Duncan, Cameron Lindsay and another v Diablo Fortune Inc and another matter

• Jurisdiction: Singapore
• Judge: Audrey Lim JC
• Judgment Date: 18 July 2017
• Neutral Citation: [2017] SGHC 172
• Date: 18 July 2017
• Docket Number: Originating Summons No 287 of 2017 (Summons No 1317 of 2017) and Originating Summons No 307 of 2017
• Published date: 31 May 2018
• Plaintiff Counsel: Debby Lim (Shook Lin & Bok LLP)
• Defendant Counsel: Felicia Tan and Justin Seet (Incisive Law LLC),Matthew Teo (Rajah & Tann Singapore LLP) as amicus curiae.
• Court: High Court (Singapore)
• Hearing Date: 04 May 2017,24 March 2017,04 April 2017,07 June 2017,21 April 2017
• Subject Matter: Avoidance of transactions,Unregistered charges,Arbitration,Lien over sub-freights and sub-hire,Stay of court proceedings,Conflict of laws,Arbitrability,Insolvency law,Extension of time to register,Choice of law,Non-registration of charges,Insolvency

Audrey Lim JC: Introduction

Originating Summons No 287 of 2017 (“OS 287”) is an application by the liquidators of Siva Ships International Pte Ltd (“the Company”), a company incorporated in Singapore. By way of OS 287, the liquidators of the Company (“the Liquidators”) seek a determination that Diablo Fortune Inc (“Diablo”)’s lien over sub-freights or sub-hire due from V8 Pool Inc (“V8”) to the Company in relation to the charter of the vessel V8 Stealth II (“the Vessel”) is void against the Liquidators pursuant to s 131(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) for want of registration. Originating Summons No 307 of 2017 (“OS 307”) is Diablo’s application for an extension of time, under s 137 of the CA, to register the lien. At the same time, Diablo filed Summons No 1317 of 2017 (“SUM 1317”) to stay the proceedings in OS 287 in favour of arbitration.

Background

The Company was engaged in commercial vessel operations. On 6 June 2008, it entered into a BIMCO Standard Bareboat Charter with Diablo in respect of the Vessel (“the Bareboat Charter”) under which Diablo agreed to charter the Vessel to the Company for five years.¹ The Bareboat Charter was concluded in Singapore.² In July 2012, the Company and Diablo extended the charter period to 4 May 2017.³ A key term in the Company and Diablo’s agreement is Clause 30(a) of the Bareboat Charter, the relevant portion of which is as follows:⁴ 30. Dispute Resolution (a) [The Bareboat Charter] shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this [Charter] shall be referred to arbitration in London in accordance with the Arbitration Act 1996 ...

On 10 March 2010, the Company entered into a Standard Ship Management Agreement (“V Ships Agreement”) with V Ships (Asia) Pte Ltd (“V Ships”) for V Ships to provide technical and crew management services in respect of the Vessel for an annual sum of US$132,000.⁵ The Company entered into a pooling arrangement with V8 on 9 February 2011 (“the Pool Agreement”).⁶ Under the Pool Agreement, the Company earned revenue from the Vessel by chartering it to V8, which in turn employed the Vessel in the pooling arrangement. To facilitate the Pool Agreement, V8 engaged Navig8 Asia Pte Ltd (“Navig8”) to manage the commercial affairs of the Vessel.⁷ As part of the Pool Agreement, V8 agreed to pay the Company charter hire based on the actual earnings from the pooling arrangement divided based on the Vessel weighting system and after deducting the management fee due to Navig8.⁸

The Company subsequently incurred substantial losses and was unable to pay its debts. On 19 December 2016,⁹ the Company filed a winding up application in Singapore. Around 21 December 2016, the Company’s directors notified Diablo of the winding up application, and informed Diablo that it intended to arrange for early redelivery of the Vessel as the Company no longer had the financial means to pay hire or continue with the Bareboat Charter.¹⁰ According to the Liquidators, at that time, the Vessel was on a voyage from Nigeria to Cartagena, Spain, which was due to be completed around 16 January 2017 (“the Voyage”).¹¹ The next bareboat hire instalment for the sum of US$474,300 was due from the Company to Diablo on 4 January 2017 for the month ending 4 February 2017.¹²

On 30 December 2016, Diablo sent a notice to V8 purporting to exercise its lien under Clause 18 of the Bareboat Charter (“First Lien Notice”).¹³ Clause 18 states as follows:¹⁴ 18. Lien

[Diablo] to have a lien upon all cargoes, sub-hires and sub-freights belonging or due to [the Company] or any sub-charterers and any Bill of Lading freight for all claims under this Charter, and [the Company] to have a lien on the Vessel for all moneys paid in advance and not earned.

