Introduction

The Singapore Court of Appeal once again has had to grapple with ship arrest, setting aside and appeals to the Court under the High Court (Admiralty Jurisdiction) Act (Cap 123, 2001 Rev Ed) ("HCAJA") and the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) ("SCJA").

One of the longest running arrest cases in recent history, the Chem Orchid is a sequel to the "Bunga Melati 5" [2012] 4 SLR 546 and Wasco Gem" [2014] 2 SLR 63. Both "Bunga Melati 5" and "Nasco Gem" were cited by the Court of Appeal in "Chem Orchid".

In what is likely the most important admiralty and shipping case of 2015, in The "Chem Orchid" [2016] SGCA 4 ("Chem Orchid"), the Court of Appeal also examined and commented on the relationship between the application to set aside the arrest of a ship and the trial of the claim in the event the arrest is not set aside.

Significantly the decision of the Court of Appeal was that of a 5 Judge panel. Court of Appeal hearings typically feature a 2 or 3 Judge panel and a quorum of 5 Judges is reserved for cases of particular importance.

Another noteworthy mention is that the Chem Orchid was an appeal from the High Court's decision in The "Chem Orchid" [2015] SGHC 5o that was a leading decision on the difficult issue of Bareboat Charters (see below).

The Chem Orchid cases once again demonstrates the dominance of Rajah & Tann's Shipping and International Trade team which handled all 3 cases: "Bunga Melati 5"1, Wasco Gem"2 and "Chem Orchid".

Mr Philip Tay (assisted by Ms Yip Li Ming) of that team represented Mercuria Energy SA in the "Chem Orchid" appeal and in the High Court decision in the The "Chem Orchid" [2015] SGHC 5o.

Brief Facts

Han Kook Capital Co Ltd ("HKC" or "Owners") were owners of the eponymous "CHEM ORCHID" that was bareboat or demise chartered ("Lease Agreement") to a company called Seijin Maritime ("Seijin").

A bareboat or demise charter leases the whole ship to a charterer. As the charterer is for all intents and purposes the owner under the HCAJA, a ship can be arrested for claims against the charterer.

In evidence that was thrown up in the High Court, it transpired that the ship was plagued by mechanical breakdowns. Seijin was itself mired in financial troubles.

Not knowing of these ills, various cargo owners, sub-charterers and suppliers continued to trade with the vessel and sub-chartered her, loaded cargo on her and supplied her with provisions and bunkers.

The vessel eventually met her fate in Singapore after a fatal breakdown and was arrested by her creditors and sold by the High Court as the owners did not provide security to release her.

Seijin did not participate in the High Court proceedings but HKC applied to exclude all the creditors by applying to the High Court to have all the claims set aside or struck out.

HKC's application was premised on the alleged termination of the Lease Agreement by a notice of termination issued by another company, HK AMC Co Ltd ("HKA").

HKC had alleged that it had transferred the right to terminate the Lease Agreement to HKA and the notice of termination issued by HKA had terminated the Lease Agreement before the claimants filed their claims in the Singapore Court.

In the alternative HKC applied to strike out the claims on the basis that all the contracts (for the charter of the ship, for the shipment of cargo for the provision of supplies, etc) were made with Seijin and they are not liable for these claims.

Holding of the High Court

In The "Chem Orchid" [2015] SGHC 5o, the High Court dismissed the setting aside and striking out applications of HKC against all creditors.

In an unprecedented case, the High Court went on to examine the requirements for the termination of a bareboat charter, recognising the importance of the topic in admiralty law.

Divergent lines of authorities

There were 2 lines of cases prior to the decision. One group holds that as the physical delivery of the ship was the essence of a bareboat charter, for a bareboat charter to be terminated, the ship must be physically redelivered to effect a reversion of possession and control. A notice was not sufficient.

The other group of cases appeared to hold that a notice was sufficient to terminate even without physical redelivery if this was provided by contract.

In an unprecedented decision, the High Court held that the Lease Agreement had not been validly terminated. The High Court held that:

  1. For a bareboat charter to be terminated, the ship must be physically redelivered to effect a reversion of possession and control to the owner. The requirement of physical redelivery cannot be contracted out of and there is no space in Singapore law for the doctrine of `constructive redelivery'.
  2. The notice of termination was in any event invalid as it should have been issued by HKC. HKA did not have the right to issue the notice. The notice was also defective as it did not meet the requirements of the charter for the notice of termination.

