Admiralty and Shipping Law

• Author: KENNETH MICHAEL TAN WEE KHENG, SC LLB (NUS), Advocate & Solicitor (Singapore) TOH KIAN SING LLB (NUS), BCL (Oxon), Advocate & Solicitor (Singapore)
• Published date: 01 December 2001
• Date: 01 December 2001
• Citation: (2001) 2 SAL Ann Rev 11

ADMIRALTY LAW

2.1 The year 2001 saw developments in a number of important areas of admiralty practice, including the provision of security in an action in rem, time limitations, the renewal of writs and stay of proceedings.

Security furnished in actions in rem

2.2 Protection & Indemnity (“P&I”) Club letters of undertaking are a common form of security furnished in actions in rem. In an earlier decision, a plaintiff was ordered to accept a P&I Club letter of undertaking as opposed to a bail bond, upon demonstration to the court of evidence of the Club”s reputation and financial ability to honour the potential claim: see The Arcadia Spirit[1998] SLR 244. However, just as a court may order a plaintiff to accept a Club letter of undertaking, it can and should refuse to do so if there is evidence that the Club may be unable to honour the security which it offers to furnish in favour of its member shipowner. That in essence is the decision in The Arktis Fighter[2001] 3 SLR 394, although several other interesting subsidiary issues also arose in that case.

2.3 The vessel, “Arktis Fighter”, was arrested for a cargo claim and security for the amount of US$10.3 million was sought, of which US$3.8 million was for the value of the cargo and the balance of US$6.5 million was for alleged liquidated damages. The plaintiffs were unable to satisfactorily quantify the liquidated damages on account of a confidentiality clause in an agreement with a third party. The shipowners offered to put up a P&I Club letter of undertaking as security.

2.4 On the evidence put before his Honour, Choo Han Teck JC was not convinced that the P&I Club could meet its undertaking for the sum of US$3.8 million. (Security for the claim for US$6.5 million was not ordered — see para 2.5 infra.) His Honour considered that the Club”s Standard and Poor ratings had been downgraded which meant that there was a suggestion of financial vulnerability. His Honour held at 398, rightly, it is submitted with respect, that “if there is sufficient evidence to warrant caution as there is in this case, there should be no order that

security be furnished by the suspect insurer”. Ordering a vessel to be released against unreliable security would emasculate the plaintiffs” right to be fully and properly secured for their claim, and ultimately defeat the objective of an arrest. It is not clear what evidence was placed before the court by the defendants as to the Club”s financial strength although the learned judge was at pains to point out that his order was not meant to exclude the Club as a “credible provider of security” and that each case must be viewed on its own merits. That notwithstanding, his Honour ordered that the undertaking put up by the P&I Club should nevertheless be allowed to stand for one month, to be replaced by a local banker”s guarantee. It is not clear whether any undertaking was given to substitute the P&I Club security with a banker”s guarantee. The concern one has with the order made is that if the substitution of security did not eventually take place, the vessel having already been released, the plaintiffs would then be left with a security that is potentially suspect; cold comfort it is to them even if an undertaking is given to court to effect the substitution of security.

2.5 It would be recalled that the initial security demand was US$10.3 million, of which US$6.5 million was for liquidated damages, the quantification of which was based on a contractual formula which the plaintiffs had difficulty disclosing because of a confidential obligation owed to a third party. The learned judge ruled that if the plaintiffs, for reasons of their own, chose not to put forward an adequate explanation on one aspect of their claim to enable the court to properly assess that the amount claimed was reasonably likely to be incurred, the plaintiffs risked not obtaining security for that part of the claim. While the facts on this aspect of this case are somewhat unusual, the court”s observations are apt. The Moschanthy formula (see The Moschanthy[1971] 1 Lloyd”s Rep 37) of quantifying security based on the amount of the claim with interest and costs on the basis of a reasonably best arguable case is not an invitation to demand excessive security, without the plaintiff having, to use Brandon J”s words in The Polo II[1977] 2 Lloyd”s Rep 115 at 119, to put his cards on the table. It is for a plaintiff to put forward sufficient evidence to justify his security demand — a sworn statement alone (what was put forward in this case) — may be inadequate. The court observed that security to be put up should not exceed the value of the vessel (on which apparently no evidence was placed before the court). There are case law and commentary on this issue in relation to whether the value of a bail bond should be limited to the value of the vessel (see Toh, Admiralty Law & Practice, pp 172—173). The court appeared to have extended the limitation to all forms of security.

2.6 Two subsidiary issues were also considered. The first is that the court ruled, on the authority of The Rio Assu (No 2)[1999] 1 Lloyd”s Rep 115, that the Club letter of undertaking should cover not only the liability of the shipowner defendants but also their successors. Secondly, the court

held that applications for orders to inspect a vessel and for preservation of property should, whenever possible, not be made ex parte. The presence of opposing counsel would assist the court in forming a more balanced view. If there are reasons to believe that critical evidence may vanish or diminish in quality unless a preservation order is made, the proper course is to seek an interim injunction pending a full hearing of the application.

2.7 Hyosung (HK) Ltd v Owners of the Ship or Vessel “Hilal I” [2001] 1 SLR 387 raised two issues. The first involved the applicability of a charterparty arbitration clause in a dispute based on a contract of carriage contained in a bill of lading. This depended on whether the charterparty arbitration clause was incorporated in the bill of lading which referred to the charterparty, albeit with the wrong date of the charterparty. The error not withstanding, the court ruled that the arbitration clause was incorporated and accordingly, the action was subject to a stay in favour of arbitration in London under s 6 of the International Arbitration Act (Cap 143A, 1995 Ed).

2.8 The second issue involved the retention of the arrested vessel as security under s 7 of the International Arbitration Act when the action was stayed. No security was apparently offered in this case but that did not prevent the shipowners” lawyers from applying for, and the court from ordering, the release of the vessel.

2.9 Section 7 of the Act confers on the court a discretion to order that an arrested vessel be detained as security or be released upon provision of suitable security, if an admiralty action in rem is ordered to be stayed pursuant to s 6 of the Act. No affidavit was apparently filed by the plaintiffs to support their contention that the vessel should remain under arrest, an omission which troubled the court somewhat in the exercise of its discretion. The court released the vessel without substitute security.

2.10 In reaching this conclusion, the court referred to factors such as the absence of any connection between the case and Singapore, the plaintiffs” failure to take delivery of the goods and that the plaintiffs”locus standi to sue was suspect.

2.11 This decision is somewhat disturbing in its eventual result (viz the vessel was validly arrested but released without security) although it can be explained on the facts, in that the plaintiffs (at any rate from the report) apparently did not make much of an attempt to convince the court that security should be retained or substitute security furnished. It appeared that there was only an oral application to that end with no...