Case Note
| Author | Eugene CHENG Jiankai LLB (National University of Singapore); Advocate and Solicitor, Singapore. |
| Citation | (2016) 28 SAcLJ 631 |
| Date | 01 December 2016 |
| Published date | 01 December 2016 |
INTERPLEADING THE OW SAGA
Precious Shipping Public Co Ltd v OW Bunker Far East (Singapore) Pte Ltd
Interpleader relief is typically offered to an applicant who faces adverse claims and is in a legal dilemma as to which competing claimants to pay. The scope and purpose of interpleader relief was recently tested in a bunker supply chain scenario. Under a supply chain, would interpleader relief save an end-buyer from the dilemma of facing claims from an intermediary supplier as well as claims from an end supplier? This article seeks to examine the decision in a recent case involving the above-mentioned scenario and, in particular, review and comment on the preconditions of interpleader relief.
1 The collapse of a major commodities supplier would usually spawn countless litigation proceedings worldwide.1 The collapse of the OW conglomerate and its subsidiaries in various jurisdictions was no different. Almost immediately, a myriad of arbitration and litigation proceedings were commenced worldwide between various parties in the bunker supply chain.
2 In Singapore, the OW saga culminated in the case of Precious Shipping Public Co Ltd v OW Bunker Far East (Singapore) Pte Ltd2 (“Precious Shipping”) which was a colossal hearing involving multiple parties and applications for interpleader relief. This article seeks to examine the decision reached in Precious Shipping and, in particular, the second and third preconditions of interpleader relief: (a) the requirement that the adverse claims must cross a prima facie threshold;
and (b) the requirement of symmetry for the adverse claims. This article seeks to argue that the prima facie threshold should not be a relevant requirement for interpleader relief. The article will also discuss the nature of symmetry needed in order for competing claims to be adverse.3 The common denominator behind the relationship of the parties in most OW legal proceedings can be summarised in the following diagram:
4 As shown in the above diagram, physical suppliers (“the Suppliers”) sold bunkers to OW or its subsidiaries (“OW”). OW, as contractual suppliers, then on sold the bunkers to purchasers who were more often than not vessel owners, charterers or agents (“the Purchasers”). The bunkers were usually delivered by the Suppliers directly to Purchasers' vessels.
5 OW entered into an omnibus security agreement with a syndicate of banks (“the Bank”). As part of the agreement, OW assigned its rights, title, and interest in its company's and its subsidiaries' receivables to the Bank. The Bank was therefore entitled to the sale proceeds of the bunkers payable to OW.
6 Under normal circumstances, OW will pay for the bunkers purchased from the Suppliers. The Purchasers will then pay for the bunkers purchased from OW, just like in every supply chain scenario. However, in the bunkering industry, it is very common for the Suppliers to deliver bunkers on board vessels even when the purchase price of the bunkers has not been paid to the Suppliers. To protect the Suppliers' position, a clause which retains title in favour of the Suppliers in the event the purchase price of the bunkers is not paid by OW to the Suppliers is usually included inside the contract of sale.
7 Around November 2014, OW became insolvent due to widespread fraud. The bunker supply chain was broken by reason of OW's inability to pay the Suppliers. All entities entitled to the sale proceeds of the bunkers, that is, the Suppliers, OW3 and the Bank, contemplated commencing proceedings against the Purchasers for the recovery of the invoice price of the bunkers. The claims of OW and the Bank against the Purchasers would arise from the contract for sale of bunkers between OW and the Purchasers. The Suppliers would naturally not make a claim against OW as OW was in liquidation. As such, the Suppliers sought to recover the price of the unpaid bunkers from the Purchasers. The contemplation of the various parties eventually manifested in a variety of actions ranging from the arrest of vessels4 to the sending of acrimonious letters threatening legal proceedings and prospective arrests.
