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Shipping contracts

i Shipbuilding

Singapore has long been a leading centre for ship repair and building. Singapore corporations Keppel Corp and Sembcorp Marine are among the world's top offshore rig builders.

A shipbuilding contract is regarded both as a contract for sale and purchase as well as a contract for the supply of workmanship and materials. There are a number of commonly used standard-form shipbuilding contracts, including SAJ (Shipbuilders' Association of Japan), AWES (Association of West European Shipbuilders) and BIMCO's NEWBUILDCON.

Shipbuilding disputes usually involve issues of whether the ship complies with the description and contractual specifications. The conditions and implied warranties under the Sale of Goods Act 1979 apply if the shipbuilding contract is governed by Singapore law (e.g., there is an implied condition that the ship will correspond with the description and be reasonably fit for its intended purpose).

The parties may contract for title to pass gradually upon the progress of the construction or at certain stages or milestones. Generally, in the absence of any provisions to the contrary, the risk will pass with the title.

Typically, payment of the purchase price is made in instalments before delivery and, in return, a performance guarantee or refund guarantee will be furnished by the yard under the shipbuilding contract. Provided that the guarantee is an on-demand guarantee, the buyer would be entitled to call on the guarantee immediately without having to establish liability of the seller, provided that other conditions that entitle the buyer to call on the guarantee are satisfied. In Master Marine AS v. Labroy Offshore Ltd and others, the yard failed to deliver a rig by the agreed delivery date. The buyer rescinded the contract and called on the refund guarantees furnished by the seller's banks. The yard applied ex parte for an injunction preventing the banks from paying out the monies or Master Marine receiving the same. The Singapore Court of Appeal held that on the true construction of the refund guarantees, the guarantees were on-demand guarantees, and having satisfied the conditions for payment under the guarantees, the buyer was entitled to payment under the refund guarantees.

The Singapore courts have not had the opportunity to consider, in any reported decision thus far, the presumption applied by the English Court of Appeal in Marubeni Hong Kong and South China Ltd v. Mongolian Government (Marubeni ) that in construing a guarantee given outside the context of a banking instrument or by a non-financial institution, the absence of language appropriate to a performance bond or something having similar legal effect creates a strong presumption against the parties' intention to create a performance bond or on-demand guarantee (the Marubeni presumption). While the Singapore High Court in China Taiping Insurance (Singapore) Pte Ltd (formerly known as China Insurance Co (Singapore) Pte Ltd) v. Teoh Cheng Leong (China Taiping) briefly referred to Marubeni as support for the general principles on the construction of guarantees and on-demand guarantees or performance bonds, on the facts of that case, the Singapore court did not have to consider application of the Marubeni presumption. It therefore remains to be seen whether the Marubeni presumption will gain judicial support locally, bearing in mind that the English court's decision is persuasive authority in the Singapore courts.

Under Singapore law, there are two separate and distinct exceptions to a guarantor's obligations to pay promptly upon a demand being made by the beneficiary within the terms of the guarantee, irrespective of any dispute between the account party and the beneficiary – that is, fraud and unconscionability. The fraud exception is meant to safeguard the account party from a dishonest call being made upon the guarantee by the beneficiary. The unconscionability exception, on the other hand, was developed as it was recognised that in certain circumstances, even where the account party cannot show that the beneficiary had been fraudulent in calling on the bond, it would nevertheless be unfair for the beneficiary to realise its security pending resolution of the substantive dispute. Therefore, under Singapore law, where a beneficiary acts fraudulently or unconscionably when calling on an on-demand guarantee or performance bond, the court can grant injunctive relief to restrain a call on or payment out under such a guarantee or performance bond.

