Admiralty and Shipping Law

Date01 December 2017
Citation(2017) 18 SAL Ann Rev 37
AuthorTOH Kian Sing SC LLB (Hons) (National University of Singapore), BCL (Oxon); Advocate and Solicitor (Singapore). Vivian ANG Hui Ming LLB (Hons) (Singapore), LLM (Cardiff); Advocate and Solicitor (Singapore).
Published date01 December 2017
Publication year2017

2.1 Two decisions pertaining to admiralty law and practice were handed down by the Singapore courts in 2017.

Security arrest in aid of foreign court proceedings

2.2 The decision in The Eurohope1 raises an important question in admiralty practice, which is whether a party can arrest a vessel in Singapore to obtain security in aid of foreign court proceedings (as opposed to arbitration).

2.3 The facts of the case are unremarkable. The plaintiffs, charterers of the “Eurohope”, brought a claim against her owners for breach of a charterparty in the English courts. They then issued an admiralty writ in Singapore and arrested her, making clear in the affidavit filed for the application for warrant of arrest that it has no intention of bringing the claim in Singapore and the sole purpose of the arrest is to obtain security in aid of proceedings commenced before the High Court of London, on account of an exclusive jurisdiction clause in favour of the latter.

2.4 Chua Lee Ming J observed that while it was not disputed that the arrest fell within the scope of ss 3(1)(h) and 4(4) of the High Court (Admiralty Jurisdiction) Act2 (“HCAJA”), the issue was whether arresting the vessel for security in aid of foreign court proceedings amounted to an abuse of process which warranted the striking out of the writ and the setting aside of the arrest.

2.5 This issue is surprisingly not covered by any reported authority. (An earlier decision, Avin International Bunkers Supply SA v The Owners

of the Ship or Vessel “United Endurance”3 suggests this is permissible but no grounds of decision were given in that case.) Dicta (referred to below)4 indicate it is not possible. In contrast, there are decisions (such as The Cap Bon,5 The Vasso6 and The ICL Raja Mahendra)7 which have dealt with this issue in the context of foreign arbitration proceedings. The latter is, in any event, settled as a matter of legislation. Section 6, read with s 7, of the International Arbitration Act8 (“IAA”) permit the detention of security or the furnishing of alternative security if an admiralty action is stayed in favour of arbitration. Arresting a vessel for security in aid of foreign arbitration followed by a stay of the admiralty action under which the vessel is arrested is a well-established aspect of admiralty practice.

2.6 Chua J decided the issue in favour of the owners holding that:9

[The] power of arrest in an action in rem should not be exercised in aid of legal proceedings in a foreign court …

2.7 In arriving at this conclusion, his Honour aligned himself with dicta in The Vasso and The ICL Raja Mahendra (the latter citing The Vasso on the point), to the effect that the purpose of the arrest is to provide security in respect of the action in rem. This position is reinforced by the statutory language of s 3(1) of the HCAJA (that is, jurisdiction “to bring and determine” a claim) and, perhaps more tangentially, the prescribed language of a bail bond in Form 168 of the Rules of Court.10 More importantly, in contrast with s 7 of the IAA, there is no statutory provision empowering the Singapore courts to order that property arrested in an admiralty action in Singapore be retained for the purposes of foreign court proceedings. Accordingly, legislative intervention is necessary if the courts in Singapore are to allow arrest to be effected for the latter.

2.8 Accordingly, the admiralty writ was struck out and the arrest set aside because the action amounted to an abuse of process. The striking out of the admiralty action also disposed of the plaintiffs' application to stay the action in favour of the English proceedings on condition that security be retained for the English court proceedings.

2.9 This decision is to be welcomed as it settles an important aspect of admiralty practice in Singapore. The resulting dichotomy between security arrest for foreign arbitration and foreign court proceedings is a matter for which reform conferring the Singapore courts with legislative powers for the latter (like s 26(1) of the UK Civil Jurisdiction and Judgments Act 1982)11 may be useful.

2.10 For completeness, it should also be noted that the shipowner's claim for wrongful arrest was rejected by the court. This is not altogether surprising considering that prior to this decision, there was a dearth of clear authority as to whether a vessel can be arrested for security in aid of foreign court proceedings.

