Singapore High Court

Steven Chong JC

15 January 2010

Admiralty jurisdiction – Whether claim under guarantee is a claim “arising out of an agreement relating to the use or hire” of a vessel – Section 3(1)(h) High Court (Admiralty Jurisdiction) Act

Summary:

The Singapore High Court held that a claim under a guarantee provided in respect of the charterer’s liability as a condition precedent to a bareboat charterparty was not a claim “arising out of an agreement relating to the use or hire” of a vessel. The claim therefore fell outside of Section 3(1) (h) of the High Court (Admiralty Jurisdiction) Act and did not give rise to a right of arrest.

The Court further held that, on the facts, the Defendant guarantor who was also the parent company of the bareboat charterer was not the person in possession or control of the vessel.

Facts:

The Plaintiff was the registered owner of the vessel Mahakam and the Defendant was PT Humpuss Intermoda Transportasi Tbk.

The Plaintiff had entered into a sale and lease back agreement with Heritage Maritime Ltd, SA (“Heritage”) whereby the Plaintiff purchased the Mahakam from Heritage and leased it back to them under a bareboat charterparty (“the Bareboat C/P”). Heritage was a wholly-owned subsidiary of Humpuss Sea Transport Pte Ltd, who in turn was a wholly-owned subsidiary of the Defendant.

It was a condition precedent under the Bareboat C/P for the Defendant to execute a guarantee in favour of the Plaintiff to secure the due performance and payment of Heritage’s obligations under the Bareboat C/P.

Heritage defaulted on the payment of the charterhire. The Plaintiff terminated the Bareboat C/P and the Mahakam was redelivered to the Plaintiff on 23 June 2009. The dispute between the Plaintiff and Heritage under the Bareboat C/P was referred to arbitration in London, pursuant to the terms of the Bareboat C/P.

The Plaintiff arrested the Defendant’s vessel Catur Samudra and brought an action under the guarantee for payment of outstanding charterhire due and owing by Heritage and for damages for breaches of the Bareboat C/P.

Issue:

The issue before the court was whether a ship owned by a guarantor could constitute a “sister ship” for the purpose of the High Court (Admiralty Jurisdiction) Act (“HCAJA”), and therefore whether the admiralty jurisdiction of the High Court had been correctly invoked against the Catur Samudra.

In deciding this issue, the Court examined:-

(a)       Whether the Plaintiff’s claim under the guarantee  was a claim ‘arising out of an agreement relating to the use or hire’ of a vessel, and thereby fell within Section 3(1)(h) of the HCAJA; and

(b)       Whether the Defendant, being the party who would be liable in personam under the guarantee, was in possession or in control of the vessel at the time the cause of action arose (as required by Section 4(b) of the HCAJA).

Held:

(a)       Whether the Plaintiff’s claim under the guarantee was a claim ‘arising out of an agreement relating to the use or hire’ of a vessel.

The Court held that while courts have tended to interpret the expression “arising out of” broadly and enlarged the types of claims falling within Section 3(1) (h) of the HCAJA, they have nevertheless restricted the claims falling within Section 3(1) (h) to agreements which are in themselves related to the use or hire of a vessel.

The Court further held that the expression “in relation to” did not encompass claims made under agreements which by themselves were not agreements relating to the use or hire of a vessel, but were based on separate agreements which were a step removed from and only indirectly related to the agreement for the use or hire of a vessel.

The Plaintiff’s submission that the guarantee was an agreement relating to the Bareboat C/P, as it was a condition precedent under the Bareboat C/P for the Defendant to execute the guarantee was rejected. The Court held that an agreement which in itself was not an agreement intrinsically related to the use or hire of a vessel could not be transformed into such an agreement by characterizing it as a term or condition precedent of the charterparty.

The fact that the Mahakam was specifically referred to in the recital to the guarantee was not decisive, as there had been cases where agreements which did not refer to the vessel had been held to be within provisions equivalent to Section 3(1) (h), and yet other cases where agreements which did refer to the vessel had been held to fall outside the section. The touchstone was still whether the agreement under which the claim was brought had the requisite “direct connection” with an agreement relating to the use or hire of the vessel.

(b)       Whether the Defendant being the party who would be liable in personam under the guarantee, was in possession or in control of the vessel at the time the cause of action arose.

The court found that the Defendant was not in possession or control of the Mahakam at the time when the cause of action under the guarantee arose.

The Plaintiff submitted that the Defendant was in possession or control of the Mahakam at the time the cause of action arose because Heritage and the Defendant were effectively “a single economic unit with no corporate distinction between them, this rendering each liable for the debts of the other.”

The Court observed that the material used by the Plaintiff in support of its’ submission appeared to be an invitation to the Court to lift the corporate veil in order to show that the Defendant was in reality the charterer of the Mahakam, However, it was clear from the indorsement in the writ of summons that the Plaintiff’s claim against the Defendant was based solely on a guarantee and not under the Bareboat C/P. It was also acknowledged that there was no basis to lift the corporate veil and the Plaintiff was not seeking to do so. In the circumstances, the Court held that the Plaintiff could not rely on the same material to show that the Defendant was in possession or in control of the Mahakam.

The Court further held that the neither the Defendant’s appointment as ship managers of the Mahakam, nor the Defendant’s supply of crew to the vessel established the Defendant’s possession or control of the vessel. A ship manager’s responsibilities over the vessel arise out of their appointment by their principal, and the supply of crew was made at Heritage’s request.

Judgment delivered by Judith Prakash J, 17 April 2009

[2009] SGHC 91

Gurbani and Co for the Plaintiff

Kelvin Chia Partnership for the Defendants

Keywords:-

Breach of contract to carry cargo : Whether Plaintiff acted reasonably in mitigation of loss : Plaintiff not required to incur extraordinary expense or to do anything other than in the ordinary course of business in order to mitigate loss : Measure of damages for breach of contract to carry cargo

Summary:-

A party to a contract is not required to incur extraordinary expense or to do anything other than in the ordinary course of business in order to mitigate losses arising from the other party’s breach.

The measure of damages for a shipowner’s breach of contract to carry cargo is the difference between the market and charter rates of freight, or relates to the value of the goods at the port of discharge.  Alternatively, where the charterer has been able to load the goods on another vessel, he is entitled to claim the costs incurred.