It is, however, now possible under Singapore law for parties to incorporate a carefully worded clause in their contract to restrict the grounds on which an obligor may object to a beneficiary's call on a performance bond. The Singapore Court of Appeal recently considered the issue of whether parties could contractually restrict the right of the obligor under a performance bond to apply for an injunction (which is an equitable remedy) to restrain the beneficiary from calling on the bond. Under the subject clause in the main contract in CKR Contract Services, the obligor was not entitled to restrain the beneficiary from calling on the performance bond on any ground, except in the case of fraud. The obligor applied for an injunction, on the ground of unconscionability, to restrain payment from being made to the beneficiary. The Court of Appeal ruled that the clause merely sought to limit the obligor's right to an equitable remedy and was not an ouster of the jurisdiction of the court or void and unenforceable for being contrary to public policy, and therefore dismissed the obligor's appeal against the decision of the judge at first instance, refusing to grant the injunction (albeit on slightly different grounds). The Court of Appeal nevertheless stressed that it may still be open to the obligor to rely on the usual doctrines or principles at common law or the relevant provisions under the Unfair Contract Terms Act to argue that such a clause is unenforceable (since these issues did not arise or were not raised in CKR Contract Services).

To allocate the risks of delays in completion, it is also usual for shipbuilding contracts to provide for liquidated damages in the event of delay. Such liquidated damages provisions are enforceable, provided that the agreed level of compensation is a genuine estimate of loss. Otherwise, the provision will be treated as a penalty clause and will be struck out.

Failure by the yard to construct or complete the ship in accordance with the terms of the contract may entitle the buyer to claim damages from the yard, which is the usual remedy. Specific performance may be ordered whereby the buyer can prove that damages will not be an adequate remedy.

ii Contracts of carriage

Singapore is a state party to the Hague-Visby Rules, which were enacted into domestic legislation by the Singapore Carriage of Goods by Sea Act (1998 edition), without variation.

These Rules apply by force of law to shipments of goods under a bill of lading when the port of shipment is a port in Singapore or when the requirements of Article X of the Rules otherwise apply. Under the Singapore Carriage of Goods by Sea Act (COGSA), the Rules can be contractually applied to the carriage of goods by sea under a sea waybill or straight (non-negotiable) bill of lading. The Hamburg Rules do not apply. Singapore has not acceded to or ratified the Rotterdam Rules. Cabotage is not applicable in Singapore. The CMR Convention has not been ratified in Singapore and the liability of carriers of goods by road is governed by common law principles.

Importantly, in terms of legislation, Singapore has enacted by statute its Bills of Lading Act, which is in pari materia with the UK COGSA 1992. Under the Singapore Bills of Lading Act, title to sue and transfer of liabilities can be effected by mere endorsement of a negotiable bill of lading, without the requirement under the old English Bills of Lading Act 1855, which linked transfer of title to sue to transfer of property in the cargo.

Where contracts of carriage subject to the Hague-Visby Rules are concerned, the carrier's limitation of liability for any loss of or damage to or in connection with the cargo is statutorily defined as S$1,563.65 per package or unit, or S$4.69 per kilogram of gross weight of the goods lost or damaged, whichever is higher. The time bar for cargo claims under the Hague-Visby Rules is one year from the date of delivery or from the date when the goods should have been delivered.

In respect of contracts of carriage of goods by sea, the relevant liens applicable are (1) the shipowner's lien on cargo, which is a possessory lien that can arise at common law in respect of freight, or in a bailee of necessity context, or under contract for amounts payable to the shipowner under the contract of carriage, (2) the shipowner's lien on sub-freight or sub-hire, which is a contractual lien under a contract of carriage validly incorporating a charter party lien clause, and (3) liens on the ship exercisable by an action in rem following arrest of the vessel. This is the claimant's statutory right of action against the ship if the claim is listed as falling within the subject matter of Admiralty jurisdiction in the High Court (Admiralty Jurisdiction) Act.

