COMMERCIAL APPEAL NO. 206 OF 2018

9th December 2019

Petitioner Counsel: Mr. F. E. DeVitre Mr. Nikhil Sakhardande Mr. Aditya Krishnamurthy Mr. Ruchir Goenka Ms. Tripti Sharma Bose & Mitra & Co.
Respondent Counsel: Mr. Prashant Pratap Mr. Kumar Abhishek Singh Mr. Nishaan Shetty Mr. Shubham Agrahari Mr. Nishant Bhatia
Act Name: Indian Contract Act, 1872 Bombay High Court (Original Side) Rules, 1981

Section :
Section 73 Indian Contract Act, 1872

Cases Cited :
Para 25: Jamal A.K.A.S. Vs. Moola Dawood Sons & Co. (1916), 43 I.A. 6
Para 26: Thai Airways International plc Vs. KI Holdings Co. Ltd. Reported in (2015) EWHC 1250 (Comm)
Para 26: M. Lachia Setty & Sons Ltd. Vs. Coffee Board of Bangalore, reported in (1980) 4 SCC 636
Para 26: James Finlay & Co. Vs. N. V. Kwik Hoo Tong, Mondel Maatchappij reported in [1929] 1 KB 400

JUDGEMENT

BHARATI DANGRE, J.

1. The appellant Rainbow Ace Shipping S.A. Panama, the Owners of Vessel M.V. Rainbow Ace is aggrieved by an order dated 21st March 2018 passed by the learned Single Judge on a Notice of Motion taken out by the appellant in an Admiralty Suit instituted by one Lufeng Shipping Co. Ltd.

2. In order to appreciate the contentions raised by the appellant it would be necessary for us to glean the necessary facts which resulted in the passing of the impugned order.

3. One Lufeng Shipping Company Ltd (Respondent in the Appeal) lodged a maritime claim by filing Admiralty Suit No.29 of 2013. The claim of the plaintiff in the said suit was based on an agreement entered into by the plaintiff as owners of vessel M.V.J. Tong with Whim Star Chartering Co.Ltd, Hong Kong (Defendant No.2) as charterers for the hire of the vessel for carriage of goods. The claim arises out of a voyage – charter party evidenced by a Fixture Note dated 6th April 2011. The claim was instituted for an amount of 1,68,658.07 US$ on an allegation that on account of the detention of its vessel at the port of loading, it had suffered damages and losses. In the said suit, Rainbow Ace Shipping S.A., Panama (appellant), the registered owners of vessel M.V. Rainbow Ace was impleaded as defendant no.1. The Lufeng Shipping Co.Ltd sought arrest of the vessel M.V. Rainbow Ace on the ground that it is in the same beneficial ownership as the defendant no.1 who is the voyage charter. The registered owner of the vessel Rainbow Ace according to the plaint, was Rainbow Ace Shipping S.A. Co. registered in Panama and reliance was placed on the mortgage documents to demonstrate that for construction of vessel Rainbow Ace, a loan agreement was executed between the appellant Company and China Mingling Banking Corporation Limited, pursuant to which the vessel was mortgaged to the Bank. The claim set out is that in respect of the vessel Rainbow Ace, the group owners and operator of the vessel is ZJHX Shipping Company and the registered owner is the present appellant. On the basis of this averment, the present appellant was impleaded as the defendant no.1 in the said Suit. At the time of instituting the suit and moving the application seeking ex-parte order of arrest, an undertaking came to be submitted by the plaintiff in terms of Rule 941 of the Bombay High Court (Original Side) Rules to the following effect:-
“We Lufeng Shipping Co. Ltd through their Constituted Attorney Mr. A.M.Krishnan do hereby give an undertaking to this Hon'ble Court to pay such sums by way of damages as this Hon'ble Court may award as compensation in the event of the defendant and/or any affected party sustaining prejudice pursuant to the order passed by this Hon'ble Court for the arrest of M.V. Rainbow Ace.

4. On 28th January 2013, the Admiralty Judge at Bombay ordered arrest seizure and detention of the defendant vessel of M.V. Rainbow Ace” along with her hull, gear, tackle, machineries, bunkers, apparel, furniture and fixtures fixed equipments and all appurtenances at the port of Pipavav or such other place wherever the vessel was found within the territorial waters of India. The warrant of arrest was directed to be executed at the hands of Sheriff of Bombay. It was also ordered that in the event of the defendant depositing in the Court a sum of 1627.658.10 US$ towards satisfaction of the plaintiff's claim in the suit and cost of the Suit amounting to Rs.3,50,000/- and on payment of the Sheriff's poundage, if any, or on furnishing the security of the amount claimed in the suit along with interest of 9% p.a. from the date of inception of the Suit till its payment, the want of arrest shall not be executed against the vessel M.V. Rainbow Act.