Facts:-

The Plaintiff, Pacific Inter-Link Sdn Bhd (“Pacific”), entered into a voyage charterparty with the defendant, the owner of the  Asia Star. It was agreed that the vessel would load a minimum cargo of 21,500mt of refined palm oil for carriage to and delivery at ports in the Middle East, Turkey and Black Sea. The cargo to be carried was purchased by the Plaintiff from Indomas, Pamin and Pacoil and was be sold to Agrima. On 19 January 2004, the vessel’s tanks were found to be unsuitable to receive the cargo. On the same day, the Plaintiff sent the Defendants a notice holding them responsible for their breach of the charterparty in failing to provide a vessel with suitable tanks. No cargo was loaded onto the vessel.

The Plaintiff attempted to find an alternative vessel to carry the cargo. One vessel, the Puma, could start loading at a suitable time and could load twice the amount of cargo as the Asia Star, however the Plaintiff took the view that the freight rate, demurrage and other charges proposed by the owners were commercially unviable. The Plaintiff made a counterproposal on laycan, freight, additional charges and demurrage on 20 January 2004, however the owners of the Puma did not respond. On 21 January 2004, the Plaintiff attempted to find an alternative vessel but was unsuccessful.

On 22 January 2004, Indomas cancelled all sale contracts with the Plaintiff on the basis that the contractual shipment date had not been complied with. Indomas refused to withdraw the cancellation or have the cargo shipped on board a different vessel, the Chembulk Barcelona. The Plaintiff claimed that it suffered a loss of profit amounting to US$698,889.88 as a result of the cancellation of the Indomas contracts.

On 23 January 2004, Agrima informed the Plaintiff that it intended to cancel the bulk of the sale contracts which were to be shipped on the Asia Star. While Agrima subsequently agreed to part of the cargo being shipped on board the Chembulk Barcelona, it cancelled the contracts in respect of the remainder and purchased some palm oil from the domestic Turkish market instead. Agrima made a claim for US$969,200.00 against the Plaintiff for the additional expense of obtaining cargo from the Turkish market, which, after negotiation, was reduced to US$823,800.00.

Pamin and Pacoil agreed to extend the shipment date, and for the cargo to be shipped on board the Chembulk Barcelona in February 2004. In return, the Plaintiff had to pay the additional storage and heating costs and other expenses arising from the delay, and contractual interest, although the Plaintiff managed to reduce storage costs by a third. The amount claimed by Pamin amounted to US$209,990.83.

Pacoil also required the Plaintiff to pay additional charges under the contracts. As the Pacoil cargo had deteriorated due to the delay, the Plaintiff had to reprocess Pacoil’s cargo to bring it back to its original condition. The additional charges and cost of reprocessing the cargo amounted to MYR$558,467.31.

The Defendants were found to be in breach of contract. The Assistant Registrar assessing damages found that, on a balance of probabilities, the Plaintiff’s loss was caused by the Defendants’ breach, however Plaintiff had failed to act reasonably to mitigate its loss. It was found that the Plaintiff should have chartered an alternative vessel, the Puma, to carry the cargo to the discharge ports. However, the Assistant Registrar also held that the Plaintiff did not have sufficient cargo to fill the Puma’s larger cargo capacity.

The Assistant Registrar awarded US$302,000.00 in damages, being the difference between the total freight amount that would have been paid to the Puma and the total freight amount for the charter of the “Asia Star”. Both parties appealed.

Issues:-

(a)       Did the Defendants’ breach cause the Plaintiff’s loss, given that the Plaintiff had a degree of flexibility in determining the allotment of cargo to its buyers and nomination of vessels for carriage of the cargo?

(b)       Did the Plaintiff act reasonably in mitigating its’ loss, given that it did not charter an alternative vessel, the Puma, on terms demanded by the owners of the Puma?

(c)       What was the measure of damages for the Plaintiff’s loss?

Held:-

(a)       Did the Defendants’ breach cause the Plaintiff’s loss, given that the Plaintiff had a degree of flexibility in determining the allotment of cargo to its’ buyers and nomination of vessels for carriage of the cargo?

The Plaintiff’s loss was caused by the Defendant’s breach. While the Plaintiff had a certain degree of flexibility in the way it allocated cargo to various buyers and nominated vessels to carry the cargo to various ports, the extensions of time given to the Plaintiff by its’ buyers were, in contractual terms, indulgences rather than entitlements. The Plaintiff did not possess sufficient flexibility to entirely escape liability for non-shipment of cargo on board the Asia Star.

(b)       Did the Plaintiff act reasonably in mitigating its’ loss, given that it did not charter an alternative vessel, the Puma, on terms demanded by the owners of the Puma?

The Plaintiff had acted reasonably in mitigating its loss. The Plaintiff was not obliged to incur extraordinary expenditure or to do anything other than in the ordinary course of business and was therefore entitled to negotiate with the owners of the Puma to get the best possible terms, particularly where the charter of the Puma on the terms proposed by her owners would pose a number of practical and commercial difficulties for the Plaintiff, including the possibility of incurring substantial dead freight.

Even though it turned out that the Plaintiff would have suffered a smaller loss had the Plaintiff chartered the Puma, it did not follow that the Plaintiff had been behaving unreasonably making a counteroffer for the charter of the Puma.

On the facts, the Plaintiff did not act unreasonably as the charter of the Puma was a risky and expensive venture, while there was a possibility that the Plaintiff could obtain further extensions of time from its’ suppliers and buyers if the Plaintiff was able to confirm that a substitute vessel with a confirmed lay time within January 2004 had been chartered. At the time the counter-offer was made, there was also the possibility that the Defendants would be able to provide a substitute vessel or the Plaintiff’s brokers would revert with other vessel options.

The Plaintiff was not unreasonable in failing to inform Agrima and Indomas of the difficulty faced. The charter of the Puma would have been a speculative venture as Agrima and Indomas had not yet consented to an extension of time. Since the previous extensions given to the Plaintiff by its shippers and buyers were indulgences rather than entitlements, the Plaintiff could not expect to be granted further extensions without a viable alternative put forward first.

(c)       What was the measure of damages for the Plaintiff’s loss?

The usual measure of damages where a shipowner fails to perform a contract to carry cargo is the difference between the market and charter rates of freight, or relates to the value of the goods at the port of discharge.  Alternatively, where the charterer has been able to load the goods on another vessel, he is entitled to claim the costs incurred.

