An Guang Shipping Pte Ltd (under judicial management) and others v Ocean Tankers (Pte) Ltd (in liquidation)

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JCA
• Judgment Date: 26 October 2022
• Neutral Citation: [2022] SGCA 69
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 56 of 2021
• Published date: 29 October 2022
• Year: 2022
• Hearing Date: 10 August 2022
• Plaintiff Counsel: Thio Shen Yi SC and Crystal Tan (TSMP Law Corporation) (instructed), Leo Zhen Wei Lionel, Chong Yi-Hao Clayton and Kwong Kai Sheng (WongPartnership LLP)
• Defendant Counsel: Narayanan Sreenivasan SC, Rajaram Muralli Raja, Jonathan Lim Jien Ming, Tan Kai Ning Claire and Eva Teh Jing Hui (K&L Gates Straits Law LLC)
• Citation: [2022] SGCA 69

Andrew Phang Boon Leong JCA (delivering the judgment of the court): Introduction

After a company enters into liquidation, expenses and liabilities incurred by its liquidators for the purposes of the winding up may be accorded priority over the company’s other unsecured debts, pursuant to what is known as the liquidation expenses principle. Although this principle was articulated and developed in the context of liquidation, it also applies by extension in the context of judicial management, where expenses and liabilities are incurred by a company’s judicial managers for the benefit of the company. This was first recognised in Singapore – tentatively but, in our view, rightly – by Kannan Ramesh J in Re Swiber Holdings Ltd [2018] 5 SLR 1358 (“Swiber Holdings”) at [89]. We refer to this as the “judicial management expenses principle” or “the Principle”.

The present appeal provides us with an occasion to consider the scope of the Principle and its application to a case involving the retention and use of property by a company’s judicial managers while the company is in judicial management. The appellants are 40 vessel-owning subsidiaries of Xihe Holdings (Pte) Ltd (“the XH Companies”), while the respondent is Ocean Tankers (Pte) Ltd (“OTPL”). Both the XH Companies and OTPL are presently in judicial management and are represented in these proceedings by their judicial managers, whom we refer to as “the XH JMs” and “the OTPL JMs”, respectively. Central to the parties’ dispute is the question whether the XH Companies’ claims under various bareboat charters, which OTPL had entered into with the XH Companies prior to being placed in interim judicial management, fall within the scope of the Principle so as to enjoy priority in OTPL’s judicial management.

To state our conclusion upfront, we agree with the decision of the General Division of the High Court judge (“the Judge”) below, the full grounds of which were set out in Re Ocean Tankers (Pte) Ltd [2022] SGHC 55 (“the GD”), that the Principle would generally not apply to the XH Companies’ claims, subject to certain exceptions based on how specific vessels were used. In our judgment, the Judge did not err in inferring from the material before him that the OTPL JMs generally did not retain the vessels for the benefit of OTPL’s estate, nor did the Judge err in requiring the XH Companies to prove that their ancillary claims for repair costs were linked to the period that these vessels were retained by the OTPL JMs for the benefit of OTPL’s estate. Accordingly, we dismiss the XH Companies’ appeal against the Judge’s decision.

We begin by setting out the facts and background to the present appeal. Thereafter, we explain in detail the reasons for our decision.

Facts

Much of the factual background has been helpfully recounted by the Judge in the GD, and we restate only the facts material to the present appeal. As there are several overlapping categories and classifications of the 76 vessels which are the subject of the parties’ dispute, we also make reference where appropriate to a table which summarises the relevant facts in relation to each of these vessels (“the Table of Vessels”). This Table of Vessels is contained in the Annex to our judgment.

Parties and background

Mr Lim Oon Kuin had procured the incorporation of various companies including OTPL, Xihe Holdings (Pte) Ltd (“XH”), Xihe Capital (Pte) Ltd (“XC”) and Hin Leong Trading (Pte) Ltd (“HLT”). XH and XC were part of the Xihe Group. Some of XH’s subsidiaries owned vessels, and 40 such subsidiaries are relevant to the present appeal (“the XH Companies”).

Prior to the entry into insolvency processes of OTPL, HLT and certain companies in the Xihe Group, their businesses were connected. In particular, the XH Companies (as shipowners) chartered their vessels to OTPL, principally under bareboat charters. OTPL would then sub-charter those vessels to, or enter into contracts of carriage with, various other parties (including HLT) on time or voyage charters. This formed a significant part of OTPL’s business of ship chartering and ship management (see [2] of the GD).

In late April 2020, HLT filed an application to be placed under judicial management. OTPL filed a similar application on 6 May 2020, and the OTPL JMs were appointed as interim judicial managers of OTPL on 12 May 2020 pursuant to an order of court (“the OTPL IJM Order”) (see [4] of the GD). OTPL’s judicial management had the following objectives: to propose a debt restructuring plan with OTPL’s creditors under the supervision and control of the OTPL JMs and with the protection of the judicial management regime; to urgently stabilise OTPL’s business, in particular, its business with third party charterers; and to restore the confidence of OTPL’s business partners in continuing dealings with OTPL under the OTPL JMs’ management.

