In the recent case of SK B&T Pte Ltd v Owners of Silver Moon of Port Klang ([2017] 8 MLJ 455), the plaintiff was a company registered in Singapore and the defendant was the registered owner of the vessel Silver Moon. On January 8 2016 the plaintiff and defendant entered into a time charterparty, whereby the defendant agreed to time charter the vessel to the plaintiff for three months, with a view to a further six months in charters as an option. The plaintiff had purchased 4,000 kilolitres of marine gas oil (the cargo) from Chemoil International Pte Ltd on January 12 2016, with the intention of shiping onboard the vessel. On loading the cargo onboard in the Port of Banyan, Singapore, the terminal issued an electronic bill of lading to Chemoil International. The plaintiff paid for the cargo in full and the bill of lading was endorsed to the plaintiff, meaning that the plaintiff was the owner of the cargo onboard the vessel.
The plaintiff had instructed the defendant to head to the South Indian Ocean for cargo operations near Male, Maldives. Despite having received the instructions, on January 8 2016 the vessel deviated towards Tanjung Pinang, Indonesia, as a port of refuge, and eventually berthed at Johor Port to deal with multiple repair works, including:
- an oil leak from the cargo tanks;
- seawater ingress into the cargo tanks;
- failure of the vessel's generator;
- flooded cabin rooms; and
- damage to the vessel's hull owing to the port side lifeboat being in contact with the boat davit.
In view of the vessel being unseaworthy, and as a result of being off-hire for more than seven days, the plaintiff contended that the defendant was in repudiatory breach of the time charterparty and therefore terminated it on February 15 2016. The plaintiff demanded security of $2 million in the form of a bank guarantee.
Due to the defendant's failure to provide security, the plaintiff invoked the admiralty jurisdiction of the high court pursuant to Section 24(b) of the Courts of Judicature Act 1964 and Sections 20(2)(h) and 21(4) of the Senior Courts Act 1981, and had the vessel arrested.
As the defendant failed to agree or cooperate with the ship-to-ship transfer of the cargo, the plaintiff applied for an ex parte order to transfer the cargo to another vessel, MT Wooshin Ace. The plaintiff's grounds for the application were that if the cargo continued to remain onboard the vessel in its present unsafe and unseaworthy condition, the cargo was likely to be damaged and deteriorate in quality, materially reducing its value and incurring further losses to the plaintiff. There was also the potential risk of oil pollution from the onboard cargo, making it an urgent necessity to move the cargo to another ship. The plaintiff had incurred and continued to incur substantial losses caused by the delay and non-delivery of the cargo. It would have been just and expedient to allow the application for transhipment to resolve the situation. On February 23 2016 the plaintiff's application was allowed.
The defendant made an application under Order 32, Rule 6 and Order 92, Rule 4 of the Rules of Court 2012 for:
- the order granted ex parte to be set aside;
- the plaintiff to transfer the cargo from MT Wooshin Ace back to the Silver Moon; and
- the plaintiff to pay damages to the defendant for wrongfully inducing the court to grant the ex parte order.
It was not disputed that the plaintiff had the legal right to ask for the discharge of the cargo, which was not under arrest. Nevertheless, the defendant contended that the application should not be made and granted ex parte, but should have been served on the defendant. The defendant also contended that the application under Order 70, Rule 11 of the Rules of Court 2012 and under Section 11 of the Arbitration Act 2005 would not allow the plaintiff to apply for an ex parte order, as the property referred to the writ of summons, the warrant of arrest and the plaintiff's supporting affidavits referring to the Silver Moon, not the cargo. Because the plaintiff knew that the defendant had refused the transhipment of the cargo, the plaintiff obtained the ex parte order.
The defendant proposed that the plaintiff was liable to pay the remaining two months' hire in view of the termination of the time charterparty. Pending termination, the defendant claimed a possessory lien over the cargo pursuant to Clause 26 of the time charterparty.
The court held that the plaintiff, as owner of the cargo, had the legal right to ask for the discharge of the cargo, which was not under arrest, as provided by the Admiralty Practice Direction 1/2012. The direction reads as follows:
"F. Discharge of Cargo
23. Upon arrest of a ship, the ship shall not be allowed to work without the Sheriff's express permission. If the ship has commenced loading before arrest takes place, then immediately after execution of the arrest warrant, the Sheriff or Assistant Sheriff shall direct the master to cease all cargo loading operations.