The Plaintiff was therefore not entitled to recover damages on the basis of loss of profits in respect of the cancelled Indomas contracts, or on the basis of the damages it had to pay Agrima for failing to delivery cargo by mid February 2004.

The correct measure of damages for the portion of the cargo cancelled by Indomas and Agrima and could not be shipped by the Chembulk Barcelona was the difference between the market value of the cargo at its destination in Turkey at the time it ought to have arrived less the value of the cargo to the Plaintiff at the agreed time and place of shipment with appropriate deductions for expenses saved.

The claim for the amounts paid to Pacoil and Pamin for the delayed shipment of their cargoes was considered under the alternative measure of damages, which applies where a charterer is able to load the cargo on another vessel.

The Plaintiff had paid Pamin a total of US$209,990.83, which included a contractual penalty, interest and storage charges. The Plaintiff had paid penalty charges exceeding the amount prescribed under its’ contract with Pamin, but could only recover the amount it was contractually obliged to pay. The Plaintiff had also paid interest charges on the full price of the cargo, owing to the delay in shipment. However, Pamin’s remedy for such delay was to claim the penalty charges provided for in the contract, and the claim for interest was therefore a double-claim. The Plaintiff should not have paid interest and was therefore unable to recover the same from the Defendants. The Plaintiff was entitled to claim the full amount of storage charges incurred in respect of the Pamin cargo.

The Plaintiff paid Pacoil a total of MYR $558,634.90, being payment for storage, reprocessing, heating and transportation charges, as well as interest. As with the Pamin claim, Pacoil’s remedy for delay was to impose a contractual penalty and not interest, and the Plaintiff was unable to recover the interest paid from the Defendants. The Plaintiff was allowed to recover storage, heating, reprocessing and transportation charges as these charges were attributable to the delay.

Andrew Phang Boon Leong JA, Chao Hick Tin JA, V K Rajah JA
11 September 2009

Bailment – Bailor’s right to immediate possession if bailee’s behaviour repugnant to terms of bailment – Whether contractual rights restricted bailor’s rights under common law

Tort – Conversion – whether act of removing machine from premises and delivering as instructed amounted to conversion of machine – Whether act of storing machine at warehouse amounted to conversion of machine – Whether act of redelivering machine to purported owner amounted to conversion of machine

Evidence –Burden of proof – Evidence required to show transaction in ordinary course of business – Proof of impropriety – Evidence required to displace presumption of good faith

Summary:-

The common law position that the right of possession revests in the bailor if the bailee behaves in a manner repugnant to the terms of the bailment can be modified by contract,  provided clear language is used.

The removal or storage of a machine by movers does not amount to conversion if the movers did not have actual notice of impropriety in such removal or storage, and were acting in the ordinary course of business.

A bailee who delivers goods to his bailor without title is not liable for conversion. However, if a bailee has actual notice of the existence of competing claims to the goods, the bailee will be liable for conversion.

A defendant in an action for conversion should plead in its defence the relevant facts to show that it reasonably acted in the ordinary course of business. Once credible evidence of such facts is adduced, the evidential burden of proof is transferred to the claimant, who must must plead in its reply and prove all facts that show the defendant had actual notice of some impropriety or was not acting in the ordinary course of business.

Facts:-

The Respondent let a Heidelberg 4C machine (“the machine”) to a company, RGPL, on hire-purchase terms. In 2006, RGPL shifted its office from Toh Guan (“Toh Guan premises”) to new premises. One Crispian Tan (“Crispian”), who was a director and shareholder of RGPL hired Kenzone Logistics Pte Ltd (“Kenzone”) to facilitate the shift. Kenzone then approached the Appellant to transport the machine to the new premises.

The initial instruction from RGPL was to shift the Heidelberg 4C to a warehouse owned by a third party, Hock Cheong. The warehouse refused to accept the machine when the Appellant’s lorries arrived. Kenzone then requested the Appellant to provide temporary storage space for the machine.

The Appellant stored the machine for 4 days until 4 September 2006, when it was removed from the Appellant’s premises at the request of a director and shareholder of RGPL, one Crispian Tan (“Crispian”).

The Respondent later sued the Appellant for conversion of the conversion. The trial Judge found that the Appellant was liable for conversion. The Appellant appealed.

Issues:-

(a)       Whether the Appellant had requisite title to sue for the conversion of the machine under the Hire-Purchase Agreement.

(b)       Whether the conversion of the machine took place by reason of the Appellant delivering the machine to the warehouse, storing the machine at its own premises for a few days and/or redelivering the machine on 4 September 2006.

Judgment:-

Held, allowing the appeal:

(a)       Whether the Respondent had the requisite title to sue.

It was a term of the Hire-Purchase Agreement that, if RGPL breached the Agreement, RGPL would be deemed to have repudiated the Agreement and the Respondent was entitled to determine the Agreement by notice in writing. Thereafter, RGPL would no longer be in possession of the machine with the Respondent’s consent.

The common law position is that the right of possession revests in the bailor if the bailee behaves in a manner utterly repugnant to the terms of the bailment. However, it is possible to contract out of the common law rule and to deprive the bailor of his common law rights, provided very clear language is used.

In this case, the requirement for notice under the Hire-Purchase Agreement was not absolute – it was not a condition precedent for such notice to be issued for the Hire-Purchase Agreement to be terminated. The Respondents therefore had an immediate right to possession of the machine when the machine was removed from the Toh Guan premises and had the requisite title to sue for conversion of the machine.

(b)       Whether conversion took place by reason of the Appellant delivering the machine to the warehouse, storing the machine at its own premises for a few days and/or redelivering the machine on 4 September 2006

The act of removing the machine from the Toh Guan premises and delivering the machine to the warehouse did not amount to conversion of the machine. The Appellants had no reason to question the propriety of the move and had dealt with and delivered goods which apparently belonged to their clients, RGPL. The Appellants’ conduct was purely ministerial as they had merely changed the location of the machine entrusted to it, and did not assist in the sale of the machine or take any step that amounted to the transfer or interference of ownership.

The Appellants’ act of storing the machine could be said to have been in the ordinary course of its business and did not amount to conversion. While the Appellants had not charged for storage, labour or materials used in wrapping the machine, this was not probative of an intention to do an act inconsistent with the right of the true owner. There was no evidence or suggestion that the Appellants had intended to use or keep the machine as its own or to withhold the machine from the true owner.