Events taking place during OTPL’s interim judicial management 18 May 2020 Meeting

On 18 May 2020, a meeting took place between the OTPL JMs and the management of the Xihe Group (“the Meeting”) regarding vessels that OTPL had chartered from the XH Companies (see [6] of the GD). In their presentation slides (“the Slides”) for the Meeting, the OTPL JMs stated that due to the market’s loss of confidence in the trading ability of OTPL’s fleet, OTPL was unable to continue servicing its bareboat charter obligations to the XH Companies, and as such wished to consensually terminate the bareboat charters. In this connection, the OTPL JMs proposed arrangements for the physical redelivery of the chartered vessels to the XH Companies, or alternatively for ship management agreements to be entered into between OTPL and the XH Companies.

Termination Notices issued by the XH Companies

From 20 May 2020 to 3 June 2020, notices of termination (“the Termination Notices”) were issued by the XH Companies in respect of bareboat charters for 41 vessels, 30 of which are relevant to this appeal. These 30 vessels are identified in Column A of the Table of Vessels.

On 27 May 2020 and 30 May 2020, these Termination Notices were accepted by the OTPL JMs, who agreed to redeliver the vessels subject to payment of the cost of bunkers “remaining on board” (“ROB”) as provided for under the charterparties. The OTPL JMs and the XH Companies then discussed redelivery for 28 of these 30 vessels. However, redelivery of these vessels did not take place (see [7]–[8] of the GD).

OS 652 – the XH Companies’ redelivery application

According to the XH Companies, the OTPL JMs had initially proceeded on the basis that they could redeliver the 37 vessels to the relevant XH Companies without an order of court. However, at a meeting on 22 June 2020, the OTPL JMs said that they needed an order of court, and that either they or the XH Companies should apply for such an order.

On 6 July 2020, the relevant XH Companies filed HC/OS 652/2020 (“OS 652”) seeking leave of court to take redelivery of 37 vessels that were the subject of bareboat charters with OTPL. They also sought a declaration that the XH Companies (upon taking delivery of their respective vessels) were entitled to take over and pay for various expenses for their vessels (ie, outstanding ROB) by way of set off against the bareboat charterhire due and payable by OTPL to the XH Companies. As the Judge noted, it is unclear why leave of court for redelivery was not sought for all 41 vessels (see [9] of the GD), but this is not material for present purposes. Of the 37 vessels that were in issue in OS 652, nine were not included in HC/SUM 2085/2021 (“SUM 2085”) (viz, the “Ocean Gar”, the “Reliance”, the “Ocean Buri”, the “Ocean Seal”, the “Ocean Clover”, the “Ocean Moray”, the “Ocean Dolphin”, the “Ocean Cod” and the “Ocean Bass”) and the owners of these vessels are not parties to the present dispute. The Judge’s decision in respect of SUM 2085 is the subject of the present appeal. Hence, only 28 of the vessels in issue in OS 652 are relevant to the present proceedings (identified in Column B of the Table of Vessels). It should, however, be noted that the XH Companies’ supporting affidavit stated that their view was that the OTPL JMs (then interim judicial managers), with all the powers of judicial managers pursuant to the OTPL IJM Order, could redeliver the 37 vessels without an order of court.

No hearing date was fixed for OS 652 as the consent of the mortgagees of the vessels to the termination of the bareboat charters had yet to be obtained, and the terms of redelivery had yet to be worked out between the XH Companies and the OTPL JMs. The discussions on the terms of redelivery did not reach any conclusion (see the GD at [9]–[10]).

Marketing and deployment of the XH Companies’ vessels by the OTPL JMs

Concurrently, from 12 May 2020 to 8 September 2020, the OTPL JMs marketed some of the XH Companies’ vessels for hire in the lists of vessels in OTPL’s fleet which were sent to brokers and charterers. Some of these marketed vessels (though not all) were then successfully deployed on sub-charters. The facts pertaining to these vessels are discussed in more detail at [95]–[104] below.

Events taking place after OTPL was placed in judicial management

On 7 August 2020, the OTPL JMs were appointed as judicial managers of OTPL pursuant to an Order of Court (“the OTPL JM Order”) (see the GD at [4]).

On 13 August 2020, XH and four of the XH Companies were placed in interim judicial management, and the XH JMs were appointed as interim judicial managers (“the XH IJM Order”) (see the GD at [10]).

Notices of Non-Adoption issued by the OTPL JMs

From 31 August 2020 to 3 September 2020, the OTPL JMs sent notices to the relevant XH Companies electing not to adopt the bareboat charters in respect of 74 out of the 76 vessels (“the Notices of Non-Adoption”) (identified in Column C of the Table of Vessels). No Notices of Non-Adoption were necessary for the remaining two...