However, if at the time of the arrest, the cargo which is not under arrest is being unloaded by the cargo owners and the Sheriff or Assistant Sheriff allows the unloading to continue, he shall require the cargo owners or demise charterers of the ship or their agents to furnish a letter of indemnity with regard to the Sheriff's liability if there is an accident whilst unloading cargo. However, if unloading is not permitted or ceased at the Sheriff's direction, a person who is entitled to immediate possession of the cargo may have the cargo discharged from the ship without intervening in the action by requesting the Sheriff or Assistant Sheriff or the arresting party to take appropriate steps to enable the cargo to be discharged. If the Sheriff or Assistant Sheriff or the arresting party considers the request to be reasonable and the cargo owners give an undertaking to pay the Sheriff's costs and expenses, the Sheriff or Assistant Sheriff or the arresting party shall apply to Court for appropriate orders. Alternatively, the cargo owners can intervene in the action and apply to the Court to discharge the cargo from the ship. The costs of discharging the cargo shall be the responsibility of the cargo owners."
The defendant contended that pursuant to Order 70, Rule 11, the plaintiff's application should not have been made and granted ex parte, but should have been served on the defendant. Order 70, Rule 11, reads as follows;
"(O 70, r 11) Applications with respect to property under arrest
11(1) The Sheriff may at any time apply to the Court for directions with respect to property under arrest in an action and may, or, if the Court so directs, shall give notice of the application to all of the parties to every action against the property and all persons who have entered a caveat which is still in force.
(2) The Sheriff shall send a copy of any order made under paragraph (1) to all the parties to every action against the property to which the order relates and to all persons who have entered a caveat, which is still in force.
(3) A person other than the Sheriff may make an application under this rule by notice of application in the action in which the property is under arrest and the notice of application together with copies of any affidavits in support shall be served upon the Sheriff and all parties to every action against the property and all persons who have entered a caveat which is still in force unless the Court otherwise orders on an application made ex parte."
The defendant stated that Order 70, Rule 11(1) referred to directions regarding 'property under arrest' (ie, the Silver Moon, not the cargo). There was therefore no provision to allow the plaintiff to file an application for the discharge of the cargo.
The court was of the view that Order 70, Rule 11 and Paragraph 23 of the Admiralty and Maritime Claims Practice Direction 1/2012, provided that the owners of the cargo (which was not under arrest) could apply to the court for a discharge of the cargo by way of a notice of application. The court held that Order 70, Rule 11(3) allowed a person other than the sheriff to make an application by notice of application for release of the cargo, allowing the court to grant an application made ex parte.
The court held that as the cargo was not under arrest, the plaintiff's application was allowed because:
- it was undisputed that the cargo belonged to the plaintiff;
- the cargo was in a distressed situation and urgent circumstances compelled the prompt discharge of the cargo; and
- the defendant was notified of this but refused to cooperate.
The court maintained that it was right that, under such urgent and special circumstances, the court issued the order based on an application made ex parte.
The court next considered whether the defendant had a possessory lien over the cargo pursuant to Clause 26 of the time charterparty, whereby "[o]wners shall have a lien upon all cargoes and all freights, sub-freights and demurrage for any amounts due under this charter".
The defendant believed that the plaintiff was liable to pay the remaining two months' hire in view of the termination of the time charterparty. Pending the settlement of the remaining two months under Clause 26, the defendant claimed a possessory lien over the cargo.
The court held that the defendant's notice of lien was issued on March 7 2016, whereas the cargo was transhipped onto MT Woshin Ace eight days earlier on February 27 2016, when the defendant's notice of lien was issued and the defendant was no longer in possession of the cargo. As such, there was no longer any issue regarding the possessory lien. The court referred to TR Hamzah & Yeang Sdn Bhd v Lazar Sdn Bhd ([1985] 2 MLJ 45), in which Caldwell v Sumpters ([1972] Ch 478) had been quoted, regarding the fact that the court had held that possessory liens depend on the claimant retaining possession of the property in question. A possessory lien is lost if the claimant parts with possession of the property without making any reservation regarding its entitlement of a lien over the property.
However, in this case, the defendant maintained that the notice issued by its former solicitors demanding counter security following an arrest could be considered a notice of lien. The court disagreed and held that the notice made no reference to Clause 26 of the time charterparty and did not reserve the defendant's rights to exercise a lien over the cargo.
The court stated that there was no merit in the defendant's application and dismissed it with costs.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Rajasingam Gothandapani at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email ([email protected]). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
