Malayan Banking Bhd v ASL Shipyard Pte Ltd and others

CourtHigh Court (Singapore)
JudgeVinodh Coomaraswamy J
Judgment Date18 March 2019
Neutral Citation[2019] SGHC 61
Citation[2019] SGHC 61
Hearing Date12 February 2018,05 December 2017,07 May 2018,29 September 2017,14 May 2018,28 September 2017,27 September 2017,26 March 2018,23 May 2018,04 October 2017,26 September 2017,03 October 2017
Published date21 March 2019
Docket NumberSuit No 673 of 2013
Plaintiff CounselPrem Gurbani, Govintharasah s/o Ramanathan and Wu Lennon Leong Chong (Gurbani & Co LLC)
Defendant CounselBazul Ashhab bin Abdul Kader, Nora Jessica Chan Kai Lin, Lailatulqadriah binte Jaffar and Cassandra Chow Qilei (Oon & Bazul LLP)
Subject MatterPersonal Property,Charges,Floating,Tort,Conspiracy,Malicious prosecution,Equity,Defences,Equitable set-off
Vinodh Coomaraswamy J:

A bank extends credit facilities to a shipbuilder. The facilities are secured by a debenture. The debenture creates a fixed and floating charge over the whole of the shipbuilder’s undertaking. The shipbuilder enters into a shipbuilding contract with a buyer to build and deliver a vessel. The shipbuilder and the buyer then enter into a series of transactions, unbeknownst to the bank. The net result of the transactions is that a third party steps into the shoes of the buyer and secures title to and possession of the vessel free of any payment to the shipbuilder.

Does the bank have an interest in the vessel by virtue of its fixed or floating charges? If so, is its interest superior to the third party’s? And was there a conspiracy between the shipbuilder and its customers to deprive the bank of its security over the vessel? These are the three questions raised in this action.

The parties

The bank is Malayan Banking Bhd (“MBB”). MBB is the plaintiff in this action and is a company incorporated in Malaysia.1

The shipbuilder is NGV Tech Sdn Bhd (“NGV”). NGV too is a company incorporated in Malaysia.2 It was wound up in 2013 in Malaysia on grounds of insolvency. NGV is not a party to this action.

The original buyer of the vessel is the third defendant, Bakri Navigation Company Ltd (“Bakri”). Bakri and NGV novated the benefit of the shipbuilding contract to the fourth defendant, Red Sea Marine Services Ltd (“Red Sea”), who claims to have acquired title to the vessel. Bakri and Red Sea are both companies incorporated in Saudi Arabia.3 They are both part of the Bakri group of companies and share the same registered address.4 Bakri owns and operates ships.5 Red Sea manages ships.6

Although MBB commenced this action against four defendants, it now proceeds only against Bakri and Red Sea. MBB has discontinued its action against the other two defendants, who have played no part in this action. As a result, references in this judgment to “the defendants” are references to Bakri and Red Sea only.

The parties’ cases

MBB extended credit facilities to NGV totalling over RM884m.7 Those facilities were secured collectively by a series of six debentures which NGV executed in favour of MBB.8 There is no suggestion that it is necessary to distinguish between the debentures in order to determine MBB’s claim. I shall therefore refer to all six of the debentures collectively in the singular, ie as the “Debenture”. It is also convenient to refer to the Debenture as having created a single fixed charge and a single floating charge. By a shipbuilding contract with NGV, Bakri commissioned Hull 1118 (“the vessel”).9 The shipbuilding contract was later novated by Bakri to Red Sea.10

MBB’s case is that it has an interest in the vessel by virtue of the fixed charge or the floating charge created under the Debenture.11 Further, MBB argues that its interest is superior to Red Sea’s because Red Sea is not a bona fide purchaser of legal title for value without notice.12 In the alternative, MBB argues that the defendants and NGV conspired to deprive MBB of its interest in the vessel through a series of transactions13 entered into between 2009 and 2012. MBB was unaware of any of these transactions until it commenced this action14 and impugns all of them as fraudulent.

The defendants’ case is that Red Sea is indeed a bona fide purchaser of legal title for value without notice.15 Red Sea’s title therefore defeats any security interest which MBB might have had in the vessel. Finally, the defendants and NGV did not conspire to injure MBB as alleged or at all.16 The defendants also bring a counterclaim against MBB in the tort of malicious prosecution and for the loss it has suffered by reason of an interlocutory injunction which MBB obtained at an early stage in this action.17

Issues to be determined

The issues to be decided in this action therefore are: Does MBB have an interest in the vessel which is superior to Red Sea’s title? Did the defendants and NGV conspire to cause loss to MBB? Is MBB liable to Red Sea in the tort of malicious prosecution or for loss suffered by reason of the interlocutory injunction?

I now summarise the factual background before turning to an analysis of these issues.