Effect on contracts after termination

The other equally far reaching result of the High Court's decision was the effect of the contracts made by Seijin if the Lease Agreement had been terminated.

The High Court held that Mercuria had an arguable case that the contracts had been made with HKC if the Lease Agreement was already terminated at the time when the contracts were made for shipment of cargo on the ship. The legal inference was that HKC was the actual contracting party.

HKC appealed to the Court of Appeal contending the decision of the High Court was wrong.

Holding of the Court of Appeal

Appeal dismissed under s 34(1)(a) of the SCJA

The sequence of events leading to the appeals is noteworthy.

Immediately after the Notice of Appeal was filed by HKC, Mercuria and the other parties objected that that HKC had no right to appeal without leave.

HKC "invited" Mercuria and the other parties to strike out the appeal but Mercuria and the other parties felt they did not need to do so. They argued that the burden was on HKC as Appellant to prove that they had the right to appeal.

Despite the objections, HKC surprisingly made no efforts whatsoever to try and ascertain if it had the right to appeal before proceeding further.

Instead, for several months after, HKC continued to prepare and serve its Appellants' Case, all its Appeal Bundles and its Submissions and right up to the day of the appeal itself, as if it had the right to appeal and went through the entire appeal process.

On the day of the appeal hearing itself, the Court of Appeal held that HKC had no right to appeal and dismissed HKC's appeal without hearing the merits of the appeal. The Court of Appeal did not reserve its decision and the decision was made on the day of the hearing itself.

In an unprecedented decision, the Court of Appeal held that HKC's setting aside application was in substance a request to the court to strike out the in rem actions on a basis similar to that which underlies 0 18 r 19 of the Rules of Court.

The grounds relied on by HKC to challenge the court's jurisdiction were the same as the grounds which could defeat the Creditors' substantive claims.

The Court of Appeal thus held that s 34(1)(a) of the SCJA read with para (e) of the Fourth Schedule applied and precluded HKC from appealing against the Judge's decision.

This part of the ruling is potentially far reaching and may extend outside Shipping cases to non-Shipping cases. It may also herald a different approach to the interpretation of the Rules of Court where the Court looks at the substance rather than the form of the application.

Leave under s 34(2)(d) of the SCJA

The Court also held that if an appeal could be filed with leave under s 34(2)(d) of the SCJA read with para (e) of the Fifth Schedule, "...we agree with Mercuria and Winplus that HKC should have sought leave to appeal from the Judge first."

As HKC did not apply for leave, it meant that even if HKC could have appealed with the court's leave, the Court of Appeal could not grant HKC leave.

Impact of the setting aside on the trial of the action

Perhaps the most significant aspect of the decision is the impact of setting aside applications on the trial of the action.

The Court held that as the Judge declined to set aside the in rem writs on the basis of the affidavit evidence before him, the present admiralty proceedings continue to be afoot, with no conclusive finding made yet on the jurisdictional point.

The Court held that HKC can therefore raise the jurisdictional issue again at the trial; and the trial judge would be entitled, at that stage, to rule on jurisdiction based on all the evidence, including oral evidence, and the arguments placed before him.

The Court held that nothing said by the Judge or by the Court of Appeal in the present proceedings would have a bearing on how the trial judge should decide the jurisdictional issue at the trial.

Further, whatever the trial judge's ruling on jurisdiction may be, any party who is dissatisfied would have an automatic right to appeal against that decision.

The Order 57 r 16(4) of the Rules of Court Argument

HKC also argued that under Order 57 r 16(4) of the Rules of Court, the Court of Appeal could grant it leave to appeal despite its failure to obtain leave from the Judge if there were "special circumstances" which made it "impossible or impracticable" for HKC to seek leave to appeal from the Judge.

The Court held this contention was unmeritorious as the correspondence between HKC's solicitors and the respective solicitors for Mercuria and Winplus showed that HKC's solicitors had been informed of HKC's failure to seek leave from the Judge. However, HKC's solicitors were adamant that HKC did not need leave of court to appeal.

Guidance

Finally, the Court of Appeal also provided the guidance that the proper approach for HKC to take (assuming HKC had a right of appeal to begin with) would have been to seek a declaration from the Judge that it did not need leave of court to appeal.

Alternatively, in the event that the Judge ruled that leave to appeal was needed, HKC should have sought leave from the Judge before lodging its appeals.

HKC's failure to take these measures could not constitute "special circumstances" so as to bring them within the scope of 0 57 r 16(4) of the ROC.