5. The Appellant, being aggrieved by the order of Arrest dated 28th January 2013 took out a Notice of Motion in capacity as the owner of the vessel M.V. Rainbow Ace. In the Notice of Motion, relief was sought to pay the owners the sum of US$ 2,310,225 with interest @ 18% p.a. from the date of its accrual till its payment / realization and the said claim was set out in the backdrop of the losses and expenses suffered as a consequence of reckless, malicious and wrongful arrest of the vessel by the plaintiff. Since the plaintiff had undertaken to the Court while seeking its relief in the Admiralty Suit that it will pay as compensation, damages awarded by the Court for any prejudice caused to the defendant or any third party, a case was set out for prejudice being caused and huge losses being suffered as owners on account of the wrongful arrest of the ship by the plaintiff and the Appellants in the Notice of Motion claimed that they are entitled to enforce the undertaking by the plaintiff under Rule 941 of the High Court (Original Side) Rules and a direction was sought to compensate in the sum of 2,310,225.32 US$.

6. The said Notice of Motion was heard and the judgment thereupon was reserved on 8th March 2013 by the Admiralty Court. On 6th May 2013, the learned Single Judge issued the following directions :-
(i) The ex-parte order of arrest dated 28th January 2013 against the first defendant vessel stands vacated and the first Defendant vessel stands released from arrest and it allowed to sail immediately.
(ii) Instrument of release to be dispensed with.
(iii) The Learned Advocate appearing for the Applicant makes a statement that there is no caveat against release of the vessel;
(iv) All parties including the Prothonotary and Senior Master, High Court, Bombay and the Sheriff of Bombay to act on an authenticated copy of the order.
(v) All concerned authorities, Port and Customs shall act on a fax/e-mail copy of authenticated copy of this order;
(vi) Plaintiff to pay poundage to the Sheriff of Bombay within a period of two weeks from today.
(vii) Prayer clauses (b) and (c) of the Notice of Motion are not granted since the said prayers are not supported by adequate particulars. However, liberty is granted to the Applicant to take out fresh Notice of Motion, setting out all necessary particulars and seeking appropriate reliefs in this behalf.”

7. Being aggrieved by the said order, the original plaintiff filed an Appeal which was dismissed by a Division Bench on 2nd July 2013 thereby upholding the order passed by the learned Single Judge dated 6th May 2013 setting aside the arrest of the defendant vessel. On a prayer being made to continue the ad-interim stay granted earlier, the Division Bench continued the stay for a period of two weeks. As a sequitor, the original plaintiff approached the Apex court by filing Special Leave to Appeal (Civil) No. S 22199/2013 and by order dated 16th July 2013, the Special Leave Petition was dismissed.

8. The vessel M.V. Rainbow Ace sailed after obtaining necessary port permissions/custom clearance on 19th July 2013.

9. The appellant filed the Notice of Motion No.1646 of 2013 as owner of the vessel, claiming compensation for loss/damages suffered in view of the order of arrest dated 28th January 2013 obtained by the plaintiff. The Notice of Motion sought a direction to defendant to pay to the appellant a sum of Rs.2,310,225/- with interest @ 18% p.a. from the day it accrued till the payment and/or realization with reasonable legal costs towards damages and in the alternative to appoint a Commissioner for taking accounts to quantify the applicant’s loss and damages. The said Notice of Motion on being heard resulted into a judgment dated 9th June 2014 delivered by learned Single Judge (K.R. Shriram, J).

10. The learned Single Judge in the backdrop of the order passed by the Admiralty Court directing the release of the vessel without any security noted that the vessel arrived at Pipavav on 26th January 2013 and was discharging the cargo, when on 28th January 2013 the order of arrest was passed and was served on 29th January 2013. He noted that the vessel completed discharge on 5th February 2013 and the order vacating the arrest of the ship is dated 6th May 2013. The learned Single Judge on hearing the parties, asseverated that the position in law is that all claimants have a duty to mitigate and the Indian Courts have also followed the principles that the claimants must take the reasonable steps to minimize the loss and refrain from taking unreasonable steps which will increase the losses. It was further held that the Courts in India have consistently held that the defendant cannot be asked to pay the losses which the claimant could have awarded or which arise due to failure to take reasonable steps and furnishing security by way of a bank guarantee or even a letter of undertaking from the P & I Club would have been a reasonable step. The learned Single Judge applied the test whether the action of the applicant in not furnishing the security even by way of letter of undertaking through its P & I Club and let the brand new vessel which had an assured income of US$ 7500 per day and in addition to that send another US$ 5000 per day approximately (on an average for about 162 days) is reasonable or not.

