Admiralty, Shipping and Aviation Law

Citation(2011) 12 SAL Ann Rev 26
AuthorTOH Kian Sing SC LLB (Hons) (National University of Singapore), BCL (Oxford); Advocate and Solicitor (Singapore). CHAN Leng Sun SC LLB (Malaya), LLM (Cambridge); Advocate and Solicitor (Malaya), Advocate and Solicitor (Singapore), Solicitor (England and Wales). Jack TEO Cheng Chuah LLB(Hons) (National University of Singapore), LLM (National University of Singapore), PGDipTHE (National Institute of Education, Nanyang Technological University); Advocate and Solicitor (Singapore); Associate Professor (retired), Nanyang Business School, Nanyang Technological University; Associate Lecturer, School of Business, SIM University.
Date01 December 2011
Published date01 December 2011

2.1 The year 2011 saw three admiralty decisions handed down by the High Court. These decisions are discussed as follows.

The Sahand [2011] 2 SLR 1093 (The Sahand)

2.2 The primary contention in this case relates to the treatment by the Singapore courts of sanctions imposed on Iranian entities by the United Nations and European Union. It does, however, raise several interesting issues relating to admiralty practice.

2.3 The material facts of the case are relatively straightforward. The plaintiff provided a syndicated loan to the defendants, who were wholly-owned entities of the Islamic Republic of Iran Shipping Lines (IRISL) for the construction of three vessels (Vessels). To secure this loan and other financial transactions, the respective defendants each executed a German mortgage over the respective Vessels in favour of the plaintiff. Each of the respective defendants also executed a German law instrument, under which the respective defendants declared that the plaintiff had an immediately enforceable claim (based on a proportion of the full debt) in order to facilitate summary enforcement of the respective mortgages in Germany.

2.4 Following the execution of the agreements, the plaintiff alleged that the defendants had defaulted on their repayment obligations under the respective loans. The plaintiff further alleged that the respective defendants had, in breach of the loan agreements, failed to renew the various hull and machinery and protection and indemnity policies over the respective vessels. The plaintiff subsequently arrested all three Vessels in Singapore.

2.5 While the IRISL was a sanctioned entity under United Nations Security Council Resolution No 1929 (UNSCR 1929), none of the defendants were expressly listed as a sanctioned entity under UNSCR 1929. All the defendants were, however, subject to European Union sanctions against Iran. The defendants were unable to offer satisfactory security in exchange for release of the arrested Vessels. Accordingly, the plaintiff applied and obtained an order for the sale of the Vessels pendent lite.

The defendants' applications to postpone the sales pendente lite

2.6 The sheriff proceeded to advertise the sale of the Vessels. The defendants' solicitors wrote to the sheriff requesting, inter alia, the court's bank account information to make payment into court (in order to procure release of the Vessels), and postponement of the sale of the Vessels. The sheriff (in a course of action with which Quentin Loh J agreed), replied that an order of court was required for making payment into court and for any postponement of any sale pendent lite.

2.7 The defendants then formally applied to postpone the sales of the Vessels. The ground of each application was to allow each of the defendants' time to raise security, due, apparently, to an increase in the sum claimed. Loh J heard and dismissed the defendants' application for postponement of sale pendente lite of the Vessels on the following grounds (The Sahand at [16]):

(a) applying the rule in The AcruxUNK[1961] 1 Lloyd's Rep 471, Loh J held that an order for the sale of arrested Vessels should, as a general rule, only be postponed in exceptional circumstances;

(b) the defendants had defaulted on their repayment obligations under the loan agreement. In this regard, Loh J recognised that the defendants were having difficulty obtaining access to financing due to the European Union and United Nations Security Council sanctions against Iran;

(c) even though the defendants had known of their difficulties in obtaining access to financing for over three months since the Vessels had been arrested, the defendants were still unable to make any significant payment or offer security to obtain the release of the Vessels. Loh J interpreted this to mean that the defendants had the funds, but could not arrange for the transfer of such funds, which a postponement of the sale would not improve;

(d) whilst the increase in the sum demanded was attributable to a calculation mistake by the plaintiff's solicitors, the defendants ought to have known of their actual indebtedness, and the fact remained that the defendants had been unable to effect payment or effect any security to any meaningful degree from the time of the Vessels' arrest;

(e) Loh J also considered the fact that the sheriff had not provided for a postponement of sale in his advertisements and that a postponement of a sheriff's sale had never happened before; and

(f) at least ten parties had expressed an interest in buying the Vessels, and had incurred costs in commissioning underwater hull surveys. In this regard, Loh J considered that any prospective buyer would want to rely on a survey which was as current as possible.