Finally, the Appellants did not commit conversion by returning the machine to Crispian or RGPL. A bailee who delivers goods to his bailor without title is not liable for conversion unless he has actual notice of the existence of competing claims to the goods.  The Appellants’ conduct was reasonable as there was nothing to indicate to it that competing interests were involved.

Observations on the burden of proof in conversion claims

The Court made several observations on the burden of proof in an action for conversion.

When an allegation of conversion is made against a carrier or bailee, the defendant must plead in its defence the relevant facts to show that it reasonably acted in the ordinary course of business. To discharge this burden of proof, the defendant will need to adduce sufficient facts to show that the transaction was of the type usually undertaken by it in the course of its ordinary business.

Once the defendant has adduced credible evidence that it has acted in the ordinary course of business, the evidential burden of proof of conversion is transferred to the claimant. The claimant must plead in its reply, all facts that show the defendant had actual notice of some impropriety or was not acting in the ordinary course of business. These matters must be pleaded and proven for the plaintiff to succeed in its claim.

Andrew Ang, J.
9 September 2008

Arbitration – Stay of Court Proceedings – Mandatory stay under International Arbitration Act (Cap 143A, 2002 Rev Ed) – Section 6(2) International Arbitration Act (Cap 143A, 2002 Rev Ed)

Facts

The Plaintiffs are the lawful holders and/or endorsees of the Bill of Lading under which 24,500 MT of Indian Solar Salt (the “Cargo”) was shipped on board the vessel, “Duden” (the “Vessel”) on a voyage from Kandla Port, India to Qingdao, China. On discharge at Qingdao, the Cargo was found damaged. The Defendants’ surveyors found that the damage was caused by rust at the Vessels’ bulkheads and the bottom of the Vessels’ holds. The Plaintiffs commenced action against the Defendant shipowners in Singapore in 2005 for their loss under the Bill of Lading, but only managed to serve the writ and arrest the vessel in November 2007 after missing the vessel on a previous call at Singapore.

The shipowners applied to set aside the renewal of the writ on the ground that the writ should have been served during the first call at Singapore. That application failed at first instance and also on appeal to the Judge-in-Chambers. The shipowners were denied leave to appeal to the Court of Appeal on the renewal.

The shipowners also applied to stay the Singapore action for London arbitration on the basis that the reverse of the Bill of Lading incorporated “all terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause.” There was no identification of the charterparty on the front of the Bill of Lading. The Plaintiffs were only told by the shipowners that there was a London arbitration clause in the relevant sub-charterparty in 2006 after time bar set in, and even so, was initially wrongly informed which sub-charterparty applied as there was a string of charterparties.

At first instance, the Assistant Registrar granted a stay of court proceedings in favour of arbitration in London on two conditions namely:

1. The security obtained by the Plaintiffs from the arrest of the Vessel be retained as security for the arbitration proceedings in London.
2. The Defendants waive the defence of time bar in the arbitration proceedings in London that the Plaintiffs would have been subject to pursuant to Art III r 6 of the Hague-Visby Rules.

The Defendant shipowners appealed to the Judge-in-Chambers.

Judgment

Held, dismissing the appeal:

The Court has an unfettered discretion to impose terms and conditions upon a stay of court proceedings for arbitration. Section 6(2) of the International Arbitration Act states that when an application is made by a party in accordance with s 6(1) the court must order a stay of court proceedings unless the arbitration agreement is “null and void, inoperative or incapable of being performed” but may impose “such terms or conditions as it may think fit”.

The justice of the case demanded the imposition of the condition that the Defendants waive the defence of time bar in the English arbitration proceedings especially in light of:

(a) The uncertainty and confusion surrounding the identity of the charterparty referred to in the Bill of Lading. It would have been unreasonable to expect the Plaintiffs to comply with an arbitration agreement found in a charterparty, the identity of which the shipowners themselves were not certain. In fact, the Plaintiffs were only informed of the identity of the relevant charterparty after the expiry of time for instituting proceedings (bearing in mind that the Plaintiffs were not privy to any charterparty)

(b) There appearing to be no bona fide intention by the Defendants to have the Plaintiffs’ claim arbitrated. Rather, the Defendants appear to be trying all ways and means to avoid an adjudication of the matter as demonstrated by the Defendants’ unmeritorious application for leave to appeal against the decision upholding the renewal of the writ.

Singapore Court of Appeal

Andrew Phang Boon Leong JA, Chan Sek Keong CJ, VK Rajah JA
19 September 2008

Admiralty and Shipping – Admiralty Jurisdiction and Arrest – Wrongful arrest – Damages for wrongful arrest

Facts

There was a dispute between the head charterers, “STC” on one side and the sub-charterers, “Rustal” and their financing banks, BCG and Credit Agricole (the “Banks”) on the other over the payment of hire for the vessel “Chelyabinsk”.

The Shipowners, “FESCO” received conflicting instructions from STC and the Banks. STC instructed “Chelyabinsk” to sail for Lome, Togo, while the Banks instructed that the cargo be discharged at Douala, Cameroon in exchange for a Letter of Indemnity.

Two of the three pertinent bills of lading stated the Port of Discharge to be Lome, Togo and the third was “any African Port”.

FESCO followed STC’s express instructions and proceeded to Lome to discharge the cargo.

STC also obtained an order from the Lome Court of First Instance to detain the 15,541 MT of rice on board the vessel as security for STC’s claim against Rustal for unpaid hire under the subcharterparty.

Unfortunately, on discharge a portion of the Cargo was damaged. FESCO’s P&I Club provided security for the damage to the cargo.

The Banks, meanwhile, secured a court order in Lome to arrest the vessel for the damage to the cargo and FESCO’s refusal to effect discharge at Douala.

After a vigorous inter partes hearing FESCO succeeded in setting aside the arrest in Lome, Togo.

The Banks did not appeal this decision but instead applied to arrest the “Vasiliy Golovnin”, a sister vessel of the “Chelyabinsk” in Singapore. The Singapore High Court set this arrest aside. Credit Agricole appealed against the setting aside of the arrest. The other bank, BCG, did not pursue the matter further.