11. By applying the said test, the following observations were made:-
34. Now the question is did the Applicant take all reasonable steps to mitigate the loss consequent on the arrest of the defendant no.1 vessel?
35. The applicant always knew from the time he entered into the charter party and being in the shipping industry, that a vessel during the currency of the Charter is likely to be arrested in an action in rem in any Suit by any person having or purported to have claim against the vessel or its owner. That is why clause 71 in the charter party was provided for. Moreover, for this reason clause 103 of the charter party provides “owners guarantee that the vessel is entered with a first class Protection and Indemnity Club throughout the period of this Charter. Charterest have the benefit of Owners’ P & I Club as far as rules permit”. The reason why the P&I clause is provided is because should the vessel be arrested and there is likelihood of the vessel to be detained, by virtue of clause 71, the owner will immediately furnish security to have the order of arrest lifted and the vessel continues to perform its obligations under the charter.
36. During the course of argument to a query put by the Court, the counsel for the Applicant stated that the vessel did not have a P&I cover for these kind of arrests and hence they could not furnish security. However, from mere perusal of the affidavit in rejoinder shows that the reason for not furnishing security was non-availability of P&I Cover, but the applicant opted not to furnish security. If there was no P&I Cover available and if here was no way security in the amount of USD 1.6 million was possible to be furnished due to financial difficulties of the owner or non availability of P&I Cover, the same would have been explained in the affidavit in rejoinder, particularly when in the affidavit in reply the Plaintiff has taken a stand that the owners had an obligation to mitigate by furnishing security. The stand of the applicant in its affidavits and during the hearing was “why should we furnish security?” We were not bound to furnish when the arrest later has been held wrongful. The plaintiff was not entitled for an order of arrest against defendant no.1 and had obtained the order of arrest wrongfully and the stand of the Defendant No.1 has been vindicated by the orders of the single Judge, the Division Bench and the Apex Court and hence, the applicant cannot be asked why they did not mitigate their loss by furnishing security. The counsels stand was a wrong-doer cannot insist that the person who was wronged should have attempted to cut its losses. I am afraid that is not the position in law.
37. In my opinion, the action/inaction/stand of applicant was totally illadvised. It is settled law that any claimant who has a claim in any given situation either for breach of contract or tort has an obligation to mitigate its losses. In my view, it will equally apply even in situation like in this case by virtue of the undertaking given by the plaintiff. Compensation for pecuniary loss imposes on the claimant a duty of taking all reasonable steps to mitigate the loss and debars the claimant from claiming any part of the damage due to his neglect to take such steps. As held in the Best Food case, the Cout also would consider the claim of the Applicant owner of the vessel on the basis that if the applicant filed a Suit for damages what would the Court have done. Certainly, the Court would have considered the issue of mitigation as well. A claimant has to be put as far as possible in as good a situation as if the arrest had not taken place. But this principle is qualified by a second, which imposes on a claimant the duty of taking all reasonable steps to mitigate its loss”.

12. The learned Single Judge thus recorded that the applicant had eight days to furnish security and it is normal on the part of the owners of a vessel that is arrested to furnish security immediately upon the arrest order being served so that the vessel is released. Reference was made to Rule 954 of Bombay High Court (Original Side) Rules. As regards the Protection & Indemnity Cover, the learned Single Judge held as under :-
39. In this case also the defendant No.1 vessel had a first class P & I cover. The applicant could have furnished security by way of a bank guarantee when it had an assured fixed charter earning USD 7500 per day. The applicant could have atleast offered a club letter of undertaking but the Plaintiff rejected. However, for reasons best known to the applicant, they chose not to furnish security and thereby lose its assured USD 7500 per day income. In addition the applicant also claim o have spent/incurred an additional USD 5,000 per day on an average. It is difficult to fathom the intention of the applicant because the claim is for USD 1.6 million, security for which could have been furnished either by way of a bank guarantee or even by way of P & I Club letter of undertaking particularly because the Defendant No.1 vessel was entered for P& I Club letter of undertaking particularly because the Defendant No.1 vessel was entered for P& I Cover with a first class P& I Club and she was a brand new vessel. Still by not furnishing such a security for USD 1.6 million, the applicant in its wisdom claim to have lost in excess of USD 2.3 million which they want the Plaintiff to pay. In this claim of USD 1.3 million which was assured under the charter party. I do not wish to question the wisdom of defendant no.1 in taking such a stand but it cannot be at the expense of the Plaintiff.

13. In light of the aforesaid observation, the learned Single Judge did not find merit in the submission of the appellant to the effect that the action to have the order of arrest vacated is a step towards mitigation and particularly when in a highly contested matter, it was well advised to furnish security and enjoy its assured earnings and it would have made better sense to incur cost on furnishing security which would have been less and claiming it from plaintiff, then sit tight and claim millions of dollars. In paragraph no.41 of the judgment, the learned Single Judge concluded in the following words :
“Therefore, since it is not the case of the Defendant No.1 that it was unable to mitigate its losses or it took all steps to mitigate its losses but still ended up suffering prejudice to the amount as it claims herein, I am not inclined to grant summarily any amount as damages to the applicant and the applicant did not put forth an alternative claim of the earliest they could have furnished security”.
Resultantly, the Notice of Motion was disposed of as dismissed without any costs to the parties.