2.8 Accordingly, Loh J dismissed the applications to postpone the sales of the vessels pendent lite.

The defendants' applications to discharge the order to sell the Vessels, and for the Vessels to be released

2.9 The defendants subsequently took out a separate set of applications to discharge the order of court to sell the Vessels, and for the Vessels to be released from arrest. The ground of the defendants' applications was that the defendants had transferred certain funds in Europe, in alleged satisfaction of the plaintiff's claims against the defendants.

2.10 The issue before Loh J was whether the payment of security in Europe, outside of Singapore, could be tantamount to meeting the plaintiff's claims, or whether security had been provided in respect of such claims: The Sahand at [73]. In this regard, Loh J noted (The Sahand at [74]), that the said transfer of funds had been frozen by virtue of the European Union legislation and regulations, and would therefore not comply with the specific requirement under the loan agreements that the payment of any funds be legally compliant.

2.11 Loh J, however, accepted the uncontroverted evidence given by the plaintiff's English solicitors that the parties had obtained most of the requisite authorisations from the European Union authorities for such transfers to be effected: The Sahand at [76]. With respect to one last outstanding authorisation for the payment of 155m, solicitors for both sides accepted that there was no reason why such authorisation would be forthcoming in light of the prior authorisations granted: The Sahand at [79]. Notably, this last outstanding authorisation was indeed granted subsequent to Loh J's decision: The Sahand at [92].

2.12 In light of the foregoing, Loh J rescinded the orders to judicially sell the Vessels and ordered them to be released, on the condition that the defendants undertake to pay the sheriff's expenses: The SahandENR at [80] and [81]. Loh J also ordered the sheriff to return the sealed bids unopened, along with all cheques deposited with him: The Sahand at [81].

Bidder's request for compensation

2.13 In a somewhat unexpected twist, one of the bidders (whose identity was not known because the bids had remained sealed throughout the course of the proceedings), asked that the defendants compensate it for expenses incurred in relation to its bid after the order for judicial sale was rescinded: The Sahand at [84]. Loh J dismissed this request on the basis that any defendant in an admiralty action in rem is entitled to compel the release of the arrested res before the sale of the same, by paying the amount claimed or by providing satisfactory security for the plaintiff's claim: The Sahand at [84].

2.14 Loh J also referred to the fact that the bidder had merely lost a speculative chance to purchase the Vessels, particularly since the sheriff's notice of sale had expressly reserved his right not to sell the Vessels to the highest bidder, or at all: The Sahand at [84]. In the circumstances, Loh J held that an order to compensate the said bidder for its expenses incurred in relation to its bid would set an altogether wrong precedent: The Sahand at [84].

The Oriental Baltic [2011] 3 SLR 487 (The Oriental Baltic)

2.15 This decision raises a short but potentially important point in light of the difficult times faced by the shipping industry in recent years. In The Oriental Baltic, the subject vessel (Vessel) was arrested in Singapore, after which, the plaintiff filed a caveat against her release. The plaintiff however, only commenced its in rem action against the Vessel's registered owners hours after the liquidation of the said registered owners (by way of a voluntary winding up) had commenced on the same day. The plaintiff applied under s 299 of the Companies Act (Cap 50, 2006 Rev Ed) for leave to continue with its action against the registered owners after the commencement of winding up proceedings. Section 299 of the Companies Act reads:

Property and proceedings

(1) Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of a creditors' voluntary winding up shall be void.

(2) After the commencement of the winding up no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

2.16 The plaintiff's claim in its in rem action was for damages and contractual interest pursuant to the Vessel's registered owners' breach of a contract for the supply of marine gas oil. As a matter of priorities, the plaintiff's claim potentially competed with that of a third party, Posh Maritime Pte Ltd (PMP), which had previously obtained a judgment against the Vessel's registered owners in a separate admiralty action in rem. Not surprisingly, PMP intervened in the plaintiff's action and objected to the application for leave to continue with the action despite the commencement of winding up.

2.17 The Vessel was eventually sold by the sheriff, and the proceeds of sale amounting to S$403,000 were paid into court. PMP intervened in the action and applied for...

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