8 The Purchasers, faced with a multitude of belligerent threats, commenced interpleader proceedings against the Suppliers, OW as well as the Bank. Within the Singapore jurisdiction, there were at least 15 originating summonses for interpleader relief filed in relation to the OW fallout. The Singapore High Court judiciously categorised and organised the various applications to be heard expeditiously. The bulk of the originating summonses was heard in Precious Shipping.5
9 In Precious Shipping, the dominant issue that arose was whether the Purchasers were entitled to interpleader relief. The stances adopted by the various parties drew themselves into two distinct camps. On one side, most of the Suppliers were allied with the Purchasers in support of interpleader relief. On the other side, OW and its subsidiaries aligned themselves with the Bank in opposition to interpleader relief.6
10 The preconditions of interpleader relief are as follows: (a) the applicant has to be under a liability for any debt, money, goods or chattels; (b) the applicant has to have an expectation that he would be sued by at least two persons; and (c) there has to be adverse claims for the debt, moneys, goods or chattels from the persons whom the applicant expected would bring suit.7
11 The first precondition was not disputed by all parties.8 However, the parties disagreed on whether the second and third preconditions had been satisfied.
12 In order to satisfy the second precondition, the Purchasers and majority of the Suppliers had to satisfy the court that the Purchasers had an expectation to be sued by at least two persons. The majority of the Suppliers agreed that the Purchasers had to show that the two adverse claimants (that is, the Bank/OW and the Suppliers) have a prima facie cause of action against the Purchasers9 (“the prima facie test”).
13 With regard to the prima facie causes of action, the Suppliers raised a multitude of potential causes of action which could allegedly be mounted against the Purchasers. These causes of action included the tort of conversion, bailment, breach of collateral contracts, breach of fiduciary agent/relationship, unjust enrichment and maritime liens.10
14 On the other hand, the Bank's and OW's causes of action were that of a simple contractual debt under an invoice. The Bank and OW further argued that the alleged causes of action raised by the Suppliers were legally and factually unsustainable and were not adverse to the Bank's and OW's claims against the Purchasers.
15 The court concluded that the Suppliers' causes of action were legally and factually unsustainable and did not disclose any prima facie case for relief.11 The court relied on a host of authorities beginning with
Watson v Park Royal (Caterers) Ltd12 (“Watson”) to a multitude of Hong Kong cases, which highlighted the need for the existence of a prima facie case before interpleader relief could be granted.1316 The court explained that although there were various expressions used –“prima facie”, “good cause of action”, “real foundation” and “question to be tried”, the essential questions can be couched as follows: Does the applicant face a genuine threat of multiple proceedings, and do the competing claims have an objective basis in fact and law14 (that is, the prima facie test)?
17 The court further explained that the question as to whether there is a prima facie case is not a subjective apprehension that competing claims will be brought against him. Instead, the question is whether the competing claims have an objective basis in law and fact.15 In particular, the court had strong words for would-be applicants of interpleader relief. The court cautioned that interpleader relief exists for the hapless and innocent but not the flighty and skittish. Nervous or overly cautious stakeholders cannot hide themselves behind the skirts of the courts at the slightest sign of controversy. The office of interpleader is neither a licence for applicants to abdicate their duty to conduct an independent legal assessment of the tenability of the potential claims they face nor an “insurance policy” against potential litigation.16
18 It is submitted that the prima facie test does not sit well with the second precondition of interpleader relief.
19 First, the reliance on the cases which advocate the prima facie test may have been misplaced. In Watson, Edmund Davies J (as he then was) held that “the discretionary relief of interpleader will not be granted unless there appears to be some real foundation for the
expectation of a rival claim”.17 Curiously, there is no mention of the requirement of a prima facie case in Watson. The test as cited by Watson was instead a “real foundation for the expectation of a rival claim” (“the real foundation test”).20 Indeed, in the Hong Kong authorities which were cited in Precious Shipping, such as Chan King Sheen v KC Tsang & Co18 (“Chan King Sheen”) and DLA Piper Hong Kong v China Property Development (Holdings) Ltd19 (“DLA Piper”), there was little discussion or elaboration as to how the expectation of being sued is linked to the prima facie test.
21 Surprisingly, the Hong Kong Court of Appeal in Chan King Sheen specifically highlighted the real foundation test in Watson as the axiomatic test for interpleader relief.20 In doing so, reference was made to another Hong Kong Court of Appeal case, NYK (Hong Kong) Ltd v Wilfond Ltd21 (“NYK Ltd”). It is worthwhile to note that in NYK Ltd, there was absolutely no reference to or discussion about the requirement for a prima facie case. Instead, in NYK Ltd, the Court of Appeal, when explaining the words “expects to be sued”, relied on the...
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