The Judgment

The Singapore Court of Appeal dismissed Credit Agricole’s appeal against the setting aside of the arrest of the “Vasiliy Golovnin” and allowed damages for wrongful arrest:

To maintain an arrest, the Plaintiffs must show a “good arguable case” on the merits in addition to fulfilling the jurisdictional requirements for an in -rem action;

Credit Agricole did not fulfill the requisite “good arguable case” because FESCO had no duty to obey Credit Agricole, the holder of the bills of lading and named consignee in deviating from Lome, Togo. Todo so would have made FESCO liable for breach of the head charterparty and breach of the contracts of carriage evidenced in the bills of lading and also compromised existing insurance arrangements. Furthermore, unless the charterparty provides otherwise, the master was obliged to obey all instructions from the time chartererer (STC) who was entitled to give employment instruction to the shipowners.

With regard to damage suffered by the cargo in the care and custody of FESCO, FESCO’s P&I club had already provided security for this claim and an arrest was not justified.

The Banks’ failed in their duty to make full and frank disclosure on applying for the warrant of arrest, in failing to disclose, among other things, the previous inter partes hearing in Lome in which the arrest was set aside. Filing an affidavit containing 400 pages of exhibits without clearing stating the facts in the narrative text was not a proper way to disclose relevant facts.

Damages for wrongful arrest were awarded as “the action was so unwarrantably brought or brought with so little colour, or so little foundation that it implies malice or gross negligence on the Plaintiffs’ part”.

27 Mar 2007

Contract of carriage – Vegoilvoy charterparty – Fixture note stated that vessel’s tanks were epoxy-coated – Vessel’s tanks had severe breakdown of epoxy-coating – Defendant canceling charterparty – Whether defendant breached term in fixture note on epoxy-coating – Whether defendant breached clause in charterparty to tender vessel fit to carry plaintiff’s cargo to its destination – Whether defendant entitled to rely on cancellation clauses in charterparty to avoid liability to plaintiff

Facts:-

The plaintiff, Pacific Inter-Link Sdn Bhd (“Pacific”) chartered the “Asia Star” from her owners, OAS, on a Vegoilvoy form to carry a cargo of refined palm oil from Belawan, Indonesia and Pasir Gudang, Malaysia to Turkey. Pacific required epoxy-coated tanks to carry the cargo. The answer to “the Standard Tanker Voyage Chartering Questionnaire 1988” stated that the cargo tanks were fully coated with epoxy and the fixture note stated that the vessel was “epoxy coated/coiled”. During the pre-loading tank inspection at Belawan, the plaintiff’s surveyor found that 40% of the epoxy coating of the cargo tanks had broken down. The plaintiff rejected the vessel. The shipowner exercised its option under the charterparty to cancel the charterparty, arguing that it could do so without liability where the vessel could not be repaired within 24 hours and at reasonable expense (clause 1(b) of the Vegoilvoy form), or its tanks were rejected by the charterer (clause 15).* The plaintiff sued the shipowner for loss and damage for breach of charterparty.

At first instance, Tan Lee Meng J allowed the claim. Tan J’s decision was upheld by the Court of Appeal. The shipowner dropped the clause 15 point at the Court of Appeal, after Tan J held that it was overridden by the specific provision on tank cleanliness in clause 5.

Judgment of the Court of Appeal

The fixture was for epoxy-coated cargo tanks. The words of description in reference to the cargo capacity and the epoxy-coated tanks formed part of the contractual description of the vessel.

The coatings would not be adequate for the fixture if coating failure was of such a magnitude that it undermined the contract for coated tanks or affected the vessel’s cargoworthiness. On the facts, the shipowner was in breach of the express term of the fixture by presenting a vessel with a coating breakdown of 40%.

Clause 1(a) of Part II of the Vegoilvoy charterparty altered the shipowner’s absolute obligation at common law to furnish a cargo-worthy ship to an obligation to exercise due diligence to “make the tanks, holds and other spaces in which cargo is carried fit and safe for its carriage and preservation.” The vessel was uncargoworthy at the time she was presented for loading. The shipowner had discharged its burden of showing that it had acted with due diligence. It was therefore in breach of its duty of due diligence under clause 1(a).

Clause 1(b) did not avail the shipowner for several reasons. First, clause 1(b) was aimed at the due diligence obligation under clause 1(a). It did not apply to the express contractual obligation of the shipowner to provide epoxy-coated tanks, which was a separate and independent obligation from the seaworthiness obligation under clause 1(a). Secondly, giving effect to clause 1(b) would deny the term relating to the vessel’s description as epoxy-coated of contractual effect. Thirdly, the term of a typewritten clause describing the vessel as epoxy-coated overrode the printed clause 1(b), which could not be read to give the party in default the right to cancel for its breach of the coating description.

Clause 1(a) would not be rendered meaningless if effect were given to clause 1(b). The shipowner was given an opportunity to either repair the defect or cancel the charterparty. This discretion of the shipowner was to be exercised honestly and in good faith. However, as the court has found that the shipowner was in breach of the express term on epoxy-coating, which was not excused by clause 1(b), the shipowner’s appeal was dismissed with costs.

Comment

There is a dearth of reported judgments on the Vegoilvoy charterparty, so this case is important in setting out the relationships between a term relating to the description of the vessel, the seaworthiness obligation in clause 1(a) of the Vegoilvoy charterparty and the shipowner’s rights of cancellation under clauses 1(b) and 15. It is also noteworthy for judicial recognition of good faith as a criterion in the exercise of the shipowner’s option to cancel the charterparty under clause 1(a), perhaps marking the slow but steady inroad made by this predominantly civil law concept into common law contractual analysis.

* The relevant clauses of the Vegoilvoy form read as follows:

1. Warranty. (a) The Owner shall, before and at the commencement of the voyage, exercise due diligence to make the Vessel seaworthy, properly manned, equipped, and supplied for and during the voyage, and to make the pipes, pumps, and heater coils tight, staunch, and strong, in every respect fit for the voyage, and to make the tanks, holds, and other spaces in which cargo is carried fit and safe for its carriage and preservation.

(b) It is understood that if the tank or tanks, into which the particular cargo covered by this Charter is to be placed, upon testing prove to be defective the Owner undertakes to execute the necessary repairs, provided repairs can be effected within 24 hours and at reasonable expense; otherwise, Owner has the option of cancelling this Charter in which case no responsibility shall rest with the Vessel, Owners, or Agents.

