The ‘Chem Orchid’

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 18 February 2015
• Neutral Citation: [2015] SGHC 50
• Published date: 23 January 2016
• Date: 18 February 2015
• Year: 2015
• Hearing Date: 12 November 2014,13 November 2014,19 November 2014
• Plaintiff Counsel: Philip Tay (Rajah & Tann Singapore LLP),Yogarajah Yoga Sharmini and Subashini d/o Narayanasamy (Haridass Ho & Partners),Tan Hui Tsing (Gurbani & Co)
• Citation: [2015] SGHC 50
• Defendant Counsel: Henry Heng and Darius Lee (Legal Solutions LLC)
• Court: High Court (Singapore)
• Docket Number: Admiralty in Rem No 184 of 2011 (Registrar's Appeal No 426 of 2013), Admiralty in Rem No 197 of 2011 (Registrar's Appeal No 1 of 2014), Admiralty in Rem No 198 of 2011 (Registrar's Appeals Nos 2 and 8 of 2014), Admiralty in Rem No 201 of 2011 (Registrar's Appeals Nos 6 and 7 of 2014)

Steven Chong J: Introduction

These appeals concern four separate in rem writs issued against the Chem Orchid (“the Vessel”). Each writ was filed pursuant to a different cause of action each plaintiff had against the demise charterer of the Vessel. In the court below, the defendant (the owner of the Vessel) applied to set aside all of the writs on the basis that the court’s admiralty jurisdiction had not been properly invoked under s 4(4) of the High Court (Admiralty Jurisdiction) Act (Cap 123, 2001 Rev Ed) (“HCAJA”) because the Vessel was no longer on demise charter at the time the writs were issued. The Assistant Registrar found for the defendant and set aside the writs. Two of the in rem writs also contained separate in personam claims against the defendant as owners of the Vessel. Those claims remain alive as the Assistant Registrar found that there was no legal basis to justify their striking out at this stage of the proceedings. The plaintiffs now appeal against the Assistant Registrar’s decision to set aside the writs while the defendant appeals against the Assistant Registrar’s decision not to strike out the claims brought by two of the plaintiffs.

The key question in these appeals is whether the charter of the Vessel had already been terminated at the time of the issuance of the writs. This necessitates an examination of an important legal point, viz, the requirement of redelivery in the termination of a bareboat charter. This is not merely a matter of contract but has, in the context of admiralty law, crucial implications on the court’s jurisdiction to order the arrest of bareboat or demise chartered vessels (the terms are used interchangeably in this judgment).

The right to arrest and the risk of a vessel being arrested are normal incidents arising from the operation and management of any vessel. Typically, parties dealing with vessels do not transact directly with the registered owner of the vessel but with managers and/or agents of the vessels which may vary from port to port. In the case of bareboat charters, this is almost invariably the case because the effect and essence of any bareboat charter is to grant the bareboat charterer complete control and possession of the vessel. Given that there is no public registry of bareboat charters available for inspection, third parties dealing with bareboat charterers have no way of finding out if the vessel is on bareboat charter and may well assume that they are in fact dealing with the owners of the vessel.

This point assumes critical significance when one considers that, until the 1980s, vessels on bareboat charter were insulated from arrest for most claims save for a limited class of maritime liens. Thus, third parties could not arrest a vessel to satisfy debts owed to them by the bareboat charterers. This placed third parties who transacted with bareboat charterers at a significant disadvantage for they could, unbeknownst to them, be left without security for their claims. In recent decades, many common law jurisdictions such as the United Kingdom, Hong Kong, Australia, Malaysia, Canada, and New Zealand have amended their laws to permit the arrest of the bareboat chartered vessel if, at the time the action is brought, the vessel still remains on bareboat charter to the party liable in personam. The laws in these jurisdictions are largely uniform save for that of New Zealand, which permits not only the arrest of the specific bareboat chartered vessel implicated in the cause of action but also the arrest of any other vessels which are on bareboat charter to the party who is liable in personam.

To bring our laws in line with the other maritime nations, Singapore amended the HCAJA on 1 April 2004 to permit the arrest of bareboat chartered vessels (see High Court (Admiralty Jurisdiction) (Amendment) Act 2004 (Act 2 of 2004) (“the 2004 Amendment”)). Following this amendment, s 4(4) of the HCAJA now reads:

(4) In the case of any such claim as is mentioned in section 3(1)(d) to (q), where — (a) the claim arises in connection with a ship; and (b) the person who would be liable on the claim in an action in personam (referred to in this subsection as the relevant person) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship,

an action in rem may (whether or not the claim gives rise to a maritime lien on that ship) be brought in the High Court against — (i) that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of that ship under a charter by demise; or (ii) any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it.