Priorities in distribution of sale proceeds of vessel

2.11 The factual matrix behind The Posidon12 is, in recent years, a distressingly familiar one: two vessels of an insolvent shipowner were arrested in Singapore and judicially sold but the proceeds of sale were inadequate to satisfy the claims of competing claimants, leading to an attempt by a claimant ranking lower in priority to alter the established, prima facie order of priorities so as to leapfrog ahead of a claim by an otherwise superior creditor.

2.12 The two competing claimants in that case were the mortgagee bank and an unpaid bunker supplier. In the established order of priorities, it is trite law that a mortgagee – even a second ranking mortgage, as in the case at hand – ranks higher than a necessaries supplier. The bunker supplier therefore had to persuade the court that on the equities of the case, there was sufficient justification to alter the prima facie order of priorities between them, a task which requires the demonstration of exceptional circumstances.

2.13 Before dwelling into the facts, Belinda Ang Saw Ean J took the opportunity to restate the relevant principles on this area of admiralty law.

2.14 The order of priorities and distribution of the proceeds of sale of the vessel in an admiralty action between competing claimants is the question governed by lex fori. While it is not disputed that a mortgagee's claim enjoys superior priority over a necessaries claim in an established order of priorities, this is not immutable. Where the equities of the case, having regard to the underlying facts, justify an alteration of the

established order of priorities, the court has a discretion to do so if the demand of justice warrants a departure from the usual order of priorities. However, this established order of priorities should only be disturbed if there is a powerful reason to do so,13 which calls for truly exceptional or special circumstances.

2.15 In the specific context of an attempt to subordinate the priority of the mortgagee, an example of special circumstances would be where a mortgagee, knowing the mortgagor to be insolvent, stands by and allows for the supply of necessaries that would directly accrue to his benefit and/or his security in the ship. In this regard, the court would take into account three factors: first, the mortgagee's knowledge that the mortgagor was insolvent; second, the mortgagee must be fully aware, in advance, of the nature and extent of the expenditure incurred by the necessaries supplier; and finally, any such expenditure must bring about some benefit to the mortgagee. So far as the latter element of benefit is concerned in the specific context of a competing bunker supply, that benefit goes beyond merely providing the vessel with motive power to carry on trading. As for the element of knowledge, the requirement to be met is a fairly stringent one. It must be shown that mortgagee was fully aware, in advance, of the necessaries to be supplied. A non-specific type of knowledge that since all ships require bunker fuel to operate, a mortgagee must be taken to know of the fuel supplies being procured is clearly inadequate.

2.16 In deciding whether exceptional circumstances have been shown to justify a departure from the established order of priorities, Ang J stated that the inquiry will usually focus on the conduct of the party whose priority is sought to be disturbed in relation to the other competing claimants (making it inequitable to allow the former's claim to take precedence over the latter).14

2.17 With this principle in mind, her Honour then examined the evidence in a detailed judgment before arriving at the conclusion that on the facts, there was no basis for the priority of the bank to be subordinated to that of the bunker supplier.

2.18 Ang J rejected the argument that the bunkers supplied provided motive power to the vessel, thereby ensuring the physical safety of the bank's security as well as enabling the bank to trade and generate profits to the benefit of the bank. This “simplistic” argument ignores the point that a trading vessel is exposed to a wider spectrum of risk and any

earnings generated by the trading vessel would be a true benefit to the shipowner and operators as opposed to the bank.

2.19 The judge also rejected, on the evidence, an argument that the bunkers were supplied for the purposes of the vessel's arrest voyage to Singapore.

2.20 So far as the knowledge of the borrower's insolvency is concerned, the judge concluded that in fact the shipowners were not insolvent at the material time. The bank was prepared to provide financial support to the shipowners and allowed the shipowners to capitalise instalments of interest which fell due. The availability of such capitalisation was a commercial decision which the bank was entitled to take given the volatile nature of the shipping market. The judge also rejected the bunker suppliers' allegation that the bank effectively controlled the shipowners' finances at the material time and through such control became aware of the shipowners' insolvency, dismissing it as a bare allegation. Whilst the bank was monitoring the activities of the shipowners, it did not in fact interfere with the latter's operational or management decision. Likewise, the judge also rejected the argument that the bank...

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