14. The said order passed by the learned Single Judge was assailed in an Appeal and once again, the matter came before the Division Bench of this Court which formulated that the Appeal raised a question of law of considerable importance, involving interpretation of Rule 941 of the Bombay High Court (Original Side) Rules, 1981 where the party applied for an order of arrest is required to give an undertaking to pay such sum by way of damages as the Court may award as compensation in the event party affected sustain prejudice by such order. The question that was framed by the Division Bench in light of the explanation appended to Section 73 of the Indian Contract Act was whether the said explanation applies to proceedings for the enforcement of an undertaking given under Rule 941. On making reference to the relevant section i.e. Section 73 of the Indian Contract Act, 1872 and Rule 941 of the Bombay High Court (Original Side) Rules, the Division Bench concluded that Rule 941 is a special law which requires the undertaking to be given by the plaintiff before he seeks an order of arrest. Being a special statutory provision, it excludes all other considerations applicable in general law as a special law excludes the general law and the requirement of furnishing an undertaking being a provision of special law, it overrides the general law including the requirement of the party suffering the loss to take all necessary steps to mitigate the same. It was therefore held that the Indian Contract Act 1872 being general law, the provisions thereof including Section 73 do not apply to proceedings to enforce an undertaking of Bombay High Court (Original Side) Rules 1941 and if the Rule of general law relating to mitigation applies, Rule 941 would be rendered otiose. The relevant observations of the Division Bench needs reproduction:-
10. Mr.Tulzapurkar submitted that alternatively and assuming that the appellant was under a duty to mitigate its losses, furnishing security is not the only form of mitigation. An application to have the order of arrest vacated itself constitutes mitigation. He further submitted that even assuming that the appellant was under a duty to mitigate, the learned Judge was in error in rejecting the claim in its entirety. The learned Judge held that the appellant ought to have furnished security. Even furnishing security would require the defendant to incur considerable expenses. The appellant, therefore, urges that it is entitled at the very least to be granted damages to the extent of the sum required to mitigate damages.
We do not intend deciding these issued in this appeal. As the matter has arisen for the first time, in our opinion, the ends of justice warrant our granting the appellant an opportunity of meeting the case regarding mitigation on merits. Thus, although we have decided to dismiss the appeal, we intend keeping all points on mitigation on merits open, to be contended before the learned single Judge upon remand.
53. We, therefore, hold that Rules 148 and 941 do not exclude the provisions of section 73 of the Contract Act. Even in proceedings to enforce undertakings furnished under Rules 148 and 941 of the Original Side Rules, the principles of mitigation apply.
54. This issue has been decided for the first time in these proceedings. The learned Judge has recorded that the appellant only contended that it had no duty to mitigate; that it was not mandatory that whenever an arrest of a vessel is effected, it is obligatory on the part of the party that applies for vacating such order of arrest to offer security in terms of the claim made by the plaintiff and that the aggrieved party is entitled to claim loss suffered on account of such wrongful arrest without any effort to mitigate the loss on account of such wrongful arrest without any effort to mitigate the loss. In paragraph 24, the learned Judge noted that the consistent stand of the appellant to the respondent's submission on mitigation was not that it was unable to take steps to mitigate or that it took all reasonable steps to mitigate, but that furnishing of security is only an option which they chose not to avail of.
Despite the same, we intend granting the appellant an opportunity of meeting the case on merits. Firstly, this is the first time that the issue has arisen and has been decided. Secondly, in any event, mitigation itself involves the party aggrieved incurring costs. This is evident even from the respondent's contention. The respondent contended that the appellant ought to have furnished security. Security would be by depositing the claim in court or furnishing a bank guarantee in that amount. Furnishing a bank guarantee involves costs such as depositing the amounts with the bank and/or paying the bank a commission. Thus, a claim cannot be rejected absolutely even if a party does not take steps to mitigate, for, any attempt to mitigate would also involve expenditure. A defence of mitigation would give rise to various contentions on merits. The Court would be required to decide a variety of facts such as whether in the facts and circumstances of the case, there was, in fact, a duty to mitigate; whether a party was in a position to mitigate; even if a party is in a position to mitigate, whether he was bound to do so considering the facts of a given case.

15. The Appeal was accordingly dismissed by holding that the principles of mitigation apply to proceedings for enforcement of an undertaking furnished under Rules 148 and 941 of the Bombay High Court (Original Side) Rules. The matter was however remanded for decision on merits on the issue of mitigation and the parties were granted liberty to file further affidavit on merits of the matter relating to mitigation.