Under the Companies Act (CA), charges have to be registered under Section 131 of the CA, failing which they are unenforceable against a liquidator in a winding up or against any secured creditor of the company. In July 2017, the Singapore High Court in Duncan, Cameron Lindsay v. Diablo Fortune Inc considered for the first time the issue of whether a shipowner's lien is a charge on the company's property and whether it is registrable under Section 131 of the CA. The Court of Appeal affirmed the High Court's decision that a shipowner's lien is a security in the form of a charge over the company's book debts or as a floating charge, and is therefore registrable under Section 131 of the CA. From a practical perspective registering a shipowner's lien is difficult because vessels are typically subject to a continual series of charter parties, each entered into as quickly as possible to ensure the vessel is gainfully employed. As charter periods can be short, it would mean that the charter party could be completed even before the 30-day registration period is up. Further, given the large number of charter parties concluded every day, imposing a registration requirement will mean significant administrative burden and additional costs for shipping companies.

In light of industry concerns and feedback, the Singapore government amended the CA on 3 September 2018. The Companies (Amendment) Act 2018 exempts shipowners' liens from registration under Section 131 of the CA. Under the amendments, a shipowner's lien is exempted from registration but still retains its essential nature as a security (charge). Therefore, notwithstanding that it is not registrable, it remains a security and will take priority over unsecured creditors and other secured creditors whose security was created after the relevant shipowner's lien was created.

With regard to shipowners' liens that are already in existence or that were created before the implementation of the amendments, the new Section 131(3AC) of the CA provides that these will only be considered registrable if, as at the effective date of the amendments, the company has been wound up, or a creditor has acquired a proprietary right or interest in the subject matter of the lien.

The shipper has a duty to properly identify and to pack the goods shipped. Pursuant to Article III(5) of the Hague-Visby Rules, the shipper is deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by it, and the shipper must indemnify the carrier against all loss, damages and expenses arising or resulting from inaccuracies in the particulars. The shipper has a strict liability at common law for shipment of dangerous goods without notice to the carrier. This strict liability regime is extended by the indemnity regime of Article IV(6) of the Hague-Visby Rules, which imposes broad liability upon the shipper for all damages and expenses directly or indirectly arising out of or resulting from the shipment of any cargo that causes or threatens to cause loss of life, damage to the ship or other cargo, delay or expense to the carrier.

The Singapore courts have handed down decisions on principle in relation to the interpretation of the Hague-Visby Rules. Notable examples are the decision in Sunlight Mercantile Pte Ltd v. Every Lucky Shipping Co Ltd on the carriage of deck cargo, in which the Court of Appeal declined to follow the English court decision in The 'Imvros' on the effectiveness of a contractual exclusion of the carrier's liability for unseaworthiness; and the reasoning of the Singapore Court of Appeal in APL Co Pte Ltd v. Voss Peer on the role of a straight consigned bill of lading and the carrier's delivery obligations thereunder, which has been followed by the English Court of Appeal in The 'Rafaela S'.

In Toptip Holding Pte Ltd v. Mercuria Energy Trading Pte Ltd, the plaintiff sent an email enquiry to the defendant (through a broker), which contained, inter alia, a term incorporating the pro forma charter party of Vale SA. The defendant later amended this term to reject the Vale SA charter party and incorporate a previous charter party, which shall be subject to the defendant's further review (the 'draft charter party'). Thereafter, the defendant rejected the amended draft charter party, which the plaintiff claimed to be a repudiatory breach of the charter party by the defendant. The Singapore High Court was of the opinion that no valid charter party was concluded. The Singapore Court of Appeal reversed the Singapore High Court decision and held that a binding CP was formed notwithstanding the presence of a 'subject to review' clause.

iii Cargo claims

Pursuant to Section 2(1) of the Singapore Bills of Lading Act, a person who becomes the lawful holder of a bill of lading shall have transferred to and vested in him or her all rights of suit under the contract of carriage as if that person had been a party to that contract. Section 5(2) of the Act defines a holder of a bill of lading as:

  1. a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates;
  2. a person with possession of the bill as a result of the completion, by delivery of the bill, of any endorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill; or
  3. a person with possession of the bill as a result of any transaction by virtue of which he or she would have become a holder falling within point (a) or (b), above, had the transaction not been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates.