15. Cleaning. Prior to loading. Charterer shall inspect the designated tanks for the purpose of determining that they are in suitable condition for the loading and carriage of the cargo specified hereunder. Acceptance of the tanks by Charterer’s representative shall be conclusive as to their suitability for such purposes. If Charterer’s representative does not accept the tanks as suitable for the cargo, the Owner shall have the right, as its option, to cancel this Charter Party, without any resulting liability on the part of either party, or to again clean the tanks, subject to inspection as above.

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(c) The forecast should cover the local area; and

(d) The forecast should be for 48 hours.

Given that the survey was specifically required for the safety of the tow during voyage south in the monsoon season, this recommendation meant the tug should depart within a reasonable time of a weather forecast. Given that weather forecasts were available every morning at 0800 hours and the vessel was required to sail in daylight, the vessels would have to depart by 1800 hours on the day of issue and receipt of the weather forecast. This meant within daylight hours of the same day and not 30 hours later. On the second element, there was no forecast obtained on the day of departure, but the judge accepted evidence from the insurer’s expert that it was unlikely a favourable forecast would have been issued on that day. The 3rd and 4th elements meant that the forecast should cover the local area for the 48 hours from departure. The owners’ contention that the forecast had to be obtained within 48 hours prior to departure did not make sense because that would not give the Master the benefit of knowing what weather to expect on the voyage.

The judge also accepted evidence in the master’s report on the day of departure that the wind speed was 25 knots (Force 6). This was in breach of the recommendation that the vessel was only to depart in wind force below 6.

Note

The owners’ appeal was dismissed in November 2006.

Belinda Ang Saw Ean J

9 June 2006

Contract of carriage – Remedies – Election at common law – Plaintiff having right to sue buyer for breach of sale contract and right to sue shipowner for breach of contract of carriage – Whether plaintiff’s acceptance of partial payment from buyer amounted to election precluding plaintiff from suing shipowner – Whether plaintiff’s remedies alternative or cumulative.

Facts

The plaintiff, “Agritrade”, sold a cargo of coal to Bhatia International Limited (“Bhatia”), who were sub-charterers of the ship “Pacific Vigorous” from the head charterers Eitzen Bulk A/S – (“Eitzen”). The cargo was loaded in Muara Satui, Indonesia in February 2005 and carried to the Port of Pipavav in India, where it was delivered without production of the bills of lading, against letters of indemnity provided by Bhatia to Eitzen. Eitzen in turn gave back-to-back letters of indemnity to the shipowner. Bhatia disputed the quality of the goods, but instead of rejecting them, delivered them to its end buyers and paid a unilaterally reduced price to Agritrade. Agritrade remained the holder of the bills of lading. It accepted the reduced price as part payment, then commenced an admiralty action against the owners of “Pacific Vigorous” for the misdelivery to Bhatia. The shipowner argued that delivery to Bhatia was with Agritrade’s consent and, alternatively, that Agritrade’s acceptance of part payment amounted to an election that precluded it from recovering damages from the shipowner. Agritrade applied for summary judgment (an expedited process on the basis that there is no defence which needs to go to a full trial) against the shipowner. The Assistant Registrar granted the shipowner leave to defend the action at trial. Agritrade appealed to the High Court.

Judgment

The defence that the cargo was released to Bhatia with the consent of the plaintiff was unsustainable. The release was against letters of indemnity, not on the basis of any prior consent by Agritrade.

Election at common law occurs where a person has two inconsistent rights or courses of action, only one of which can be exercised. In such a case, his choice by overt act communicated to the other party that he is relying on one such right precludes him from later claiming the benefit of another.

Election in equity means that a party cannot both accept (approbate) an instrument or judgment and reject (reprobate) it.

In this case, there was no common law election because Agritrade was not exercising two inconsistent rights. It had separate and independent causes of action against two persons, against the shipowner for conversion and against Bhatia for the balance of the sale price. These were cumulative, and not alternative, remedies.

Even if there were alternative and inconsistent remedies, the common law doctrine of election takes effect only where a stage is reached where some choice has finally to be made. In this case, Agritrade had not commenced proceedings against Bhatia for the price. Furthermore, acceptance of part payment was not an unequivocal act which outwardly signified an election under either common law or equity.

One element common to both doctrines – namely election at common law and election in equity – is that a party will not be held to have made an election if he did not know that he had a right to elect. In the present case, the shipowner did not show that the plaintiff had the requisite knowledge of the existence of choice.

In consequence, Agritrade’s appeal succeeded and judgment was entered in its favour.

Comment

The shipowner’s appeal to the Court of Appeal was withdrawn. The High Court judgment is a useful exposition on the principles of election, which differ from the doctrine of estoppel.

Fie
 e commencement of the voyage. As the CA found that these were not voyage policies, there was implied warranty of seaworthiness.

As these were time policies, the insurer would be released from liability under section 39(5) of the Act only if, with the privity of the assured, the ship was sent to sea in an unseaworthy state, and the loss was attributable to unseaworthiness.

Loss was proximately caused by perils of the sea as there was sufficient evidence of adverse weather conditions. The fact that bad weather may have been anticipated did not mean there was no element of fortuity when incursion of seawater leading to the sinking occurred.

Interestingly, the CA accepted that there was no competent master on board and the vessel was therefore unseaworthy on sailing. However, the surveyor had found the crew to be adequate for the voyage. Even though this opinion was not binding on the Court, the insured who accepted this expert’s opinion could not be said to have knowingly or recklessly sent an unseaworthy vessel out to sea. Furthermore, there was no evidence on how the incompetence of the crew was a proximate cause of the loss.

Classification itself did not equate seaworthiness or unseaworthiness. The lack of classification was known to the insurer and the surveyor, who approved the vessel’s fitness to travel.

Andrew Phang Boon Leong JA, Chan Sek Keong CJ, Judith Prakash J

11 Sept 2006

Marine Insurance – Whether loss caused by perils of the sea – Whether policy mixed time and voyage or just time – Whether vessel unseaworthy – Whether vessel sent to sea in unseaworthy condition with privity of assured – Marine Insurance Act 1906, sections 25 and 39.