Under the Pool Agreement, V8 agreed to make a distribution to the Company within the first week of each month for charter hire earned in the previous month.¹⁵ According to the Liquidators, the sum of US$563,999, which was the distribution amount for the month of December 2016 (“the December Distribution”) in respect of the Vessel, was due and owing from V8 to the Company.¹⁶ However, V8 did not make that payment to the Company in light of Diablo’s First Lien Notice.¹⁷

The Company was wound up on 6 January 2017.¹⁸ On 12 January 2017, the Liquidators informed Diablo’s lawyer in the United States that the Vessel was subsequently sub-chartered and en-route to Cartagena, and it was assumed that the consignee was Repsol Petroleo SA (“Repsol”).¹⁹ Hence, around 13 January 2017, Diablo exercised its right of a lien over the Bill of Lading freight under Clause 18 of the Bareboat Charter by sending a notice to Repsol informing it of the same (“the Second Lien Notice”).²⁰ Diablo was of the view that its exercise of lien was justified in that the Company, as carrier under the Bill of Lading, was entitled to receive Bill of Lading freight from Repsol.²¹ As the Bill of Lading freight had been assigned to Diablo by virtue of Clause 18, Diablo was entitled to receive such freight from Repsol under the Second Lien Notice.²²

Meanwhile, the Liquidators took the position that the completion of the Voyage (mentioned at [4] above) would be in the interest of the Company and its creditors.²³ To this end, V8 and the Company executed a settlement agreement on 18 January 2017 in relation to the completion of the Voyage (“Settlement Agreement”).²⁴ In particular, the terms of the Settlement Agreement provide as follows:²⁵ that the December Distribution amount, a further sum for the distribution amount for January 2017, and a sum of US$650,000 (being the working capital deposit paid by the Company to V8 under the Pool Agreement) was due and owing to the Company (with the sums payable being subject to other provisos in the Pool Agreement); that V8 would pay Diablo, out of the sums due to the Company, the hire for the Vessel at a rate of US$15,300 per day pro rata from 4 January 2017 to the date of discharge of cargo on board the Vessel; that V8 would withhold any sums covered by lien notice(s) received by V8 and which had not been withdrawn by Diablo; that V8 would pay V Ships US$176,814.17 for services provided from 1 January 2017 until 18 January 2017, or an amount increased pro rata for any delays of the Voyage completion, out of any balance left after payment to Diablo and after withholding any sums covered by the lien notice(s); and that the above payments were to be made within three banking days from the date and time of completion of discharge of cargo on board the Vessel.

The Vessel arrived at Cartagena on 16 January 2017 and completed discharge of its cargo on 19 January 2017.²⁶ Hence, payment to the relevant parties under the Settlement Agreement was due on 24 January 2017.²⁷ On or about 23 or 24 January 2017, V8 paid US$232,931.87 to Diablo for hire for the period from 4 January 2017 to 19 January 2017.²⁸ However, V8 chose not to pay V Ships and the Company under the Settlement Agreement until the dispute over the validity of Diablo’s lien was resolved.

The matter did not end there. Shortly after the Company and V8 entered into the Settlement Agreement, Diablo notified the Liquidators, around 19 January 2017, that it had commenced arbitration proceedings against the Company in London, pursuant to Clause 30(a) of the Bareboat Charter.²⁹ Although Diablo proceeded to appoint its arbitrator, the Company has not done so and no further steps were subsequently taken in the London arbitration.³⁰

Further, in support of the lien and the First and Second Lien Notices, Diablo obtained a protective order from the Spanish Courts on 25 January 2017 (“the Spanish Injunction”) against V8 and Repsol to prevent them from paying out monies to any parties pending the determination of the validity of Diablo’s claim and/or the lien. Pursuant to the Spanish Injunction, Repsol paid US$892,952.80 into court in Spain, pending the outcome of Diablo’s claim against the Company in the London arbitration.³¹

Finally, on 28 February 2017, the Liquidators obtained an order from the London High Court recognising the Singapore liquidation (“the Recognition Order”).³² The order also applied an automatic moratorium or stay on all proceedings, including the London arbitration.

Issues that arise from the present applications

The following issues arise from the present applications: whether a stay should be granted in favour of arbitration; whether Singapore law should govern the registration of charges and priorities in insolvency matters; whether the lien over sub-freights or sub-hire is a charge within the meaning of s 131(1) of the CA and should therefore be registered; and whether an extension of time should be granted to Diablo to register the lien under s 137 of the CA.

Whether stay should be granted for arbitration

Diablo submits that the proceedings in relation to OS 287 should be stayed in favour of the London arbitration, as Clause 30 of the Bareboat Charter, which is wide enough to encompass a claim or dispute on the validity of the lien, provides that any dispute arising out of or in connection with the Bareboat Charter should be referred to arbitration in London. However, in my view, the present dispute is not covered by Clause 30 and is not arbitrable. The present dispute does not pertain to the validity of the lien as between Diablo and the Company, but whether it is a charge that is void as against the Liquidators, for want of registration under s 131 of the CA.

The Court of Appeal held in Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 (“Larsen Oil”) at [20] that a company’s pre-insolvency management is unlikely to have contemplated including avoidance claims within the scope of an arbitration agreement. That is...