Importantly, the Bills of Lading Act also provides for the transfer of liabilities under a bill of lading or any carriage document to which the Act applies. The Bills of Lading Act covers not just the transfer of rights or liabilities of bills of lading but also sea waybills and ship's delivery orders. In Singapore, the transfer of bill of lading rights and liabilities is regulated by this Act; it is essentially a re-enactment of the UK Carriage of Goods by Sea Act 1992. The Singapore courts take a stringent view of the principle of the bill of lading being a document of title. There is very little scope for the carrier to defend a misdelivery claim under Singapore law, as exemplified in decisions at the High Court and Court of Appeal levels. Examples in which misdelivery claims have been successfully defended usually centre around the claimant's failure to prove title to sue. For completeness, the Singapore Court of Appeal APL Co Pte Ltd v. Voss Peer has extended the presentation rule to straight bills of lading as well.

However, there may be rare instances where a bill of lading may not be considered a document of title or a contract of carriage. In the recent High Court decision of The 'Star Quest', the plaintiffs sold bunkers to buyers (two subsidiaries of OW Bunkers A/S), which were loaded onto several bunker barges owned or demise-chartered by the defendants. The terminal at which the bunkers were loaded, prepared and furnished various bills of lading naming the plaintiffs as shipper and made out to its order. By the time the plaintiffs invoiced the buyers for the price of the bunkers, the bunkers had already been supplied to other vessels and expended for consumption without production of the original bills of lading, which the plaintiffs still possessed. The buyers subsequently went insolvent and the plaintiffs, having not been paid for the bunkers, demanded delivery of the same from the defendants on the basis that they still held the bills of lading.

The plaintiffs then applied for summary judgment but failed in their application, with the High Court giving the defendants unconditional leave to defend the action. In arriving at this decision, the High Court held, among other things, that it was at least arguable that the bills of lading could not be relied upon as contractual documents, and that their express terms indicated that they did not operate as documents of title required for the delivery of the bunkers. The bills of lading stated that the bunkers were 'bound for bunkers for ocean-going vessels'. As no destination or range of destinations was specified, the High Court's view was that the contract of carriage would be too uncertain to be enforceable. Further, notwithstanding that the bills of lading bore the common notation 'one of which is accomplished, the others to stand void', they specifically contemplated delivery of the bunkers to multiple ocean-going vessels, and it would have been unworkable to have expected delivery of each sub-parcel to be accomplished only against production of a single set of the bills of lading.

Apart from bringing a claim in contract, Singapore law, again as exemplified by recent decisions at the High Court, also recognises and applies common law principles of bailment and tortious duties of conversion to supplement a cargo claimant's rights to claim. This can be crucial when, in a given case, the cargo claimant is unable to prove title to sue in contract under a bill of lading.

Where incorporation of charter terms into bill of lading contracts is concerned, Singapore law generally follows English law principles on contractual incorporation of terms. General words of incorporation will suffice to incorporate terms linked to the carriage or delivery of the goods, provided that the incorporating document identifies, either expressly or implicitly, the charter party to be incorporated. Specific words of incorporation are required to incorporate 'collateral' or 'ancillary' clauses, such as law and jurisdiction or arbitration clauses. As long as the law and jurisdiction (or arbitration) clause in the charter party is validly incorporated in the bill of lading, it is binding upon a third-party lawful holder of the bill of lading. A demise clause providing that the parties to the contract evidenced by the bill of lading are the shipper and the shipowner is generally upheld and valid.

iv Limitation of liability

Singapore is party to the LLMC Convention 1976, which came into force on 1 May 2005 pursuant to Part VIII of the Merchant Shipping (Amendment) Act 2004. The Merchant Shipping Act of Singapore, as amended in 2004, contains various provisions that either operate in tandem with or modify the provisions of the 1976 Convention. These provisions are found in Sections 136 to 142 of the Act.

Singapore is, however, not a party to the LLMC Protocol 1996 or the 2012 Amendments to the 1996 Protocol, and the increase in the limits of liability under the 1996 Protocol and the 2012 Amendments are therefore not applicable under Singapore law.

