The "Sea Urchin"

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 07 February 2014
• Neutral Citation: [2014] SGHC 24
• Court: High Court (Singapore)
• Docket Number: Admiralty in Rem No 355 of 2013 (SUM No 6520 of 2013)
• Year: 2014
• Published date: 25 February 2014
• Hearing Date: 21 January 2014,06 January 2014,27 January 2014
• Plaintiff Counsel: Winston Kwek, Joseph Tang and Lim Ruo Lin (Rajah & Tann LLP)
• Defendant Counsel: Lawrence Teh (Rodyk & Davidson LLP),Kelly Yap (Oon & Bazul LLP),K Muralitherapany and Edward Koh (Joseph Tan Jude Benny LLP),Wendy Tan and Kang Yixian (Stamford Law Corporation),Jacqueline Lee
• Subject Matter: Admiralty and Shipping,Practice and Procedure of Action in Rem,Judicial Sale of Vessel,Sheriff's Duties and Responsibilities,Sherriff's expenses in arrest of vessel,Whether cost of discharging cargo falls upon the Sheriff or the cargo interests
• Citation: [2014] SGHC 24

Belinda Ang Saw Ean J: Introduction

The plaintiff, Alpha Bank S.A. (“the Bank”), applied as mortgagees on 20 December 2013 vide Summons No 6520 of 2013 (“SUM 6520”) for the vessel, Sea Urchin, of the port of Limassol, Cyprus (“the Vessel”) to be sold pendente lite to a named buyer and at a stated price (ie, prayer 2 of SUM 6520). As an alternative to a direct judicial sale, the Bank’s fall-back application was for the Vessel to be sold pendente lite by the Sheriff in the usual way by public auction or private treaty (ie, prayer 2a of SUM 6520).

In this case, the Bank arrested the Vessel fully laden with a cargo of soya beans in bulk. At the time of the arrest, the Vessel was in Singapore for bunkers en route to Qingdao, China where the cargo was to be discharged and delivered to receivers. The purpose of the direct sale pendente lite was for the Vessel under new ownership to carry and discharge the cargo in Qingdao. The question to be decided is whether the facts of this case constitute special circumstances to warrant a direct judicial sale to a named buyer at a specified price (see The Turtle Bay [2013] 4 SLR 615 (“The Turtle Bay”) at [29]).

Chronology of proceedings leading to the application for a direct sale

The Vessel, a bulk carrier fully laden with a cargo of soya beans, was arrested by the Bank on 30 October 2013 after the defendant shipowner, Keel Marine Company Limited (“the Defendant”), a company incorporated under the laws of Cyprus, defaulted on a loan agreement that was secured by a first priority mortgage of the Vessel. The Defendant entered an appearance to the Bank’s in rem action on 31 October 2013. On 18 November 2013, the Defendant applied vide Summons No 5874 of 2013 to, inter alia, (a) set aside the warrant of arrest; and (b) stay the action in favour of the Greek courts, including a temporary release of the Vessel to enable her to continue her voyage to China and to discharge the cargo on board. By the time the Bank’s application in SUM 6520 was listed for hearing on 6 January 2014, the Defendant had reached a private arrangement with the Bank. Mr Lawrence Teh for the Defendant thus informed the court that the Defendant was not opposing the Bank’s application for a direct sale. Before this court, the Defendant was no longer challenging the propriety of the Bank’s claim or the arrest.

There were three other interested parties supporting the Bank’s application for a direct sale. It was made known at the outset by counsel representing those interests that their support did not extend to prayer 2a in SUM 6520. Mr Kelly Yap (“Mr Yap”) represented the intervener, Qingdao Bohi Agricultural Development Co Ltd (“the Intervener”), which was granted leave to intervene in these proceedings on 6 January 2014, and entered an appearance on 17 January 2014.

Ms Wendy Tan (“Ms Tan”) represented Pacific Bulk Shipping (Cayman) Ltd (“Pacific Bulk”) which trip-chartered the Vessel from Swissmarine Services S.A. (“Swissmarine”), the time charterers of the Vessel. Pacific Bulk in turn sub-chartered the Vessel to the Intervener. The Intervener is asserting rights of ownership to the cargo of soya beans. Pacific Bulk claims ownership of the bunkers on board. Swissmarine was represented by Mr K Muralitherapany (“Mr Murali”). Mr Edmund Koh stood in for Mr Murali at the adjourned hearing on 27 January 2014. For convenience, Pacific Bulk and Swissmarine are collectively referred to as “the Charterers”.

The Charterers had not intervened but through their counsel undertook to do so on 27 January 2014.