Facts

In November 2003, Marina Offshore bought an old tug, the “MARINA ISIS”, which was built for Japan’s coastal waters. The tug was laid up in a shipyard in Kobe and Marina Offshore wanted to bring her to Singapore for repairs. She was out of class. Marina Offshore insured her under hull policies with China Insurance and AXA Insurance. The period of insurance was for one year. The policies incorporated the Institute Time Clauses and the trading limits were “Singapore home trade including Indonesian waters, and inclusion of one voyage risk from Kobe to Singapore”.

The policies contained a warranty requiring a seaworthiness/condition survey and compliance with the conditions before sailing from Kobe. The surveyor made six recommendations in the survey, stating that all his recommendations must be complied with, failing which his report would be void. One of these recommendations concerned the voyage route: “Route to follow to be tracking along nearest coast of Japan, Philippines, Sabah unless weather permitted, and to seek shelter if weather is bad …”

Although gale warnings were given by the Kobe Meteorological Department, the tug departed Kobe in the evening of 26 December 2003. She had gone only 50 miles when she sank. Marina Offshore claimed under the policies. The insurers denied liability. The main grounds for denial were that:-

(a.) Marina Offshore was in breach of the warranty by not complying with the surveyor’ recommended route; and

(b.) the cause of loss was unseaworthiness of the tug rather than an insured peril of the sea.

The trial judge dismissed the action against the insurers. He held that Marina Offshore was in breach of the warranty by not complying with the surveyor’s recommended route, in heading for the Pacific Ocean via Kii Suido. He also held that the insured had not proved that loss was by a peril of the sea, an insured peril, as there was evidence of unseaworthiness.

On appeal by the insured, the Court of Appeal reversed the trial judge’s decision and gave judgment to the insured. Prakash J, delivering the judgment of the CA, held that:

There was no warranty on the route of the vessel. The written warranty did not contain any language referring to the course of the voyage, and its terms requiring that the recommendations had to be complied with before sailing meant that what had to be done en route would not be part of the warranty requirements.

The normal contractual test relating to the implication of terms does not apply to a marine policy, as the only implied warranties are those which are implied by legislation.

The policies were time policies, not hybrid time-voyage policies even though they covered the voyage from Kobe to Singapore. Among other reasons, the CA found it important that there was no indication of a voyage or hybrid cover in the section where the duration of the risk was specified, which was where the coverage would be described. The reference to the delivery voyage in the clause dealing with the trading area did not convert the policies into hybrid policies. The CA also noted that the policies incorporated the Institute Time Clauses and not even one of the Institute Voyage Clauses.

In a voyage policy, section 39(1) of the Marine Insurance Act implies a warranty of seaworthiness at the commencement of the voyage. As the CA found that these were not voyage policies, there was implied warranty of seaworthiness.

As these were time policies, the insurer would be released from liability under section 39(5) of the Act only if, with the privity of the assured, the ship was sent to sea in an unseaworthy state, and the loss was attributable to unseaworthiness.

Loss was proximately caused by perils of the sea as there was sufficient evidence of adverse weather conditions. The fact that bad weather may have been anticipated did not mean there was no element of fortuity when incursion of seawater leading to the sinking occurred.

Interestingly, the CA accepted that there was no competent master on board and the vessel was therefore unseaworthy on sailing. However, the surveyor had found the crew to be adequate for the voyage. Even though this opinion was not binding on the Court, the insured who accepted this expert’s opinion could not be said to have knowingly or recklessly sent an unseaworthy vessel out to sea. Furthermore, there was no evidence on how the incompetence of the crew was a proximate cause of the loss.

Classification itself did not equate seaworthiness or unseaworthiness. The lack of classification was known to the insurer and the surveyor, who approved the vessel’s fitness to travel.

6 June 2006

Marine insurance – Insurers who paid for salvage of vessels owned by assured claimed reimbursement from assured on the ground of breach of warranty that avoided cover – Whether warranty part of policy of marine insurance – Whether warranty breached – Whether insurers entitled to reimbursement of salvage expenses from assured.

Facts

In this case, the insurers sued the insureds for salvage and towage expenses incurred by the insurers in recovering an insured barge, before the insurers discovered that the insureds were in breach of a warranty.

Metico Marine and Wecoy Maritime, related companies, respectively bought a tugboat “WECOY 7” and two barges “BINTANG 9” and “BINTANG 10” in Shanghai. They were intended for Singapore home trade waters. Metico and Wecoy insured the barges under a time hull policy with Royal & Sun Alliance (“RSA”), which covered the voyage from Shanghai to Singapore.

The policy contained a warranty which reads as follows: “Warranted towage approval survey by CCS at the insured’s expenses, with all recommendations, if any, fully complied with prior to sailing.”

CCS were the China Classification Society, which carried out a pre-towage survey. The towage survey certificate issued by the China Classification Society (“CCS”) contained the following recommendations: “The towing vessel is to depart from any port during voyage in day time on receipt of a favourable weather forecast for local area in 48 hours and under VI wind force of Beaufort scale. If the wind force of Beaufort scale is more than VI, the towing vessel shall seek refuge.”

The owners obtained weather forecasts in the days before departure from Shanghai, but the last forecast was obtained 30 hours before departure, at 0800 hours on 16 December 2003. The vessels departed at 1400 hours on 17 December 2003. No forecast was obtained on the day of the departure. In the early hours of 21 December, the towline parted and the barges were lost.

The owners’ broker contacted the insurer, who engaged salvors for a search and recover mission. These salvors recovered one barge on 24 December and the tug herself recovered the other barge on 26 December.

Subsequent to the recovery, the insurer discovered that:-

(a) The owners had not obtained any forecast at all, much less a favourable forecast, on the day of departure

(b) The vessels departed in wind of Force 6 and above.

(c)The vessels did not seek shelter during the voyage even though they encountered wind force above 6 for several days before the towing rope broke.

The insurer claimed breach of warranty, discharging it from liability under the policy, and recovery of the salvage and towage expenses.

The owners argued that, first, there was no warranty because the negotiations leading up to the issue of the policy did not mention that the pre-towage survey would be a warranty, and that the warranty was inserted into the policy contrary to the parties’ true intention. Secondly, the owners argued, if there was a warranty, there was no breach. The owners counterclaimed for an indemnity under the policy for its own expenses.

In the voyage from China to Singapore, the towrope connecting the barges to the tugboat parted, and the barges drifted off. This voyage was covered by the policy issued by the plaintiff insurers.