A ship, for the purpose of limitation, is any kind of vessel used in navigation by water and includes barges, hovercraft and 'offshore industry mobile units'. The persons entitled to limit their liability are as per Article 1 of the LLMC Convention wording, which is unamended. These include:

  1. shipowners;
  2. demise, time, voyage and slot-charterers;
  3. managers or operators of a seagoing ship;
  4. salvors;
  5. any person for whose act, neglect or default the parties listed above are responsible; and
  6. an insurer for claims subject to limitation can limit to the same extent as its assured.

The following claims are subject to limitation of liability:

  1. in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;
  2. in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
  3. in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship or salvage operations;
  4. in respect of the removal, destruction or the rendering harmless of the cargo of the ship (but not if under contract with the person liable); and
  5. of a person other than the person liable in respect of measures taken to avert or minimise loss for which the person liable may limit his or her liability (but not if under contract with the person liable).

The claims are subject to limitation even if brought by way of recourse or indemnity under contract.

A person is not entitled to limit his or her liability if it is proven that the loss resulted from his or her personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.

The limits of liability for loss of life or personal injury are:

  1. 166,667 special drawing rights (SDRs) for ships below 300 tonnes; and
  2. 333,000 SDRs for ships not exceeding 500 tonnes.

For larger ships, the following amounts are used in addition to 333,000 SDRs:

  1. between 501 and 3,000 tonnes: 500 SDRs per tonne;
  2. between 3,001 and 30,000 tonnes: 333 SDRs per tonne;
  3. between 30,001 and 70,000 tonnes: 250 SDRs per tonne; and
  4. 70,001 tonnes and above: 167 SDRs per tonne.

The limits of liability for any other claims are:

  1. 83,333 SDRs for ships below 300 tonnes; and
  2. 167,000 SDRs for ships not exceeding 500 tonnes.

For larger ships, the following amounts are used in addition to 167,000 SDRs:

  1. between 501 and 30,000 tonnes: 167 SDRs per tonne;
  2. between 30,001 and 70,000 tonnes: 125 SDRs per tonne; and
  3. 70,001 tonnes and above: 83 SDRs per tonne.

Limitation proceedings can be brought by a party seeking to establish its right to limit. A party can also rely on its right to limit as a form of defence for claims brought against it that are subject to limitation. It is not necessary to constitute a limitation fund until the court has determined whether a party has the right to limit its liability. A limitation fund can be constituted by way of a cash payment into court, or bank guarantee. The likelihood is that an International Group of P&I Clubs letter of undertaking will also be acceptable to a Singapore court for the purposes of Article 11(2) of the 1976 Convention, following practical instances where this has been done in Singapore, and the approach in the English Court of Appeal decision in Kairos Shipping Ltd v. Enka & Co LLC (The 'Atlantik Confidence').

If a shipowner has obtained a limitation decree in Singapore and a claimant commences an action in a foreign jurisdiction where higher limits of liability apply, without challenging the Singapore limitation decree or participating in the distribution of the limitation fund constituted under the Singapore limitation decree, the Singapore courts can grant an anti-suit injunction to restrain the claimant from proceeding with its action in the foreign jurisdiction on account of the claimant's vexatious or oppressive conduct in effectively compelling the shipowner to set up another limitation fund when there already exists a properly constituted limitation fund in Singapore. The right to claim limitation in any particular forum is a right that belongs to the shipowner alone, and a claimant cannot pre-empt the shipowner's choice of forum or dictate the limitation forum, even in circumstances where the appropriate forum on the adjudication of liability was elsewhere.

On the other hand, where the Singapore courts are asked to stay proceedings commenced in Singapore on the grounds of forum non conveniens in actions to determine liability on collision claims, the Singapore courts take the view that the fact that the law in the alternative foreign forum may be less favourable to the plaintiff because lower limits of liability apply in that jurisdiction does not per se necessarily justify dismissing the stay application, if the claim bears greater jurisdictional connections to that foreign jurisdiction. The existence of different limitation regimes is not considered a personal or juridical advantage under the Spiliada principles that the Singapore courts apply when considering a stay application.