NSL Oilchem Waste Management Pte Ltd v Prosper Marine Pte Ltd and other suits

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin J
• Judgment Date: 29 September 2020
• Neutral Citation: [2020] SGHC 204
• Citation: [2020] SGHC 204
• Published date: 02 October 2020
• Year: 2020
• Hearing Date: 17 July 2019,07 August 2019,28 August 2019,10 January 2020,08 August 2019,09 January 2020,30 August 2019,23 July 2019,19 July 2019,28 January 2020,14 August 2019,02 August 2019,16 August 2019,13 August 2019,16 July 2019,15 August 2019,13 April 2020,18 July 2019,22 July 2019,29 August 2019,25 November 2019
• Docket Number: Suit Nos 1062 of 2017, 853 of 2017 and 1048 of 2016
• Plaintiff Counsel: Cavinder Bull SC, Woo Shu Yan, Jonathan Yap, Wesley Chan and Daryl Ho (Drew & Napier LLC)
• Defendant Counsel: Low Chai Chong, Chua Hua Yi, Ng Sook Zhen and Sean Chen (Dentons Rodyk & Davidson LLP)
• Subject Matter: Contract,Contractual terms,Breach,Debt and Recovery,Counterclaim,Right of set off,Credit and Security,Gurantees and indemnities,Admiralty and Shipping,Carriage of goods by sea,Bareboat charterparties
• Court: High Court (Singapore)

Lee Seiu Kin J: Introduction

These disputes arise from the unfortunate breakdown of a 14-year long commercial relationship between NSL Oilchem Waste Management Pte Ltd (“NOWM”) and Prosper Marine Pte Ltd (“Prosper Marine”). The three suits in question, “Suit 1062”, “Suit 853” and “Suit 1048”, all concern debts owed by Prosper Marine to NOWM.

Suit 1062 is a claim on unpaid invoices issued between June 2015 and October 2016, under two contracts concluded by the parties in May 2014 (see [13] below). This debt is contested by Prosper Marine, which counterclaims for damages arising out of alleged breaches of these contracts. Suit 853 is a call on personal guarantees given by Prosper Marine’s directors to satisfy NOWM’s unpaid invoices (see [32] below). Finally, Suit 1048 is a claim for unpaid charter hire and Prosper Marine’s breaches of a charterparty for a vessel known as “Prosper 9” (see [27] below).

I find in favour of NOWM on all three suits. My reasons are found in the following: Suit 1062, which has been consolidated with 1073 of 2017 (“the 2014 Contract suits”) at [55] Suit 853 (“the Directors’ Guarantee suit”) at [157] Suit 1048 (“the Charterparty suit”) at [161]

Facts Background

NOWM is a company in the business of treating marine and land-based “slop”, a collective term to describe a liquid mixture of water, hydrocarbons and solids.¹ This is to be distinguished from “sludge", which describes semi-liquid slurry waste oil sediments.² At the material time, NOWM did not have its own slop collection operation and relied entirely on contractors to collect and deliver slop to its MARPOL 1 Marine Waste Management Reception Centre (“NOWM’s plant” or “the plant”). Once there, the slop is treated within reactor tanks which separate the sediment, oil and water in the slop via a process involving heating and settlement.³ Besides the revenue earned from receiving and treating marine and land-based slop, NOWM profits from selling recycled fuel oil (“RFO”) extracted from the slop.

Prosper Marine’s commercial relationship with NOWM dates back to the time of its incorporation in 2002. A “one-stop centre” for various maritime services including the collection, transport and disposal of marine slop within Singapore port limits,⁴ Prosper Marine had a longstanding practice of treating its marine slop at NOWM’s plant. I pause to observe that the only other National Environment Agency (“NEA”)-approved slop reception facility in Singapore belongs to Singapore Cleanseas Pte Ltd (“Cleanseas”).⁵ In addition to disposing marine slop at NOWM’s plant, Prosper Marine would purchase RFO produced at the plant, which it would resell to its customers outside Singapore at a mark-up of approximately 15%.⁶

The parties’ symbiotic commercial arrangement depended heavily on a finely balanced system of capacity management. The process begins with slop being delivered by Proper Marine’s slop tankers to the reactor tank. Once full, the slop in the tank is heated by steam piped through an array of heating tubes at the base of the tank. The slop surrounding the tubes get heated up and rise to the top of the tank while the cooler slop flows down. This convection process ensures the slop is evenly heated. The elevated temperature promotes separation of the oil from the water. The oil, being of lower density, rises to the top. Solid matter, being the densest, descends to the bottom. Water remains in between. Separation may take anything from a few days to a week or more. When it is completed, the oil is removed to be stored in RFO tanks to await collection by RFO tankers. The water would be piped to the on-site wastewater treatment plant where it will be treated to the level of purity required by NEA and before it is discharged into the sea. NOWM had seven reactor tanks and three RFO tanks.⁷ NOWM relied on Prosper Marine to maintain sufficient capacity in its fleet of RFO tankers to remove the RFO from the RFO tank. If the RFO tank is full, then the oil from a reactor tank cannot be discharged into the RFO tank. And if the reactor tank is full, NOWM would not be able to receive slop brought in by Prosper Marine’s slop tankers. This is further complicated by two factors. The first is that the plant has a jetty which is affected by the tides which means that vessels bringing slop or removing RFO might be delayed on this account. The second is that the processing time for oil/water separation is sometimes affected by the quality of the slop brought in and it is not uncommon for separation in a particular tank to take a much longer period to complete. Therefore, given the number of reactor tanks and RFO tanks, as well as the processing time to separate the oil from the water in the slop, there would need to be a certain rate at which Prosper Marine is required to remove the RFO and deliver slop in order for the plant to operate at optimum level. The commercial arrangement between the parties was as precarious as it was complementary. Despite this, the early years of the parties’ relationship were smooth sailing.

