the rate of exchange for the time being current at the place where the payment is made.

• Reflecting application and reasoning of the Court

In alignment with the multi-dimensional comprehensive analysis of the legislative anatomy, academic construction, and related case laws, with the logical and legal analogy, the Court drew an interpretative conclusion with the following key observations:

• Interest on unpaid crew wages arises because wages were not paid when they were due. While awarding interest, the court is aware of all circumstances for the claimant’s entitlement to interest. Therefore, the interest awarded by the court for unpaid wages will be considered a part of the wages.
• In the congruent set, litigation costs for unpaid wages are awarded by the court to compensate the crew members who had to undergo the process of litigation. Such costs will be treated in the same manner as the claim for which the action has been initiated. Costs cannot be dissected and treated as a separate maritime claim as the same would be contrary to Section 4(1) of the Admiralty Act.
• Where a crew member has agreed to receive wages in a specified currency, he shall be entitled to payment at the current exchange rate when the payment is made and not at the time of the decree.

• Concluding perspective

In line with the stark contrasts and reasonable conflicts in the comprehensive analogy of the various dimensions in the prism of “Interests”, “Costs” and “Conversion Rate” the Court lucidly outlined that the costs and interests associated with a claim for unpaid crew wages will be given the same priority as a maritime claim for unpaid dues and it was supported u/s 129(2) of the Merchant Shipping Act, 1958. Dissolving the color of the same horizon, in the event the Master/Owner/Agent fails to pay the crew timely without reasonable cause, they are liable to remit twice the pay from the day of discharge (maximum up to 10 days).

In our perspective, the judicial stance is a rightful measure to protect the interests of the crew members, who are most vulnerable to exploitation in such circumstances owing to the scarcity of resources. While implementation, the priority of claims should be regarded, without differentiating the wages from interests and costs, as it constitutes a fundamental part of the entitlement of the crewmembers. Ergo, canvassing a submission that a decree cannot be dismembered into distinct parts, in the matter of priority is justified. Inclusion of costs within the ambit of wages will add a positive ancillary incentive for the distressed crewmembers to approach the Courts in the interests of justice. Additionally, the entitlement of crewmembers determined by the conversation rate at the time of payment satisfies the aspect of parity and protection from windfall forex rates in remuneration. The apex court must seize the opportunity, explore the scope and crystalize the position in favour of the crewmembers by granting same priority as wages to interests and costs, which will further enhance income, security and welfare of the crewmembers.

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[1] Marshall McLuhan, Do we live in global village?, The Gutenberg Galaxy and University of Illinois Library, (February 23, 2023, 8:30 PM),https://www.library.illinois.edu/village/globalnews/mod1/pg1.htm#:~:text=The%20term%20was%20coined%20in,such%20as%20radio%20and%20television.

[2] Slovesnov Vadym & Ors. v. OSV Beas Dolphin (IMO 9413482), Interim Application (L) No. 9499 of 2020 in Commercial Admiralty Suit No. 30 of 2022 (India).

[3] Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, Acts of Parliament, 2017 (India).

[4] The Merchant Shipping Act, 1958, Acts of Parliament, 1958 (India).

[5] The Merchant Shipping (Maritime Labour) Rules, 2016, Ministry of Shipping, 2016 (India).

[6] Sham Lal Narula (Dr.) v. CIT, (1964) 7 SCR 668 (India).

[7] Westminster Bank Ltd. vs. Riches, (1947) UKHL TC 28 159 (United Kingdom House of Lords).

[8] Pinayur Ramantha Aiyyar, Advanced Law Lexicon Dictionary (Shakil Ahmed Khan, 5^th Edition 2017).

[9] Uflex Ltd. v. State of T.N., (2022) 1 SCC 165 (India).

[10] Report No. 240, Costs in Civil Litigation, Law Commission of India, May 09, 2012 (India), https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/uploads/2022/08/2022081077-3.pdf .

[11] Forasol v. O.N.G.C., 1984 Supp SCC 263 (India).