Judith Prakash J gave judgment for the insurer and dismissed the owners’ counterclaim. She held that:

The policy prima facie contained the terms of the contract of insurance. Even in ordinary contracts whose terms are reduced to writing, evidence of previous drafts and negotiations is not admissible to vary or add to the terms of the contracts. This must be all the more so in a contract of insurance which is inadmissible in evidence unless it is embodied in a marine policy in accordance with the Marine Insurance Act (section 22).

Furthermore, the correspondence and the examination of the broker showed that, before the policy was issued, the broker was fully aware that the towage survey requirement was material to minimize the risk covered by the policy and that it was intended for the purpose of the policy. She herself inserted the warranty into the signing slip which formed the basis of the policy, from samples of standard clauses she had in her possession from her long experience as a broker. There was no mistake, much less a common mistake, justifying a rectification of the policy.

The wording of the warranty was read strictly and any ambiguity was construed against the insurer. Compliance with recommendations “prior to sailing” meant that the recommendations that pertained to post-departure, like seeking shelter in bad weather, were not part of the warranty.

Nonetheless, the owners had breached the warranty in two ways. First, in not departing on receipt of a favourable weather forecast for local area in 48 hours. The learned judge reduced this recommendation to four elements:-

(a) To depart on receipt of a particular forecast;

(b) The forecast must be favourable;

(c) The forecast should cover the local area; and

(d) The forecast should be for 48 hours.

Given that the survey was specifically required for the safety of the tow during voyage south in the monsoon season, this recommendation meant the tug should depart within a reasonable time of a weather forecast. Given that weather forecasts were available every morning at 0800 hours and the vessel was required to sail in daylight, the vessels would have to depart by 1800 hours on the day of issue and receipt of the weather forecast. This meant within daylight hours of the same day and not 30 hours later. On the second element, there was no forecast obtained on the day of departure, but the judge accepted evidence from the insurer’s expert that it was unlikely a favourable forecast would have been issued on that day. The 3rd and 4th elements meant that the forecast should cover the local area for the 48 hours from departure. The owners’ contention that the forecast had to be obtained within 48 hours prior to departure did not make sense because that would not give the Master the benefit of knowing what weather to expect on the voyage.

The judge also accepted evidence in the master’s report on the day of departure that the wind speed was 25 knots (Force 6). This was in breach of the recommendation that the vessel was only to depart in wind force below 6.

Note

The owners’ appeal was dismissed in November 2006.

Conflict of Laws — Lis alibi pendens – Aircraft crash in runway in Taiwan – Third party proceedings – Whether defendant had elected to pursue its claim against third party in Taiwan – Forum non conveniens – Whether Singapore action ought to be stayed – Whether Taiwan law or Singapore law is governing law — Whether the double actionability rule or the lex loci delicti rule should apply.

Facts

In October 2002, Flight SQ006 operated by Singapore Airlines Limited (“SIA”) hit some construction machinery and crashed on a runway in Chiang Kai-Shek International Airport in Taiwan. The plaintiff Ang sued SIA for damages and other relief in Singapore. SIA brought in the Civil Aeronautics Administration (“CAA”), of Taiwan as a third party, seeking indemnity should SIA be found liable. Subsequent to the third party notice, SIA also sued CAA in Taiwan in respect of the same accident, in a wider action that encompassed claims filed against SIA worldwide, not just in Singapore. CAA applied for SIA’s Singapore action to be stayed or dismissed to avoid a multiplicity of proceedings (lis alibi pendens) and also on the ground that Taiwan was the more appropriate forum (forum non conveniens).

Decision

The High Court ordered a stay of SIA’s Singapore action pending the outcome of SIA’s Taiwan action:–

1. On the ground of multiplicity of proceedings (lis alibi pendens), once CAA established a duplicity of actions on the same subject matter, the burden of proof shifted to SIA to justify the continuance of the concurrent proceedings by showing very unusual circumstances. If SIA could not do so, it would have to elect where to proceed. In this case, SIA had affirmatively elected to proceed against CAA in the Taiwan action by claiming a wider scope of relief than in the Singapore action. The action should be dismissed or stayed on the ground of lis alibi pendens.

2. In any case, SIA’s Singapore action should also be stayed on the ground of forum non conveniens. CAA had discharged its burden of proving not only that Singapore was not the natural or appropriate forum, but that there was another available forum which was clearly or distinctly more appropriate than the Singapore forum, namely Taiwan. The significant factors were: –

a. Although SIA operated worldwide, including Taiwan, CAA operated only in Taiwan.

b. There would be more witnesses from Taiwan than from Singapore. Even if a witness in Taiwan was compellable to give evidence for the Singapore action, he would not be compelled to give evidence in Singapore. There would be no cross-examination of that witness.

c. It was likely that there would be more documents from Taiwan than from Singapore, and most of the documents from Taiwan would be in Chinese which required translation in Singapore proceedings.

d. Although a site inspection by the Taiwanese court was probably low, it could not be ruled out.

e. The Court reviewed case law from several jurisdictions on the applicable governing law in international torts. The judge personally preferred the principle that the governing law ought to be the law of the place where the tort was committed (lex loci delicti). But he was bound by the precedence of two Singapore Court of Appeal decisions to uphold the double actionability rule, namely that Singapore law (law of the forum) would apply if the conduct complained of was actionable both in Singapore and in the place where the conduct occurred. This double actionability rule is, however, not inflexible, and it is possible to depart from it on clear and satisfying grounds to avoid injustice by applying the law of the country where the tort took place. The judge applied this exception in finding that significant factors were clearly in favour of the law of Taiwan being the governing law.

f. There was a clear risk of the issue between SIA and CAA being re-litigated all over again for the additional claims brought by SIA against CAA in Taiwan if the Singapore action was not stayed.

Comments

By legislation, the double actionability rule has been replaced by the lex loci delicti as the general rule, with exceptions, in England. Even without legislation, it is open to the Singapore Court of Appeal to develop common law relating to the governing law, as other jurisdictions have done. It remains to be seen whether the Singapore Court of Appeal will also abandon the double actionability rule in favour of the lex loci delicti. This case also demonstrates that lis alibi pendens and forum non conveniens are separate grounds for a stay, though certain facts might be relevant to both concepts.