The background The debentures and assignments

As I have mentioned, NGV executed the Debenture to secure substantial credit facilities extended by MBB.18 The Debenture contains four key provisions which are relevant to MBB’s claim. First, cl 3.1(a) of the Debenture creates a fixed charge in favour of MBB and cl 3.1(b) creates the floating charge in favour of MBB.19 I set out cl 3.1(a) at [72] and cl 3.1(b) at [83] below. Second, the Debenture provide two mechanisms by which MBB’s floating charge may crystallise. First, under cl 4.2, MBB can crystallise the floating charge by notice in writing to that effect to NGV.20 Second, under cl 4.3, the floating charge crystallises automatically if, broadly speaking, NGV encumbers in favour of a third party any property which is subject to the floating charge.21 “Encumbrance” is further defined in cl 1.2 of the Debenture.22 I set out cll 4.3 and 1.2 at [86] below. Third, cl 8.1 of the Debenture sets out a negative pledge by NGV. I set out cl 8.1 at [137] below. Finally, the Debenture stipulates expressly that it is governed by the laws of Malaysia.23

As additional security, NGV assigned the proceeds of its shipbuilding contracts to MBB by way of assignments executed in 2008 and 2010.24 I shall refer to these collectively as the “Assignments”.

NGV’s contracts with the defendants

From 2006 to 2010, Bakri commissioned a number of vessels from NGV.25 The background to this dispute involves four of those vessels: Hulls 1090, 1091, 1117 and 1118.

Bakri commissioned Hulls 1090 and 1091 by two shipbuilding contracts with NGV entered into in late 2006.26 NGV was obliged to deliver the vessels by March 2008. The price for each vessel was about US$6.3m.27

Bakri commissioned Hulls 1117 and 1118 by two shipbuilding contracts with NGV entered into in August 2007.28 NGV was obliged to deliver the vessels by July 2010 and August 2010 respectively.29 The price for each vessel was US$6.33m.30 The purchase price for the vessels was to be paid by an irrevocable letter of credit. Operating the letter of credit required NGV to present, inter alia, a statement from MBB confirming that it no longer had any security interest in the vessel in question:31

[the letter of credit] has not been assigned or transferred or novated to any other party or Bank and that [MBB] fully agrees with the delivery of [Hulls 1117 and 1118] to [Bakri] and that [Hulls 1117 and 1118] … are not in any way or form charged or mortgaged to [MBB] and that [MBB] has no encumbrances or interest or liens in or against [Hulls 1117 and 1118] as of the date of Deliver[y].

In late 2007, Bakri novated the shipbuilding contracts for both Hulls 1117 and 1118 to Red Sea.32

The impugned transactions

I now summarise the transactions which MBB impugns in this action, and by reason of which Red Sea claims to be a bona fide purchaser of legal title in the vessels for value without notice.

The Price Reduction Agreements

In April 2009, NGV and Red Sea entered into an agreement to reduce the contract price of Hulls 1117 and 1118 by US$1.5m each.33 The reduction was said to be “full and final compensation” to Bakri for losses which it had allegedly incurred due to NGV’s alleged delay in delivering Hulls 1090 and 1091. I shall refer to these agreements as “the Price Reduction Agreements”.

Although the price of Hulls 1117 and 1118 were each reduced by US$1.5m each in April 2009, Red Sea continued from 2009 until 2012 to procure extensions of the letter of credit for Hulls 1117 and 1118 at the full contract price of US$6.33m.34

The Agency Agreements

Since 2005, the defendants had used a company known as Quoin Island Marine WLL (“QIM”) as a consultant and broker.35 In January 2011, NGV entered into two agency agreements with QIM. These agreements appointed QIM as NGV’s agent and allowed QIM to take over from NGV full and exclusive control of the construction of the two vessels in order to complete them. Under the Agency Agreements, QIM was to:36

act as the agent of [NGV] … to the exclusion of [NGV] and all other persons to direct and instruct the SUBCONTRACTORS and or EQUIPMENT SUPPLIERS … as regards the implementation of their duties and obligations … in respect of the construction and completion of [Hulls 1117 and 1118].

I shall refer to these agreements as “the Agency Agreements”.

In May 2011, NGV and QIM executed an addendum to the Agency Agreements.37 The effect of the addendum was to empower QIM as NGV’s attorney to deliver title and possession of the two vessels: to negotiate and agree any terms in relation to the delivery of possession and control over [Hulls 1117 and 1118] to [Red Sea] … to negotiate, agree on behalf of [NGV] with the VENDORS any and all issues arising out of the delivery contemplated by the [Agency Agreements] and all outstanding claims in respect of … the construction and completion of [Hulls 1117 and 1118]

to sign, seal, execute and deliver for and on behalf and in the name of [NGV] and any all other documents whatsoever including, but not limited to the original legal Builders’ Certificate, Undertaking and Declaration of Warranty, Commercial Invoice, Protocol of Transfer of Risk, Protocol of Delivery and Acceptance and to take all measures … as [QIM] may in his absolute discretion think fit in connection with the above …

NGV then signed a number of documents acknowledging that it owed Red Sea over US$16.8m for the completion of both Hulls 1117 and 1118.38 Red Sea had allegedly paid these sums directly to NGV’s subcontractors in order for them to continue construction of the two vessels and complete them. I shall refer to...

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