Royal Global Exports Pte Ltd and Others v Good Stream Co Ltd and Another

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 12 August 2004
• Neutral Citation: [2004] SGHC 174
• Docket Number: Admiralty in Personam No 218 of 2003 (Summonses in Chambers Nos 3608 and 3792 of
• Date: 12 August 2004
• Year: 2004
• Published date: 13 August 2004
• Plaintiff Counsel: R Govintharasah (Gurbani and Co)
• Citation: [2004] SGHC 174
• Defendant Counsel: Loo Dip Seng and Mathiew Rajoo (Ang and Partners),Michael Lai and Ow Kim Kiat (Haq and Selvam)
• Court: High Court (Singapore)
• Subject Matter: Whether Mareva order should be varied to allow first defendant to pay debts owing to second defendant out of insurance proceeds,Applicable principles,Variation of Mareva order,Whether appropriate for court to grant plaintiffs' application for production of documents and cross-examination of directors,Injunctions,Whether debts bona fide incurred in ordinary course of business,Mareva injunction,Production of documents,Civil Procedure

12 August 2004

Belinda Ang Saw Ean J:

1 On 22 August 2003, the plaintiffs, who are cargo interests, sued the first defendant, Good Stream Co Ltd (“Good Stream”) as owner of the “Fortune Carrier” and the second defendant, Trustrade Enterprises Pte Ltd (“Trustrade”) as contracting carrier. The plaintiffs’ claim for damages arose from a total loss of timber logs on board the “Fortune Carrier” when the vessel sank on 10 June 2003 in the Bay of Bengal during a voyage from Malaysia to Kolkota, India. On 26 August 2003, the plaintiffs obtained ex parte a Mareva injunction of the proceeds of the vessel’s hull and machinery policy (“the Mareva order”). On 15 January 2004, the plaintiffs successfully resisted the defendants’ challenge to the ex parte Mareva order.

2 On 2 July 2004, Trustrade applied for an order varying the Mareva order so as to permit Good Stream to pay its debts to Trustrade out of the proceeds of the hull and machinery policy. On 29 July 2004, I allowed Trustrade’s application to vary the Mareva order. At the same time, I dismissed the plaintiffs’ application filed on 13 July 2004 for production of documents and cross-examination of Tio Kie Chwan (“TKC”) and Tio Wee Kun (“TWK”) on the affidavits affirmed by each of them in these proceedings. The plaintiffs have appealed against both orders. I now publish the reasons for my decision.

3 There is no objection in principle to a defendant being allowed to use assets subject to the injunction if he satisfies the court that the purpose for which he requires the assets does not conflict with the policy underlying the Mareva jurisdiction. The rationale is that the plaintiffs cannot, by way of the Mareva jurisdiction, obtain a preference over other creditors that they do not otherwise have: see K/S A/S Admiral Shipping v Portlink Ferries Ltd [1984] 2 Lloyd’s Rep 166.

4 In Iraqi Ministry of Defence v Arcepey Shipping Co SA (The “Angel Bell”) [1980] 1 Lloyd’s Rep 632, the defendant shipowner, a one-ship Panamanian company, was indebted to a third party, Gillespie Brothers & Co Ltd (“Gillespie”). Gillespie had advanced a sum of £270,000 to the defendant for the purpose of buying ships, including the “Angel Bell”. The plaintiff cargo owner brought an action against the defendant for loss of its cargo when the “Angel Bell” sank. The plaintiff obtained a Mareva injunction, restraining the defendant from disposing of any of its assets including the proceeds of the policies. The proceeds of the policies were later paid to London brokers and Gillespie applied for an order varying the Mareva injunction so as to permit the brokers to pay Gillespie the amount of the loan due from the defendant to Gillespie out of the proceeds of the policies. Robert Goff J varied the injunction to enable the loan to be paid. After observing that it was not the function of the court to rewrite the law of insolvency, Goff J continued at 636:

It is not to be forgotten that the plaintiffs’ claim may fail, or the damages which he claims may prove to be inflated. Is he in the meanwhile, merely by establishing a prima facie case, to preclude the bona fide payment of the defendant’s debts? … It does not make commercial sense that a party claiming unliquidated damages should, without himself proceeding to judgment, prevent the defendant from using his assets to satisfy his debts as they fall due and be put in the position of having to allow his creditors to proceed to judgment with consequent loss of credit and of commercial standing.

5 The “Fortune Carrier” was insured for US$900,000. At the time of the hearing, the insurance proceeds were still unpaid. Counsel for Good Stream, Mr Michael Lai, informed the court that the insurance claim might be compromised at 75% of the sum insured. It is common ground that Good Stream is a one-ship company, and with the loss of the “Fortune Carrier” its only remaining asset is the insurance money.

