Reed Smith Client Alerts

This client alert is co-written by Reed Smith Pte Ltd and Resource Law LLC who together form the Reed Smith Resource Law Alliance in Singapore.

* Jody Wood is Counsel in Reed Smith's London office.  Mohan Subbaraman is a Managing Director and Bernard Yee is a Director in Resource Law LLC.

Autores: Jody Wood Mohan Subbaraman (Managing Director, Resource Law LLC), Bernard Yee (Director, Resource Law LLC)

Although the Singapore courts have not, to date, been required to consider the legal issues which have recently come before the English courts in the Res Cogitans, the cases which have come before the Singapore courts indicate that the courts may be no more sympathetic to the plight of the owners and physical bunker suppliers than the UK courts have been, and that the remedy for physical bunkers suppliers most probably lies in proving their claims in insolvency proceedings against OW Bunker.

Introduction To date, the Singapore courts have only handed down two decisions related to the ongoing OW Bunker saga. Both of these cases were decisions handed down by Mr Steven Chong J, sitting in the Singapore High Court:

a. Precious Shipping Public Co Ltd and others v OW Bunker Far East (Singapore) Pte Ltd and others and other matters [2015] SGHC 187 (Precious Shipping); and

b. The Xin Chang Shu [2015] SGHC 308 (Xin Chang Shu).

Summaries of the facts, legal analysis and decisions in those cases are set down below. As will be apparent, neither of these cases examines the principal legal issues recently considered by the English courts relating to OW Bunker’s insolvency and, in particular, by Lord Mance in the Res Cogitans Supreme Court judgment of 11 May 2016.

Rather, the first case of Precious Shipping considers in detail the threshold which must be met for an application for interpleader relief to succeed. The second case of Xin Chang Shu provides a useful overview of wrongful arrest in Singapore and in what circumstances the courts will award damages. That said, this doesn’t mean it is the end of the road for OW developments in Singapore and, in particular, Reed Smith (in alliance with Resource Law) is aware of further interpleader and other suits being pursued in the Singapore Courts relating to OW Bunker insolvency which will be reported on as and when cases come to light.

OW Bunker related cases in Singapore

Precious Shipping The case of Precious Shipping concerns 13 consolidated applications for interpleader relief. S Mohan and Bernard Yee represented Precious Shipping, who were one of the applicants.

Interpleader summons relief is generally available where a (prospective) defendant faces rival claims in respect of an admitted liability for debt, money, goods or chattels from at least two (prospective) competing claimants, and wishes to determine the incidence of that admitted liability to the exclusion of one of those competing claims.

Each of the 13 individual summonses in Precious Shipping involved three principal parties, being:

a. The interpleader applicant, being the purchaser of the bunkers and usually owners or charterers (the Purchaser);

b. The seller of the bunkers to the Purchaser, in most cases OW Bunker Far East (Singapore) Pte Ltd (the Seller); and

c. The physical supplier of the bunkers contracted by the Seller and whom the Seller had directed to provide the bunkers to the relevant vessel (the Physical Supplier).

It is evident from the description of the parties set out above that there are two principal contracts to consider in each case: the contract between the Purchaser and the Seller (the Purchaser-Seller Contract), and the contract between the Seller and the Physical Supplier (the Seller-Physical Supplier Contract).

In each of the summonses, the Physical Supplier had stemmed the bunkers and these had been consumed by the vessel before payment had been made from the Purchaser to the Seller (as was licenced under the Purchaser-Seller Contract).

In almost all of the cases, the Seller had then entered voluntary liquidation, leaving the Purchaser to face competing claims: firstly, by the Seller against the Purchaser for the contractual price of the bunkers under the Purchaser-Seller Contract; and secondly, by the Physical Supplier against the Purchaser for the price agreed under the Seller-Physical Supplier Contract. The Purchasers all sought interpleader relief, naming both the Seller and Physical Suppliers as respondents.

In each case the Purchaser and Physical Supplier both argued that interpleader relief should be granted, whilst the Seller argued that the necessary conditions precedent (conferred by statute and also set out in the rules of court) for the grant of interpleader relief had not been met. In particular, the Seller argued that the competing claims proposed by the Physical Supplier did not disclose a prima facie case for relief and that the Physical Supplier’s claims were not adverse to the Seller’s own claims for the purposes of interpleader relief.

In order to succeed with an action for interpleader relief, an applicant bears the burden of proving the following conditions precedent:

a. The applicant must be under a liability for a debt, for money, for goods or for chattels (the Liability);

b. The applicant must have an expectation that he shall be sued by at least two persons; and

c. There must be adverse claims for the Liability from parties whom the applicant expects to file suit.

