The "Turtle Bay"

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 30 August 2013
• Neutral Citation: [2013] SGHC 165
• Published date: 10 September 2013
• Docket Number: Admiralty in Rem No 37 of 2013 (SUM No 1036 of 2013) and Admiralty in Rem No 44 of 2013 (SUM No 1040 of 2013)
• Year: 2013
• Court: High Court (Singapore)
• Hearing Date: 15 March 2013,26 April 2013,05 April 2013
• Plaintiff Counsel: Mark Tan Chai Ming and Low Yi Yang (Asia Practice LLP)
• Defendant Counsel: Chong Chin Chin
• Citation: [2013] SGHC 165

Belinda Ang Saw Ean J:Introduction

The plaintiff as registered mortgagee (“the Bank”) of the Turtle Bay and the Tampa Bay commenced Admiralty in Rem Nos 37 and 44 of 2013 (collectively, “the ADM Actions”) and arrested the Turtle Bay and the Tampa Bay (collectively, “the Vessels”) in Singapore on 29 January 2013 and 5 February 2013 respectively.

The ADM Actions were commenced after the defendant shipowner had gone into liquidation in Germany. I should imagine that the effect of the defendant’s insolvency on the ADM Actions would be governed by German insolvency law. As to whether there were any insolvency issues arising under German law from the defendant’s liquidation, none were identified and explained in the Bank’s affidavits. The principles in In re Aro[1980] Ch 196 followed in The Oriental Baltic[2011] 3 SLR 487, The Hull 308[1991] 2 SLR(R) 643 and The Convenience Container [2007] 4 HKLRD 575 that deal with the commencement of in rem proceedings either before and after the insolvency of a defendant came to mind, and I had wondered whether those cases differed from the facts of the present case before me. Be that as it may, in the affidavits supporting the arrest of the Vessels, the Bank disclosed that the German insolvency administrator was aware of the Bank’s intention to enforce the mortgages and gave written consent to the direct sale of the Vessels which the Bank intended “to carry out after arresting the [Vessels]”.¹

It was not surprising that with the liquidation of the defendant shipowner, no appearance was entered by the latter to the ADM Actions. The Bank duly filed two applications for default judgment (one for each of the Vessels) on 26 February 2013. On the same day, the Bank separately applied for a sale of each of the Vessels (together, “the Sanction Applications”). By prayer 1(a) of both the Sanction Applications, the Bank sought the court’s approval or confirmation of a private direct sale of the Turtle Bay and the Tampa Bay on the terms of two contracts dated 5 February 2013 and 9 February 2013 respectively (ie, after the arrest of each Vessel) that were entered between the Bank and a named buyer for a specified price each (“the Direct Private Sale”).² On 26 February 2013, the Bank was seeking judicial approval of a private sale pendente lite, but that was no longer the position after default judgment was obtained on 15 March 2013. Strictly speaking, the Sanction Applications were for orders approving the Direct Private Sale after judgment.

The Sanction Applications

The Sanction Applications were initially listed for hearing on 15 March 2013, but they were adjourned for the Bank’s lawyers to conduct further research on the law.

At the adjourned hearing on 5 April 2013, counsel for the Bank, Mr Mark Tan (“Mr Tan”) sought to justify the Bank’s case by distinguishing the steps taken by the Bank to arrange the Direct Private Sale from the settled proposition of law that any attempt to arrange a private sale of an arrested vessel after the court has commissioned the Sheriff to appraise and sell the vessel constituted contempt of court (The APJ Shalin [1991] Lloyd’s Rep 62; The Jarvis Brake[1976] 2 Lloyd’s Rep 320).

I did not accept this distinction as a proper justification. Although a party is clearly in contempt of court if it arranges a private sale after the court commissions the Sheriff to sell a vessel, it does not necessarily follow that this party is never in contempt of court if it arranges a direct sale before the court so commissions the Sheriff. Much depends on the circumstances of the case. For instance, a sale could potentially constitute contempt of court in the light of evidence that impropriety had occurred in connection with the sale to the possible detriment of in rem creditors of the arrested vessel. In my view, it made no difference to the legal enquiry that a direct sale of an arrested vessel was made expressly subject to the court’s approval.

Mr Tan’s submissions did not deal squarely with the fundamental issue at hand. He did not address the legal basis of the Bank’s Sanction Applications. The concern of this court was that the Bank was essentially seeking the court’s approval or confirmation of the Direct Private Sale (see [3] above) so as to attract the effect of a judicial sale in respect of the Vessels. The main issue was under what principles, circumstances and conditions should the court sanction the Direct Private Sale that was entered between the Bank and the named buyer in order to suit its own purposes, and turn it into an admiralty judicial sale (ie, a judicial sale made specifically pursuant to the court’s admiralty jurisdiction)? In doing so, the court would be plainly departing from the normal order that the Sheriff sells a vessel by appraisement, advertisement and inviting bids to purchase the vessel: see Order 70 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the RSC”).