16. On the remand with the aforesaid observation, the matter again landed in the lap of the learned Single Judge who has passed the impugned order. The learned Single Judge on remand considered the material brought before him in form of additional affidavit dated 19th December 2014 and dealt with the same in his own stride. Much attack has been mounted on the approach of the learned Single Judge that he was reluctant to look into the fresh material brought on record. However, we do not agree with the submission advanced to that effect by the learned Senior Counsel Mr. F. E. DeVitre. The learned Single Judge after extensively quoting the observations of the Division Bench in paragraph no.10 and 54 of the judgment assumed that the only issue open on remand is the alternate submission advanced before the Division Bench and as recorded in para 10 of the judgment read with the observations in para 54 that assuming that the applicant had mitigated, the applicant would have incurred some expenses and consequently these expenses like bank guarantee, charges etc. would have been considered. Before dealing with the rival submissions of the parties on the order impugned, we would deem it appropriate to refer the excerpts from the judgment of the learned Single Judge in the second round.
13. Applicant is not entitled to now content that it did not have the financial capacity to furnish security either by cash deposit or Bank Guarantee. This was not applicant’s stand either at the 1st hearing of this notice of motion or before the Division Bench as has been noted in Paragraph 41 of the said judgment dated 9th June 2014 and as noted in paragraph 54 by the Division Bench. The consistent stand of Applicant at the 1st hearing and before the Division Bench was that furnishing of security was only an option which they chose not to exercise. This position was deliberately consciously and consistently taken by applicant before both Courts. When applicant says that it was only an option it means that they had the option to furnish security which means they had the financial capacity to do so. Applicant made an alternative submission as recorded in paragraph 10 of the judgment of Division Bench that even furnishing security would require defendant to incur considerable expenses which ought to have been granted. This can only mean that they could have furnished security but would have incurred expenses in doing so and these ought to be granted.
14. Applicant even now has not put forth any case that assuming that they had furnished security they would have still suffered a loss or that they would have incurred expenses for furnishing security. Although the latter was their alternative submission before the Division bench as recorded in paragraph 10 of the judgment and accepted by the Division Bench in paragraph 54 that some costs would have been incurred for furnishing security, nevertheless on remand Applicant has chosen not to make any claim in this regard. In the course of hearing, a further opportunity was granted by this Court to applicant to consider if it wished to make any such claim. After seeking an adjournment for the said purpose, Applicant consciously chose not to make any such claim.
15. Applicant has also not made any claim on the basis that it would have taken Applicant some time to furnish security and it ought to be compensated for the loss incurred during such period. Applicant was again given this opportunity at the hearing before this Court but applicant declined to do so and insisted on its full claim for detention of 164 days. Shri Pratap submitted that Applicant had in any even 8 days within which it could have furnished security without incurring any loss as the vessel was on hire discharging cargo and this period was reasonable period within which it could have furnished security, as noted in Paragraph 38 of the said judgment. I am not going into this aspect as Applicant was insistent on its full claim for detention of 164 days.

17. That apart, the Single Judge also took note of the amounts which have been credited to the Bank account of the appellant and noted that he sources of the funds have not been disclosed but based on this conclude that it was not a case that there were no funds available to furnish the security which was the safest mode of seeking release of the vessel. The Notice of Motion came to be rejected.

18. The said order passed by the learned Single Judge is impugned before us. The submission advanced by the learned Senior counsel in support of the Appeal is that the learned Single Judge ought to have considered the matter afresh in light of the remand by the Division Bench which had acted as a cicerone held that since the issue of mitigation has been raised for the first time, the appellants deserve an opportunity of meeting the case on merits. He would rely on the writing of the Division Bench to the effect that even if the objection that security ought to have been furnished is accepted, the claim cannot be rejected absolutely even if a party does not take steps to mitigate, for any attempt to mitigate would also involve expenditure and a defence of mitigation would give rise to different contention on merits. According to the learned senior counsel, Mr.DeVitre, the Division Bench remanded the matter to the learned Single Judge to decide a variety of facts such as whether in the facts and circumstances, there was a duty to mitigate; whether the party was in a position to mitigate; even if a party is in a position to mitigate; whether he was bound to do so, considering the facts of a given case. The learned counsel also took forward his argument by asserting that the earlier order passed by the Single Judge is merged into the decision of the Division Bench and therefore, it was imperative on part of the learned Single Judge to proceed in terms of the directions issued by the Division Bench afresh without the earlier observations creating any barrier.

19. Per Contra, the decision of the learned Single Judge is supported by the learned counsel for the respondent and it is submitted that the question whether there were measures for mitigation initiated by the appellant is a question of law and the learned Single Judge in fact by taking into consideration the additional material brought him had deliberated upon the same and returned a finding.

20. On consideration of the submissions advanced and on perusal of the orders in catenation, the issue which falls for consideration in the present Appeal is once it has been accepted that the mitigation measures ought to have been taken, whether taking the solitary step of filing a Notice of Motion praying that arrest of the ship be withdrawn discharges the burden to establish that the appellant has acted, as any reasonable prudent person would do to mitigate the loss/damages.

21. Section 73 of the Indian Contract Act which provides for compensation for loss or damage caused to a party by breach of contract entitles the party who suffers by such breach, to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach or which the party is new to be likely to result from the breach, when they made the contract. An explanation appended that in estimating the loss of damage arising from breach of contract, the means which existed or remedying the inconvenience caused by the non-performance of the contract must be taken into consideration. The said explanation clearly brings out the principle that the plaintiff claiming damages must do his best to mitigate the damages. The explanation cannot be read to lead as an independent provision or rule but is a factor which is taken into consideration in assessing the damages, naturally arising from the breach of contract. Adoption of such means are the factors that would contribute to reduce the damages that might otherwise have been said to have arisen within the scope and purview of Section 73 and this aspect of mitigation of damages is one of the relevant factor while assessing the loss suffered by the aggrieved party.

