An Guang Shipping Pte Ltd v Ocean Tankers (Pte) Ltd
| Jurisdiction | Singapore |
| Judge | Andrew Phang Boon Leong JCA,Judith Prakash JCA |
| Judgment Date | 26 October 2022 |
| Docket Number | Civil Appeal No 56 of 2021 |
| Court | Court of Appeal (Singapore) |
Andrew Phang Boon Leong JCA and Judith Prakash JCA
Civil Appeal No 56 of 2021
Court of Appeal
Companies — Receiver and manager — Judicial management order — Judicial management expenses principle — Judicial managers of company retaining and using vessels chartered from vessel-owning companies — Whether claims arising out of those charters enjoyed priority as expenses of company's judicial management — Whether judicial managers retained vessels for benefit of company's estate — Section 227J(3)(b) Companies Act (Cap 50, 2006 Rev Ed)
Companies — Receiver and manager — Judicial management order — Judicial management expenses principle — Vessel-owning companies making claims in respect of ancillary liabilities incurred during period of use of vessels — Whether vessel-owning companies had to prove that ancillary claims were linked to period of beneficial retention of vessels in order for these claims to fall within judicial management expenses principle — Section 227J(3)(b) Companies Act (Cap 50, 2006 Rev Ed)
Held, dismissing the appeal:
(1) Section 227J(3)(b) of the Companies Act (Cap 50, 2006 Rev Ed) provided that expenses properly incurred by a judicial manager were to be charged on and paid out of the property of the company in his custody or under his control in priority to all other debts. Although the principal function of this provision appeared to be to confer priority on claims by the judicial manager himself against the company, claims by third parties might also be treated as expenses of the judicial management if the Principle applied: at [47].
(2) Expenses incurred by a company's judicial managers in relation to the retention and continued use of property under pre-judicial management contracts would fall within the ambit of the Principle if this retention and use was for the benefit of the estate: at [48].
(3) The Principle ought to be restrictive in its application, and it was for the party seeking to rely on the Principle to show why he should have priority over the other creditors. Not offering to surrender the property or simply doing nothing would not be regarded as retaining possession for the benefit of the estate: at [50].
(4) Whether the property was retained and used for the benefit of the estate would depend on the purpose of the judicial managers in retaining possession of such property, which was to be assessed objectively based on their conduct. The mere fact of retention was not the focus of the inquiry. Determining whether the Principle applied in a given case was necessarily a highly fact-sensitive inquiry, the answer to which would turn on the precise facts as well as all the circumstances of each case: at [52].
(5) The Judge had not erred in inferring from the material before him that the OTPL JMs generally had not retained two overlapping groups of vessels for the benefit of OTPL's estate: at [3].
(a) For the vessels in respect of which notices of termination had been issued by the XH Companies and accepted by the OTPL JMs, the evidence did not support the XH Companies' position that the OTPL JMs had withheld the redelivery of the vessels as commercial leverage to secure ship management contracts with the XH Companies, or to secure the full payment of the cost of bunkers “remaining on board”, for the benefit of OTPL's estate. Based on the available and relevant evidence, the central thread running through the OTPL JMs' conduct from the outset was their desire to redeliver the vessels to the XH Companies: at [91] and [94].
(b) The OTPL JMs' marketing of vessels for hire was not incompatible with their desire to redeliver the vessels as a first resort, and – when viewed in the context of all of the parties' dealings in the present case – did not support an inference that they had intended to retain these vessels for the benefit of OTPL's estate. The marketing of the vessels for hire had taken place alongside and concurrently with the parties' discussions regarding the redelivery of the vessels. Based on the evidence before the court, the OTPL JMs had consistently maintained their general position that they wished to terminate the bareboat charters and redeliver the vessels to the XH Companies as they were generally of no benefit to OTPL. Until redelivery could be effected, however, it was sensible for the OTPL JMs to continue marketing these vessels as this might generate some income for OTPL in the meantime, instead of simply doing nothing. Taking this step did not necessarily mean that the OTPL JMs had retained the vessels for the benefit of OTPL's estate. The mere fact that these vessels were in fact marketed for hire did not change the court's analysis of the OTPL JMs' purpose or motivation in retaining these vessels: at [98], [100] and [104].
(6) For the vessels which the OTPL JMs had deployed on subcharters, the Judge had not erred in holding that the Principle did not apply to periods of inactivity before and between redeployments of these vessels on subcharters. The evidence supported the Judge's inference that the OTPL JMs had not intended to retain these vessels generally for the benefit of OTPL's estate. The exception to this was where the vessels were actually deployed on subcharters and thereby generated some income for OTPL, as this would incontrovertibly have amounted to use for the benefit of OTPL's estate. The Principle should therefore apply only to the specific periods of actual use of these vessels: at [110], [112] and [114].
(7) The Judge had not erred in requiring the XH Companies to prove that their ancillary claims were linked to the period that these vessels were retained by the OTPL JMs for the benefit of OTPL's estate. This “relative approach” should be preferred to the “accruals approach”, under which any liability which accrued during the period of beneficial retention would attract the Principle. There was scant support in the authorities relied on for the XH Companies' position that the accruals approach should be followed. Further, the relative approach was preferable as a matter of principle. The requirement of a link between the expenses claimed and the retention or use of the property cohered with the nature and rationale of the Principle, which was an equitable principle developed to permit pre-judicial management expenses incurred for the benefit of the estate to be treated as though they were judicial management expenses for priority purposes. It was also more consistent with the focus of the Principle, which was on the purpose for which expenses were incurred (and whether this was for the benefit of the estate), and not merely on the time at which these expenses were incurred: at [119] to [121].
(8) Applying the relative approach in the present case, the XH Companies had not shown how the Judge had erred in excluding their ancillary claims for repair costs from the scope of the Principle. The XH Companies had made no attempt to draw the requisite link between the repair costs claimed and the OTPL JMs' retention and use of the vessels for the benefit of OTPL's estate, and indeed appeared to implicitly concede that they would have struggled to establish such a link: at [122].
[Observation: Although the question of whether and how the position of interim judicial managers should differ from that of judicial managers with regard to the application of the Principle did not arise for determination, the court expressed its tentative views on the matter. The starting point was that the Principle applied in principle to both interim judicial managers and judicial managers, and the central question in both contexts was whether the property was retained for the benefit of the estate. However, in ascertaining whether an interim judicial manager had in fact retained property for the benefit of the estate, it had to be borne in mind that the position of an interim judicial manager differed from that of a judicial manager because of the nature of this appointment. Given that the overarching aim of interim judicial management was essentially protective, an interim judicial manager might rightly be cautious about taking irrevocable steps to dispose of property that might later be important for the company's business. The powers of an interim judicial manager (notably, in relation to disclaiming onerous property) were also generally much more limited. The Judge's suggestion that a “degree of latitude” should be given to interim judicial managers in assessing whether they had retained property for the benefit of the estate should thus be read as no more than an expression of the common-sense principle that the purpose, powers and position of interim judicial managers should be borne in mind by the court in determining whether the Principle applied in a given case: at [56], [57], [60] and [64].]
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