As this court saw it, simply because mortgagee banks (as arresting parties) have in the past applied for and obtained orders that sanctioned the private direct sales of arrested vessels would not be of assistance as they were not conclusive of the matter. It would be misguided to think that from those instances there now existed in Singapore an established practice of the court, in exercise of its admiralty jurisdiction, to sanction private direct sales of arrested vessels as judicial sales.

The Sanction Applications were dismissed on 26 April 2013. I gave brief oral grounds for refusing the Sanction Applications. I had then indicated to Mr Tan that I would publish full written grounds in due course. I am grateful to Mr Tan for subsequently drawing to my attention the recent English decision of Bank of Scotland plc v The Owners of the MV “Union Gold”[2013] EWHC 1696 (“The Union Gold”) where the Bank of Scotland plc sought orders of sale of four vessels to named purchasers at named prices. I will comment on The Union Gold in due course.

Distinction between a private sale and an admiralty judicial sale

I begin with the distinction between a private sale and a judicial sale of a vessel. A private sale of a vessel between the vendor and purchaser transfers title in the vessel to the purchaser, subject to the in rem liabilities existing at the time of the sale and delivery of the vessel. Naturally, as a condition of the sale, the vendor would have to warrant that the vessel was unencumbered and that there were no existing debts or liabilities whatsoever. Typically, the vendor would provide an indemnity that was counter secured by a guarantee.

In contrast with a private sale, an admiralty judicial sale gives the purchaser a clean title to the vessel that is free from all liens and encumbrances (The Tremont(1841) 1 Wm Rob 163; The Acrux[1962] 1 Lloyd's Rep 405 at 409 and more recently in The Cerro Colorado[1993] 1 Lloyd's Rep 58 at 60, 61 and Ryan J in Readhead and Others v Admiralty Marshal, Western Australia District Registry and Others(1998) 87 FCR 229 at 242F). In other words, the admiralty judicial sale extinguished all in rem claims that were attached to the vessel prior to the sale and the vessel was no longer subject to arrest by virtue of those claims. The upshot of this should enable the Sheriff to sell an arrested vessel at the market price of the vessel rather than at a “forced sale” price.

This unique and important legal consequence of an admiralty judicial sale is an ancient in rem doctrine recognised in most admiralty jurisdictions. William Tetley QC in Maritime Liens and Claims (1st Ed, Business Law Communications Ltd, 1985) traced this doctrine at pp 468, 470-471:

As Brown D.J. said in the The Trenton [4 F. 657 at p. 663]:No one could possibly know the value of his purchase, for no one could foresee the amount of claims that might be made against the vessel in other countries.

The finality and integrity of the judicial sale and the validity of the new title of ownership are therefore essential to the full realization of the maritime lien.

…

All jurisdictions have recognized the importance of the principle that the judicial sale of a ship be final and that the purchaser receive a clear title, free of all charges whatsoever.

An early explicit statement is found in the Ordonnance de la Marine of 1681 at Book I, Title XIV, art. 1:1

…… All ships and other vessels may be arrested and disposed of under law; and all privileges and hypothecs will be purged by the decree which will be made in the following form.

The leading English judicial statement is by Dr. Lushington in The Tremont [(1841) 1 W. Rob. 163 at p. 164] who, in referring to the Admiralty Court, said:The jurisdiction of the Court in these matters is confirmed by the municipal law of this country and by the general principles of the maritime law; and the title conferred by the Court in the exercise of this authority is a valid title against the whole world, and is recognized by the Courts of this country and by the Courts of all other countries.

The same principle had been enunciated in earlier decisions, including The Flad Oyen [(1799) 1 C. Rob. 134 at p. 138] and The Helena [(1801) 4 C. Rob. 3], and has been followed in subsequent judgments such as Castrique v. Imrie [(1869-70) L.R. 4 H.L. 414] and The Ruby [[1898] P. 52]. The integrity and finality of the foreign judicial sale has been upheld in France, in the U.S. and in Canada.

An equally famous dictum is of Brown D.J. in The Trenton [4 F. 657 at p 659]In short, the doctrine that the sale of a vessel by a court of competent jurisdiction discharges her from liens of every description, is the law of the civilized world.

Dr Lushington’s statements in The Tremont are fundamental to admiralty judicial sales. Indeed, many legal systems continue to give effect to admiralty judicial sales of foreign courts as a matter of comity. This recognition of the legal consequences of an...