The Turtle Bay

As prayer 2 is for a direct judicial sale, I begin with The Turtle Bay where it was observed that a direct judicial sale at a pre-determined price to a named person is generally not the accepted way to sell a vessel under arrest. A direct judicial sale represents a departure from the normal order that the Sheriff sells a vessel under arrest by appraisement, advertisement, and inviting bids to purchase the vessel: see O 70 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the Rules of Court”). More often than not, an application for a court-sanctioned private sale is advanced for the applicant’s own purpose and benefit and is prima facie unfair (The Turtle Bay at [23]). In The Turtle Bay I referred to Bank of Scotland plc v The Owners of the MV Union Gold and others [2013] EWHC 1696 (Admlty) (“The Union Gold”) where Teare J held at [20] that as a matter of general principle the court should not order a sale to a buyer found by the arresting party at a pre-determined price.

Basically, an admiralty judicial sale confers on the purchaser clean title of the vessel by transferring existing maritime claims of all in rem claimants against the vessel to the sale proceeds of the vessel. I explained in The Turtle Bay at [15] that “this concomitant transfer of maritime claims (and priority) from the vessel to the proceeds of sale in court is the raison d’etre of the principle that a judicial sale is for the protection and benefit of all persons interested in the res; it is not only for the interest of the arresting party alone”. At [17]–[18], I went on to explain the procedural safeguards in the sale process in the following manner: 17 To protect the interests of all persons with in rem claims against the vessel including the defendant shipowner, the court has to have entire control over the sale process thereby safeguarding the propriety and integrity of the sale process and, ultimately, instilling confidence and standing of the judicial sale from this jurisdiction. To this end, there are comprehensive procedures in O 70 for a court-ordered judicial sale to be carried out by the Sheriff pursuant to a commission for appraisement to ascertain the value of the vessel, by the placement of advertisements and invitation to submit bids for the purchase of the vessel. 18 Once the Sheriff is commissioned to appraise and sell the vessel, he is under a duty to first appraise the vessel to ascertain the value. The Sheriff would be assisted by professional and experienced appraisers who as court-appointed appraisers have to act faithfully and impartially. The amount of the appraised value is kept confidential so as not to affect the price at which bids are received. Ordinarily, the Sheriff would accept the highest bid price unless it is below the appraised value. When the court is asked to exercise its discretion to approve a judicial sale where the highest bid price is below the appraised value, the Sheriff hands over the confidential appraisement report of the court-appointed appraiser in a sealed envelope for the court’s consideration. At no point in time would the amount of the appraisal be revealed to the public. In doing so, the integrity of the judicial sale process is preserved.

With regard to the importance of placing advertisements, I further held at [20] that: 20 The placing of advertisements not only publicise the sale to a wider audience interested in bidding for the vessel to obtain the best possible bid price, but they also serve to notify the sale to all others interested in the vessel so that they can come forward and establish their maritime claims. These interested parties include other claimants that may not have issued in rem writs or filed caveats against release but have an interest in the vessel and sale.

In The Turtle Bay, I concluded that a direct sale may be allowed in special circumstances. The applicant for a direct sale must identify the existence of “powerful special features” or ‘special circumstances” before the court will be prepared to order a direct sale to a named buyer at a pre-determined price (The Turtle Bay at [29]). Needless to say, such an application for a direct sale will be scrutinised carefully.

Arguments advanced for a direct sale pendente lite

I begin with the Bank’s arguments for a direct sale of the Vessel pendente lite to a named buyer at a specified price. As stated, the purpose of the direct sale pendente lite was for the Vessel under new ownership to carry the cargo to China.

The application was premised on several factors that were advanced by the Bank, the Intervener, and the Charterers. First, there was a named buyer of the Vessel, Okeanos Shipping Inc. (“Okeanos”), a company incorporated in the Marshall Islands, whose offer price of US$17.5m was US$1.5m more that the value of the Vessel, which the Bank claimed to be US$16m. In addition, Okeanos, a subsidiary company of a customer of the Bank, was willing to purchase the Vessel and carry the cargo to China for delivery to the Intervener. In that connection, the Intervener and the Charterers had entered into an undated agreement with Okeanos. When queried on when that agreement was concluded, Mr Murali informed the court that Swissmarine had signed the undated agreement on 20 December 2013. It was also pointed out that Okeanos was prepared to sign on the existing crew members under new ownership for the voyage to China.

Other factors strenuously emphasised by Mr Yap acting for the Intervener were that the cargo was worth US$40m and that it was slowly but surely losing commercial value with each day of delay. Mr Yap also relied on a report of Mr Eric Mullen, the Regional Director of Dr J Burgoyne & Partners (International) Ltd, a practice of consultant scientists and engineers specialising in forensic investigations of fires, explosions, engineering failures and other incidents, to show that the cargo on board had started to deteriorate.¹ It was also pointed out by the Intervener and the Charterers that a direct judicial sale to the named buyer was the best option for a variety of reasons. First, the cargo could not be landed in Singapore as there were no storage facilities available for such a huge quantity of cargo, even on a temporary basis. Second, whilst it was not impossible to tranship the cargo, there had been difficulties finding a...