When a shipowner defaults on its loan, one of the less risky options available to the mortgagee bank is to use the judicial procedure of arresting the ship and applying for judicial sale of the vessel. Singapore, with its reputation of being an efficient and transparent jurisdiction to foreclose on mortgages, has seen an increase in such ship arrests. This increase has also led to the development of a body of cases on ship arrest. This article considers 2 recent decisions where the courts try to achieve a dynamic balance between the interests of claimants and banks on the one hand and shipowners on the other.

The "Eagle Prestige"

Prior to the case of The "Vasiliy Golovnin" [2008] 4 SLR 994, the court would presume the claimant had an arguable case falling under the classes permitted by the relevant legislation (section 3(1) the High Court (Admiralty Jurisdiction) Act). The claim could be brief, without elaborating its strengths and weaknesses. Conversely, to set aside the arrest, the shipowner only needed to show either the statutory requirements were not met or that there was material non-disclosure by the claimant.

In The "Vasiliy Golovnin", the apex court described ship arrest as a "very powerful invasive remedy". The Court of Appeal considered the one-sided nature of how the application is made and the arrest is obtained, and required the claimant to:-

  1.  demonstrate to a good and arguable case that the cause of action falls under the s 3(1) categories; and
  2. fully disclose all relevant matters, including those disadvantageous to the claim.

If the claimant's failure to disclose is intentional, the court will cancel the arrest and punish the claimant. Where the shipowner can show that application was motivated by malice, bad faith or extreme negligence, this punishment extends to a court order for the claimant compensate the shipowner for loss and damage incurred during the arrest period.

The "Eagle Prestige" ([2010] SGHC 93) ddiscussed the level of disclosure expected and the "good arguable case" requirement in The "Vasiliy Golovnin", with the High Court weighing in with its own view.

The dispute in The "Eagle Prestige" and a related case (The "Engedi" [2010] SGHC 95) arose from the grounding of the vessel TS Bangkok which damaged its hull and propeller. TS Bangkok was owned by TS Lines and subchartered to EP Carriers. EP Carriers in turn owned another ship, Eagle Prestige, which it sold to Capital Gate Holdings after TS Lines commenced in rem proceedings against EP Carriers. Capital Gate Holdings renamed the Eagle Prestige as Engedi. TS Lines applied to arrest Engedi (formerly Eagle Prestige) but this application was set aside. TS Lines appealed this decision with Capital Gate Holdings arguing that, when an application for arrest is made or when the application is challenged, the arresting party must show a good arguable case on the merits of the claim.

The High Court first distinguished between two different challenges to the arrest:-

  1. a procedural challenge to the court's jurisdiction to grant the arrest; and
  2. a substantive challenge to strike out the claim.

The claimant does not have to show a "good arguable case" on the merits of the claim at either stage, nor establish the cause of action might prevail at the trial. The claimant's disclosure of "plausible defences" is further limited to those factual or legal matters which can summarily deliver the "knock out blow" to the claim or which constitute an abuse of the arrest process, and not to defences to the claim that may be raised at trial.

The contribution by The "Eagle Prestige" to how The "Vasiliy Golovnin" can be interpreted would have been confirmed on its appeal. However, the appeal has been withdrawn and another case, The "Bunga Melati 5", has come before the court.

The "Bunga Melati 5"

In the most recent case of Equatorial Marine Fuel Management Services Pte Ltd v The "Bunga Melati 5" [2010] SGHC 193, the court further considered both The "Vasiliy Golovnin" and The "Eagle Prestige" in deciding:-

  1.  the standard of proof which the party applying for ship arrest, Equatorial, must meet in order to invoke the admiralty jurisdiction of the High Court under s 4(4) of the High Court (Admiralty Jurisdiction) Act; and
  2.  whether Equatorial must pass a threshold test of merits at the jurisdictional stage.

Equatorial supplied marine fuel (bunkers) used by MISC's vessels and Equatorial delivered the bunkers to MISC through Market Asia Link, a bunker trader. MISC paid Market Asia Link for all the bunkers it received but after delivery, Market Asia Link became insolvent and failed to pay Equatorial. Equatorial claimed MISC did not pay for the bunkers. On its part, MISC claimed it was unaware Equatorial was the ultimate source of the bunkers, that it had no contact with Equatorial and that it had instead contracted to buy the bunkers from Market Asia Link.

US cases: Equatorial filed an application in the district court for maritime attachment of MISC's property in order to establish the court's jurisdiction to hear Equatorial's suit against MISC for breach of contract and unjust enrichment. However, the district court vacated the attachment, agreeing with MISC that MISC did not have a contract with Equatorial and thus Equatorial failed to show a valid prima facie admiralty claim. Equatorial appealed but the appellate court upheld the district court's ruling, that Equatorial had no basis of admiralty action against MISC, as the company had not entered into any contract for supply of bunker with Equatorial.

Singapore case: Equatorial Marine commenced by serving an admiralty writ on MISC's ship, the Bunga Melati 5. Although the Bunga Melati 5 did not receive the bunkers in question, Equatorial Marine asked the court to consider it a "sister ship action" under s 4(4) of the High Court (Admiralty Jurisdiction) Act. MISC applied to strike out an Equatorial's admiralty suit.

The judge in the Singapore case granted MISC's application and struck out Equatorial's suit, based on evidence that it was Market Asia Link, and not MISC, which entered into a contract to buy bunkers from Equatorial. The judge in The "Bunga Melati 5" recognised a bifurcation in case principles:-

  1.  following The "Vasiliy Golovnin", the judge found that Equatorial did not show it had a good arguable case on the merits and thus the judge refused it the admiralty jurisdiction of the court; and
  2.  the judge also said that even if there was no requirement for a good arguable case, then following The "Eagle Prestige", Equatorial's claim would still be struck out because it was unsustainable and bound to fail.

The "Bunga Melati 5" may have added a further consideration as to how strong the plaintiff's case has to be when applying for ship arrest. It is felt that a fine balance has been reached, one that will be clarified when this case is decided on appeal.