The first notable hiccup arose in 2007 when a fire broke out at NOWM’s plant. NOWM was suspended from receiving marine slop for a year (from 2007 to 2008). During this time, Prosper Marine discharged marine slop at Cleanseas’ facility instead.⁸ After NOWM’s licence was restored, Prosper Marine would deposit marine slop at Cleanseas when there was a processing issue at NOWM’s plant.⁹ There were also times when Prosper Marine would have more slop to collect from its customers than what its tankers could carry. In those situations, they arranged for Cleanseas, which had its own slop collection vessels, to collect the slop and finally treat it at their plant.¹⁰

Importantly, however, business with Cleanseas was never considered to be a long-term solution. Cleanseas was Prosper Marine’s direct competitor.¹¹ With its own slop collection vessels, Cleanseas had its own customer base for the sale of RFO and naturally prioritised its own jobs over Prosper Marine’s.¹² Cleanseas’ treatment services were also more expensive than NOWM’s. Up until 2014, Cleanseas charged Prosper Marine $13 per cubic metre (“cbm”) of marine slop discharged at its plant and imposed a minimum charge of $2,400 on the total volume of slop discharged.¹³ In contrast, NOWM only charged $3 per cbm of slop.¹⁴

The 2007 fire also affected NOWM. Two of its slop processing reactor tanks (Tanks A and B) were damaged, compromising the plant’s overall slop processing capacity. This eventually prompted Prosper Marine to request for NOWM to refurbish these tanks .¹⁵ NOWM agreed, on condition that it would receive a minimum monthly revenue of $54,000 from slop discharge over two years to defray its costs.¹⁶ Prosper Marine guaranteed this $54,000 figure by offering to deliver 18,000 cbm of slop for treatment at NOWM’s plant every month, at a rate of $3 per cbm of slop. Additionally, Prosper Marine agreed to pay liquidated damages of $3 for every cbm of shortfall. The parties agreed to these terms via a letter dated 26 May 2010:¹⁷

… [NOWM] will proceed with the work to refurbish and upgrade of Tank A and Tank B …

In consideration of [NOWM’s] additional investment in the slop processing capacity, Prosper Marine hereby commits to deliver a minimum quantity of 216,000 cubic metre of marine slop per year, with estimated nett oil content of 36,000 metric tons, for a period of two years. Quantity commitment shall commence from the date of successful commissioning of the tanks.

Should Prosper Marine Pte Ltd be unable to deliver the minimum annual quantity, [NOWM] shall charge Prosper Marine S$3.00 per cubic meter of the quantity of slop that Prosper Marine failed to deliver.

The current charge for reception, treatment and handling of the slop levied by [NOWM] shall remain unchanged at S$3.00/S$4.00 per cubic metre.

The finalised arrangement was in effect from March 2011 to March 2013.¹⁸ Yet, even after March 2013, Prosper Marine continued to pay NOWM a monthly fee of $54,000 for discharging slop at NOWM’s plant.¹⁹ According to NOWM, this was done on the understanding that this would help to defray the costs of slop treatment operations.²⁰ The benefit of this arrangement for Prosper Marine was that it continued to receive a preferential rate for slop disposal vis-à-vis the rate being offered at Cleanseas.²¹

There was one other notable aspect of the parties’ commercial arrangements. Since at least 2003, NOWM had extended multiple lines of credit to Prosper Marine.²² This had allowed Prosper Marine to, among other things,²³ continue purchasing RFO from NOWM for reselling to its customers.²⁴ But the credit extended by NOWM had limits. NOWM’s ability to extend this credit depended on how much trade insurance its insurer, Atradius Credit Insurance NV (“Atradius”), was prepared to cover. Atradius’ willingness, in turn, was determined by the size of Proper Marine’s debt to NOWM.²⁵ In other words, Prosper Marine’s access to credit depended heavily on its ability to manage its debts to NOWM.²⁶ As I shall explain, Prosper Marine was clearly unable to do so.

As of February 2013, Prosper Marine was heavily in arrears, owing NOWM some $10.63m.²⁷ In an attempt to rectify this, Prosper Marine proposed a payment schedule promising monthly payments of at least $2m between April 2013 to October 2013 (“April 2013 Agreement”).²⁸ This was done with a view to bringing the accounts receivable balance (“AR Balance”) down to $6m, which would have brought the balance comfortably below the $7m trade credit limit later set by Atradius.²⁹ However, the plan proved too optimistic, and Prosper Marine eventually failed to honour the agreement.³⁰ As of January 2014, the AR balance remained at around $9m.³¹ This would be the first of many (failed) attempts to manage Prosper Marine’s debts.

The 2014 Contracts

Against this backdrop, the parties entered into two contracts on...