22. The concept being adopted on the lines of Halsbury's Law of England, 4th Edition, Vol.12 is as under :
1193 Plaintiff's duty to mitigate loss : The plaintiff must take all reasonable steps to mitigate the loss which he has sustained consequent upon the defendant's wrong, and, if he fails to do so, he cannot claim damages for any such loss which he ought reasonably to have avoided.
The duty only arises upon the commission of a tort or breach of contract. In the case of a contract there is no duty to mitigate before a breach has occurred. Thus, if a defendant repudiates a contract, in the sense of evincing an intention not to perform his obligations under it, there is no duty upon the plaintiff to mitigate his loss until either the plaintiff has accepted the repudiation and thereby treated the contract as at an end, or the time for performance by the defendant has arrived.
Where a defendant alleges that the plaintiff has failed to take all reasonable steps to mitigate his loss the burden of proof is upon the defendant.
If, in taking reasonable steps to mitigate his loss, the plaintiff incurs expenses or further loss, he may recover such expenses and further loss from the defendant, even if the resulting damage is greater than it would have been had the mitigating steps not been taken.
1194 Standard of conduct required of the plaintiff. The plaintiff is only required to act reasonably, and whether he has done so is a question of fact in the circumstances of each particular case, and not a question of law. He must act not only in his own interests but also in the interests of the defendant and keep down the damages, so far as it is reasonable and proper, by acting reasonably in the matter. One test of reasonableness is whether a prudent man would have acted in the same way if the original wrongful act had arisen through his own default. In case of breach of contract the plaintiff is under no obligation to do anything other than in the ordinary course of business, and where he has been placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the defendant whose breach of contract has occasioned the difficulty. Similar principles apply in tort.

23. The principle of mitigation of damages is one of the firmly established rules of commercial law in the common law countries. When a person suffers damages as a result of breach of contract, he has a legal obligation to minimise the effects and losses resulting from the injury. The duty to mitigate works to deny recovery of any part of damages that could be reasonably avoided. “Reasonably avoiding is not capably of any precise definition but generally means what a reasonable person would do under similar circumstances”. A landlord has a duty to mitigate the damages when the tenant is in breach of lease and applying the aforesaid principle, the landlord has a duty to find out another tenant and is not expected to let the property vacant for years together and then sue the tenant for rent. Similarly, a terminated employee must mitigate the losses by finding another job and he would not sue for lost wages. A party suffering damages from a breach of contract cannot simply lean back and let the damages mount up. It often happens that a party tends to shift all responsibility for damages on its counter part, when it is possible for the party to minimize that damage; that it had acted without delay when it received the knowledge of the damage. The duty to mitigate works to deny recovery of any part of damages that could be reasonably avoided.

24. What measures a party relying on breach of other party is required to take in order to mitigate the damages may cover with respect to amount of time and financial resources to be invested in or nature of such measures must be determined by applying the standard of reasonableness. Depending on circumstances and what is considered reasonable in a given case, party relying on a breach of contract on the other side may be under obligation to accept alternative parties to mitigate though it may not require a party to accept unreasonable risk or burden. The duty to mitigate may not be enforceable but it is a recognition that if a claimant fails to do so, its damages recovered will be affected by that failure.

25. The Privy council in Jamal A.K.A.S. Vs. Moola Dawood Sons & Co. (1916), 43 I.A. 6, outlines the concept as under :-
“It is an undoubted law that the plaintiff who sues for damages owes the duty of taking reasonable steps to mitigate the loss consequent upon the breach, it cannot claim as damages which is due to his own neglect but the loss to be ascertained is the loss at the date of the breach”

26. The key principles applicable as regards the duty to mitigate, as laid down by the House of Lords and Appeals has recognized the duty to mitigate so as to mean that the party cannot recover damages for any loss which it could have avoided but failed to avoid through its own unreasonable action or inaction. In Thai Airways International plc v. KI Holdings Co. Ltd. Reported in (2015) EWHC 1250 (Comm), Justice Legatt held that the Claimant is only required to act reasonably and the standard of reasonableness in this context is not too high. The said principles find its way in the Indian Courts and has been the basis of the decision of the Hon’ble Apex Court in the case of M. Lachia Setty & Sons Ltd. v. Coffee Board of Bangalore, reported in (1980) 4 SCC 636. Tracking Halsbury's Laws of England on mitigation, it is held that the principle of mitigation of loss does not give any right to the party who is in breach of the contract but it is a concept that has to be borne in mind by the Court while awarding damages. The plaintiff is under no obligation to destroy his own property or to injure himself or his commercial reputation, to reduce the damages payable by the defendant. The said judgment made a reference to the statement of law enunciated in James Finlay & Co. v. N. V. Kwik Hoo Tong, Mondel Maatchappij reported in [1929] 1 KB 400 in the following words:
33. The general doctrine of avoidable consequences applies to the measure of damages in actions for breach of contract. Thus, the damages awarded to the non-defaulting party to a contract will be determined and measured as though that party had made reasonable efforts to avoid the losses resulting from the default. Some courts have stated this doctrine in terms of a duty owing by the innocent party to the one in default; that is, that the person who is seeking damages for breach of contract has a duty to minimise those damages. However, on analysis, it is clear that in contract cases as well as generally, there is no duty to minimize damages, because no one has a right of action against the non-defaulting party if he does not reasonably avoid certain consequences arising from the default. Such a failure does not make the non-defaulting party liable to suit; it only indicates that the damages actually suffered are greater than the law will compensate. Therefore, in contract actions, the doctrine of avoidable consequences is only a statement about how damages will be measured. (Emphasis supplied)
From the above statement of law it will appear clear that the non-defaulting party is not expected to take steps which would injure innocent persons. If so, then steps taken by him in performance or discharge of his statutory duty also cannot be weighed against him. In substance the question in each case would be one of the reasonableness of action taken by the non-defaulting party.”