6 Trustrade is a management company. In their affidavit in support of the application for the Mareva injunction, the plaintiffs recognised and referred to Trustrade as the ship manager of the “Fortune Carrier”. Trustrade ordered supplies, appointed the port agents and obtained cargoes for the “Fortune Carrier” which was under its management. There was no written management agreement, but Trustrade as ship manager was given the role of collecting freight on Good Steam’s behalf. At all material times, Trustrade maintained a running account for the trading activities of the “Fortune Carrier” with moneys owing to Trustrade being deducted from the freight receipts. The arrangement is consistent with Trustrade’s authority to operate and manage the vessel for the account of Good Stream. Freight receipts up to the time of the casualty were not enough to meet the total debts of Good Stream. Consequently, Trustrade sought payment from Good Stream.

7 Counsel for Trustrade, Mr Loo Dip Seng, argued that the Mareva order should not preclude the bona fide payment of Good Stream’s debts incurred on its account in connection with the purchase and operation the vessel. Trustrade was entitled to the moneys owed in “the ordinary course of business”. The amount due is S$1,099,836.29 plus interest on a US$300,000 loan from Pacific Timor Shipping Agency Pte Ltd (“Pacific Timor”). At the hearing, Good Stream accepted its obligation to discharge its indebtedness to Trustrade and conceded that, upon receipt of the insurance proceeds, it would have to pay up but for the Mareva order. There was no question of Good Stream having other funds from which payment of its debts might be made. The only remaining asset would be considerably depleted or even exhausted if Trustrade succeeded in its application.

8 The plaintiffs’ counsel, Mr R Govintharasah, pointed out that no application was made in the ten months that had lapsed since the injunction was granted. The bona fides of the debts were put in issue because of the close relationship or links between Good Stream and Trustrade. In short, the plaintiffs were suspicious that the application for payment out was nothing more than a disguise to dissipate the insurance proceeds to avoid the plaintiffs’ claims. A cross-examination of TKC and TWK would elicit the relationship between Good Stream and Trustrade. Contrary to counsel’s suggestion, it was unnecessary that the application to vary the Mareva order should be held over until after the disposal of the second application. I heard both applications together.

9 TWK, a director of Trustrade deposed to the fact that after Good Stream’s acquisition of the “Fortune Carrier” she was employed on two voyages. The first voyage was in April 2003. The casualty happened during the third voyage. Expenses for all these voyages were incurred on account of Good Stream. TWK also deposed to the fact that Trustrade drew on its overdraft facility with United Overseas Bank Ltd (“UOB”) for the vessel’s trade activities. In October 2003, UOB reduced the overdraft facility from S$1.1m to S$600,000. Trustrade was required to clear the indebtedness of S$1.05m as at 22 October 2003 to below the new overdraft limit of S$600,000. Accordingly, the company borrowed US$300,000 from a related company, Pacific Timor, which in turn obtained financing from UOB. The UOB loan was directly disbursed on 27 October 2003 to Trustrade. Besides documents from Pacific Timor, contemporaneous bank statements bear out these transactions.

10 As at the end of March 2004, the overdraft facility was limited to S$600,000 and Trustrade was indebted to the bank in the sum of S$582,225.12. On 12 May 2004, UOB terminated with immediate effect the overdraft facility. A sum of S$605,073.97 was owing to the bank as at 12 May 2004. On the same day, UOB also terminated the overdraft facility of US$300,000 to Pacific Timor. Consequently, the Pacific Timor loan and interest thereon also had to be repaid.

11 On 21 May 2004, M/s Ang & Partners wrote to M/s Gurbani & Co to seek the plaintiffs’ agreement to vary the Mareva order. M/s Gurbani & Co requested supporting documents and they were forwarded on 4 June 2004. When no positive response was forthcoming, Trustrade filed the application to vary the Mareva order on 2 July 2004. It was served on the plaintiffs on 5 July 2004. A day before the hearing on 14 July 2004, the plaintiffs filed their application.

12 Without doubt, Trustrade’s lenders had demanded repayment of the loans. The bank’s actions in May 2004 served to explain Trustrade’s application for variation of the Mareva order on 2 July 2004. As both loans are ultimately payable to UOB, Trustrade had asked for an order that the insurers pay the insurance proceeds directly to UOB to discharge the loans. UOB had initially granted Trustade up to 26 July 2004 to discharge the indebtedness. Since then, UOB has agreed to a further extension of six weeks.

13 Mr Loo prepared a table showing the purchase price of the vessel and the operating expenses of the vessel. Those came to S$1,940,988.40. After deducting freight collected in the sum of S$841,152.11, the net amount owing by Good Stream to Trustrade was S$1,099,836.29. In the interests of time, Mr Loo limited his submissions to a number of sample cases (undisputedly operational in nature) sufficient to establish the pattern of the various operating expenses. Notably, the bulk of all payments was made to third parties. Significantly, the bulk of the operating expenses was for crew wages, bunkers, deck stores, hull and machinery premium, protection and indemnity (“P & I”) cover and port agents’ disbursements. In addition, there were expenses related to post-casualty activities like payment of wages and repatriation of crew, and the fees of loss adjusters, surveyors and lawyers; these expenses were grouped under the heading “manager’s disbursements”. Exhibited in the affidavit of TWK were many supporting...