[emphasis added]

The hearings before the Assistant Registrar stretched over a long period of 14 calendar days with the first hearing date on 11 October 2012 and the last almost a year later in September 2013 (see The “Chem Orchid” [2014] SGHCR 1 (“the Judgment”)). Unfortunately, much time and effort was expended on proof of Korean law (which was the governing law under the bareboat charter), to little end because none of the parties suggested that an application of the Korean “rules” of contractual interpretation would have yielded a different result from the application of Singapore law in this case. Thus, the introduction of expert evidence only served as a distraction and contributed to the protracted nature of the proceedings. To avoid a recurrence, I have included a coda on the use of expert witnesses in the proof of foreign law in this judgment. Hopefully, this will provide guidance on the circumstances when proof of foreign law is necessary and on the proper role of expert witnesses in that regard.

The background facts The Lease Agreement between HKC and Sejin

The registered owner of the Vessel at all material times prior to its court-ordered sale in Singapore was Han Kook Capital Co Ltd (“HKC”), a Korean incorporated company. On 1 February 2010, HKC entered into an agreement to lease the Vessel to Sejin Maritime Co Ltd (“Sejin”), another Korean company, for a total period of 108 months (“the Lease Agreement”).

Under the Lease Agreement, Sejin was to pay monthly rental to HKC on the third day of each month. Sejin was also responsible for the employment and payment of the crew and for the repair and maintenance of the Vessel. Sejin was effectively in possession and control of the Vessel and it is common ground that the Lease Agreement is in substance a charter of the Vessel by demise. The Lease Agreement also provided that, in the event of any disagreement as to its interpretation, Korean law shall apply.

The Asset Transfer Agreement and the Notice of Credit Transfer

Sejin complied punctually with its payment obligations during the initial months of the Lease Agreement but defaulted soon after. HKC’s representative, Mr Sejun Kim, filed an affidavit in these proceedings stating that reminders were sent but no rental payments were received from Sejin after its last payment in October 2010.

In December 2010, a new corporate entity known as HK AMC Co Ltd (“HKA”) was established to deal with the recovery of bad debts owed to HKC. On 27 December 2010, HKC and HKA executed an Asset Transfer Agreement (“ATA”) in which the former agreed to sell certain credits which it had obtained in the course of its business to the latter at a fair price. The credits under the Lease Agreement were included in this transfer.

To be clear, the ATA did not effect a transfer of ownership of the Vessel – HKC remained the registered owner of the Vessel at all times. Further, the ATA did not purport to transfer the entire Lease Agreement to HKA – it only purported to transfer the credits thereunder. These points are not disputed by the parties but I should highlight that their experts disagree on the question of whether the ATA had validly transferred the lease credits (see [145]–[146] below).

I should also mention in this connection that, prior to the ATA, on 24 December 2010, HKC had issued a Notice of Credit Transfer (“NCT”) to Sejin in which it informed Sejin of the arrangement. There was, however, some dispute as to whether the NCT had transferred more rights than the ATA. This dispute centred on paras 3 and 4 of the NCT, which reads:

3. In addition to the Transfer Credit, we [ie, HKC] transferred the right or status in our possession or management out of personal or physical security, right to profit or the other rights incidental to the Transfer Credit.

4. In spite of the above transfer of Credit, the right, obligation or status of yours [ie, Sejin] based on the relating contract, agreement, security arrangement or the other contract shall remain unchanged and the right, obligation or the other status of ours based on the above contracts shall be succeeded by the Transferee [ie, HKA] to the extent of the transfer.

[emphasis added]

The parties’ experts disagreed on whether the NCT – in notifying Sejin that HKC had transferred its “right” or “status” under the Lease Agreement – conferred upon HKA the right to terminate the Lease Agreement. The experts’ respective opinions dealt with this point extensively because, as will become clear, it was HKA (and not HKC) which had issued the purported termination notice.

The 4 April Notice

By early April 2011, Sejin had failed to make any rental payments under the Lease Agreement for a period of six consecutive months. Mr Sejun Kim described in his affidavit that, at the time, there was no sign that Sejin would be able to make further payments since the value of the Vessel had depreciated substantially and the prevailing market conditions for trading the Vessel were very poor. In his affidavit, Mr Sejun Kim explained that HKC had “grave concerns” about Sejin’s ability to perform its obligations...