27. The Indian law has recognized the principle as available to a party who has suffered loss to take reasonable action to minimise the loss suffered and by this time, it has become a principle established by Indian Courts that a party who suffer damages as a breach of contract has duty to mitigate the loss of damage, that is, the wrongdoer cannot be called upon to pay for avoidable loss which would result in an increase in the quantum of damages payable to injured party. The onus of showing of failure to mitigating is cast on the defendants. Thus, mitigating circumstances have received a recognition as not constituting a justification or excuse but considered as minimising the damages and in criminal jurisprudence it constitutes those circumstances which may be considered as extenuating or reducing the degree of moral culpability.

28. After comprehending this legal position which is now well settled, we proceed to decide on the contention of the Appellant that they had in fact moved an application for vacation of stay and this application was a step in mitigation.

29. In the first round of litigation, the learned Single Judge dismissed the Notice of Motion claiming damages/compensation suffered because of the wrongful arrest of the vessel on 28th January, 2013. The learned Single Judge considered the said submission and proceeded to take the said submission forward by comprehending as to whether this was a reasonable step to mitigate the loss consequent on the arrest of the vessel. The learned Single Judge in the second round, on remand, of the matter from the Division Bench re-examined the very same issue proceeding on a demur that the Appellant was under a duty to mitigate. In the second round it re-examined the issue in the light of the observations made by the Division Bench in paragraph 10 of the Appeal Order where an argument was advanced that furnishing security is not the only form of mitigation and an application to have the order of arrest of the vessel vacated itself constitutes mitigation. The submission which was advanced at the stage of Appeal was that the Appellant was at the least entitled to damages to the extent of the sum required to mitigate damages, if at all the Appellant was required to furnish security, which would have required him to incur considerable expenses. This alternative submission became pivot of the decision on its remand.

30. Accepting the position that the Appellant had not claimed the cost in the first round of hearing and the Division Bench had noted that the mitigation itself involves the party aggrieved incurring costs, the learned Single Judge noting that the Division Bench did not set aside his earlier judgment but rather concurred with his view that if the damages had to be claimed for wrongful arrest, there was a duty to mitigate and on the judgment in the earlier round being upheld by the Division Bench, the learned Single Judge assumed to itself the jurisdiction to decide on the alternate submission. Assuming that the Appellant had mitigated, it would have incurred expenses like Bank Guarantee and this is the limited arena in which the learned Single Judge in the second round ventured into.

31. On consideration of the affidavit, which was scanned with cavil that it takes a completely different stand than the one taken in the earlier one and in the hearing before the Division Bench, the Single Judge tested the stand taken in the affidavit to the effect that the Appellant did not have the financial capacity or ability to deposit the cash security and that it had made inquiry with the Standard Chartered Bank, Hong Kong which informed it that it would require 100% cash margin for issuing Bank Guarantee. The second ground in the affidavit did not find favour with the learned Single Judge as the inquiry was not made contemporaneously or with in reasonable time after the arrest of the vessel on 28th January, 2013 but it was made after a lapse of almost two years after the arrest and about 18 months after release of the vessel.

32. The financial capacity to furnish security either by cash deposit or Bank Guarantee was turned down since it was not a ground raised in the first round when the Notice of Motion was filed or before the Division Bench. The learned Single Judge in paragraph 14 of the judgment records that furnishing security would have incurred expenses and an opportunity was given to the counsel to stake his claim which was declined. In the absence of any alternative case pleaded by the Appellant, the Single Judge concluded that no damages can be awarded. He also referred to certain amounts being credited from unexplained sources to the Bank account of the Appellant prior to 4th September, 2012 when the said vessel was delivered to it. He also record that after the vessel was delivered on 4th September, 2012, a sum of US$ 69,80,335.91 has been credited to the Appellant’s account. From the Bank Statement of China Minsheng Bank, the learned Single Judge concluded that the Appellant had access to large amount of money even when it did not own the vessel and it had no other source of income, which lead to a sustainable conclusion that the Appellant had access to substantial funds and the party could have easily secured the release of the vessel by depositing in the court the amount of security or providing a Bank Guarantee.

33. The order also made a reference to the Bank Statement of Standard Chartered Bank for the period between January 2013 to July 2013 and on perusal of the same, it recorded that the submission of the Appellant that they were not in a position to furnish the security in the absence of funds do not call for any attention.