In the event, the court dismissed the applications for interpleader relief, finding that the applicant had failed to meet the conditions precedent set out at (b) and (c) above for the following reasons:

a. Condition precedent (b) above: in order for an applicant to demonstrate that he has an expectation of being sued by at least two parties, the applicant must show that the competing claimants have prima facie bases for bringing claims. This doesn’t mean some sort of subjective apprehension, but rather the expectation must be of an objectively sound basis in fact and law;

b. In this case, the competing claims put forward by the Physical Supplier were legally and factually unsustainable. The court dismissed each of the arguments put forward by the applicants which included arguments, inter alia, that the Physical Suppliers retained title to the bunkers; that the bunkers were converted by the Purchasers; that collateral contracts existed, requiring payment from the Purchaser to the Physical Supplier in the event of the Seller’s insolvency; and that the Purchaser had been unjustly enriched, or that the Physical Supplier had the benefit of a maritime lien, or both;

c. Condition precedent (c) above: in order for claims to be adverse, the competing claims were required to be symmetrical, mutually exclusive and there had to be actual disagreement; and

d. In this case, the court found an absence of symmetry since the Seller’s claim was for a contractual debt, unlike the Physical Supplier’s claim which was not premised on a contractual debt. Further, the extinction of the Physical Supplier’s claim would not have any impact on the Seller’s claim or vice versa and therefore the threshold for mutual exclusivity was not met.

Accordingly, the court dismissed the application for interpleader relief on the basis that the applicants had failed to meet the requirements of various of the conditions precedent.

In these circumstances, and given the staged procedural requirements of determining the interpleader application, the court found that it had no jurisdiction to determine the merits of the competing claims and order payment in the Seller’s favour, for which the Seller had contended.

The Xin Chang Shu The second case considered by the Singapore High Court relating to the OW Bunker saga concerns the arrest of the Xin Chang Shu by a physical supplier (the Plaintiff) for the supply of 4,000 metric tonnes of marine bunkers to the contractual purchaser (the Defendant).

The Plaintiff’s claim, pursuant to which the vessel was arrested, was premised on a claim under the Plaintiff’s contract with OW Bunker Far East (Singapore) Pte Ltd (OW Singapore), whom the Plaintiff contended was agent for the Defendant.

In this case, however, the Plaintiff and the Defendant were not one, but two layers removed from each other since the Defendant had actually contracted with OW Bunker China Limited (OW China), who in turn had contracted with OW Singapore who, in turn, had contracted with the Plaintiff.

The Defendant applied to strike out the proceedings, set aside the warrant of arrest and applied for damages for wrongful arrest. The applications were heard together by the assistant registrar, who allowed the application to strike out the writ, but declined to set aside the warrant of arrest and dismissed the Defendant’s claim for damages for wrongful arrest.

On appeal, the High Court affirmed the assistant registrar’s decision to strike out the writ. The High Court also set aside the warrant of arrest, finding that a warrant could not exist without issuance of a valid in rem writ.

In relation to the damages for wrongful arrest:

a. The court noted that damages for wrongful arrest can be awarded where there “was malice, or where the action was so unwarrantably brought or brought with so little colour or so little foundation that it implied malice on the part of the arresting party.”;

b. In considering malice, the court held that particular attention should be paid to what the arresting party knew, or must have known at the time of the arrest; and

c. The court also re-stated the principal that material non-disclosure was a ground for awarding damages for wrongful arrest if the non-disclosure was deliberate, calculated to mislead, or if it was caused by gross negligence or recklessness.

The Defendant succeeded on its appeal for damages for wrongful arrest and the court awarded the Defendant damages on the basis that, inter alia, the Plaintiff must have known that there was no factual or legal basis upon which it should be entitled to arrest the vessel. In particular:

a. The Plaintiff knew there was no basis upon which it could establish that OW Singapore was the Defendant’s agent, since it knew that the Defendant had contracted with OW China and that OW China had contracted with OW Singapore;

b. The Plaintiff’s cognisance of the true state of affairs was borne out, inter alia, by the fact that it had also filed a claim in an equivalent amount against OW Singapore; and

c. The court also found that the Plaintiff’s case was, in part, founded on a false foundation since the Plaintiffs had, in seeking to progress their case on agency, falsely identified information as having come from the Defendant via OW Singapore when, in actual fact, that information had emanated from the Plaintiff itself.

Reed Smith and its formal law alliance partner Resource Law understand that the courts have refused the Plaintiff leave to appeal in this case.

Conclusion As noted above, the Singapore courts have not, to date, been required to consider the legal issues which have recently come before the English courts in the Res Cogitans. In particular, they have not examined whether the Purchaser-Seller contract is a contract for the sale of goods within the meaning of s.2(1) of the Singapore Sale of Goods Act (Cap 393), similarly worded to the English Sale of Goods Act 1979, or whether that agreement forms a contract sui generis.

Notwithstanding, the cases do indicate that the Singapore courts are no more likely to be sympathetic to the plight of the owners and physical bunker suppliers than the UK courts have been and the remedy for physical bunkers suppliers most probably lies in proving their claims in insolvency proceedings against OW Bunker.


Client Alert 2016-232