34. The principle adopted from the Halsbury's Laws of England and received recognition in Indian Courts is to the effect that the plaintiff is required to act reasonably and assuming that it is a question of fact as has been strenuously argued by the learned senior counsel Mr. D’Vitre, the question that falls for consideration is whether mere filing of an application for vacation of stay would be said to be a reasonable step. No doubt, the extent of application to mitigate under the Indian law would expect the plaintiff to act reasonably, that is, in the manner in which a prudent man would have acted if the original wrongful act had arisen through his own default. So far as practicable, a person with whom a contract has been broken has a right to fulfill that contract for himself as nearly as may be, but he is not expected to behave unreasonably or oppressively as regards the other party. It is his duty to take all reasonable steps to mitigate the loss consequent on the breach, and then the effect in an actual diminution of the loss he has suffered may be taken into account. The question, therefore, which arises is whether what was done by the Appellant was a reasonable thing to do, having regard to the surrounding circumstances and the test would be a prudent man. The rule of mitigation would surely not impose new and extraordinary duties on the aggrieved person.

35. In the backdrop of the facts, the vessel was arrested by an order of the Admiralty Court on 28th January, 2013. The Notice of Motion for vacating the order of arrest was filed by the Appellant on 9th February, 2013. The vessel was directed to be released on the judgment was delivered on 6th May, 2013 when the order of arrest of the vessel being vacated unconditionally. Liberty was granted to the Appellant to independently avail his remedy for seeking damages/compensation since there were no adequate particulars to support the claim. In the procedural rigmarole, the controversy was put to rest on 16th July, 2013 when the Apex Court dismissed the Special Leave Petition and it was on 19th July, 2013 the vessel sailed. The filing of application for vacation of the order arrest of the vessel was caught in the procedural rigmarole and did not offer immediate solace of release of the vessel to the Appellant is an admitted position.

36. Reliance is also placed by the learned counsel for the Appellant on Rule 954 of the Bombay High Court (Original Side) Rules, which provide for stipulations for release of arrested property being :-
(i) at the request of the plaintiff, before an appearance in person or a Vakalatnama is filed by the defendant; or
(ii) on the defendant paying into Court the amount claimed in the suit; or
(iii) on the defendant giving such security for the amount claimed in the suit as the Court may direct; or
(iv) on any other ground that the Court may deem just.”

37. The submission advanced is to the effect that offering security is only one of the modes that is available and the property arrested under a warrant may be ordered to be released on any other ground that the court may deem just. Since the vessel was directed to be released unconditionally without even accepting security, filing of an application which yielded success to the Appellant was a sufficient step to mitigate. Indubitably consequence of the release order got embroiled in proceedings in higher courts and did not fructify till they were culminated on 16th July, 2013 and it was only on 19th July, 2013, the vessel was permitted to sail.

38. As is the usual practice in shipping industry when claims are made against a vessel or its owners, they approach the P & I Club to ascertain whether claim is covered under their insurance for either P & I or F.D.&D. (Freight, Demurrage and Defence) Risk. Furnishing security was an option to mitigate and the learned Single Judge on remand, has noted that in the first round litigation, no stand was ever taken that the Appellant had no means to furnish security, however, on remand, the additional documents came to be examined and the said contention that there was no means to furnish security came to be dispelled by the learned Single Judge. On remand it is recorded that the Appellant had means to furnish security by depositing the amount in the court or by providing Bank Guarantee and this has been recorded as a finding of fact. The test to be applied is of a prudent man and mitigation is about to loss avoidance. The arrest of vessel passes a loss on daily basis and the endeavor of a prudent man would be to avoid this loss, who would have arranged for all his finances so as to offer security and obtain release of his ship. Mere filing of an application to vacate arrest of the vessel would not and in fact did not release the vessel of the Appellant. The duty cast on the Appellant was to mitigate the loss and in any case filing of an application was only a step to mitigate the damages and it was not a completed action of mitigation and the Appellant, undisputedly, got stuck as he had to cross the stages step by step till the matter was put to rest by the highest court. In addition, there is a looming uncertainty depending on the final decision as to whether the Court could be persuaded to grant relief in its favour and the only certain way could be and the one which was available, considering it from a prudent man’s view is to furnish security and continue with the charter of the vessel so as to minimize the loss by allowing the vessel to be stranded. Perusal of the Memo of Appeal, the Appellants have disclosed why they did not deposit the security, the Appeal Memo proceeds to state that if they would have done so, they would not have got priority in hearing of the matter. The prudent man surely would have not left the vessel idle and merely mused over the application for vacation of the order of arrest. We do not find any infirmity in the order of the learned Single Judge.

39. As regards the issue whether the Appellant would have entitled to the expenses, which it had incurred in furnishing security, which was a alternative argument before the Division Bench, was however not pressed on remand. We do not find any infirmity in the order passed by the learned Single Judge since the Appellant chose to take chance and silently watched the vessel to be stranded and they can only be blamed for the loss for not taking immediate steps to mitigate the damages incurred. The Appeal raising the question premised on a proposition that there cannot be a hard and fast rule when it comes to mitigation and it would depend on facts of the case, we are satisfied that in the given fact and circumstances the appellant has failed to mitigate.

40. The Appeal do not warrant any consideration and deserves dismissal. The Appeal is accordingly dismissed.