Varying the order of priorities between in rem claimants in Singapore.

In The Posidon [2017] SGHC 138 Singapore High Court has recently held that the order of priorities set out in the High Court (Admiralty Jurisdiction) Act (Cap 123, 2001 Rev Ed) (“HCAJA”) could be varied in exceptional circumstances where: (i) there was knowledge that the mortgagor was insolvent; (ii), the mortgagee had been been fully aware, in advance, of the nature and extent of the expenditure incurred by the competing claimant; (iii) any such expenditure had brought about some benefit to the mortgagee.

 
The dispute arose as to the order of priorities against proceeds paid into court following the judicial sale of two vessels. The bank claimed as second mortgagee and the bunker supplies claimed as necessariesmen. The bunker suppliers argued that the court should depart from the usual order of priorities in Singapore and give them priority over the bank. Belinda Ang Saw Ean J held that the facts of the case did not justify varying the order of priorities set out in the HCAJA, stating [87] “Injustice warranting an alteration to the order of priorities is only present when the mortgagee stands by and allows such bunker arrangements to take place despite knowing that the mortgagors were insolvent and that the mortgagee would somehow be benefitting from the supplies at the expense of the bunker supplier.”

 
The borrowers here had been operating at a loss and accumulating trade debts for some time prior to the bank’s decision to terminate the loan facility agreement and enforce the mortgages. That did not mean that the borrower was insolvent and at the time of the termination of the loan facility arrangement the bank had not considered the borrower to be at risk of becoming insolvent. There was also no evidence that the bank was fully aware in advance of the owners’ bunkering arrangements. Nor did the supply of bunkers to the vessels bring about any benefit to the bank. The bank’s security interest was not protected because the bunkers gave the vessels motive power.

Singapore arrest is for Singapore litigation.

 

In The Eurohope  [2017] SGHC 218 the Singapore High Court has held that it is an abuse of process to arrest a vessel in Singapore for the purpose of obtaining security for legal proceedings in another jurisdiction, in this case the High Court in England. This reflects the position in English law prior to s.26 of the Civil Jurisdiction and Judgments Act 1982 which empowered the court to order that property arrested be retained for the satisfaction of a judgment given in foreign court proceedings. Singapore has not enacted any equivalent legislation, and only provides for the arrest of ships to be used as security for pending international arbitrations (s. 7(1) the International Arbitration Act 1995).

Accordingly, the court ordered the in rem writ to be struck out, the warrant of arrest to be set aside, and the letter of undertaking issued by the owners’ P&I Club to be returned to the owners or their solicitors for immediate cancellation. The Court declined to award damages for wrongful arrest or wrongful continuance of arrest of the vessel. Taken as a whole the plaintiff’s behaviour was reasonable and did not amount to bad faith or malice.

OW Bunkers (again). Interpleader and maritime liens in Canada.

 

The collapse of the OW Bunker group in late 2014 has led to a series of interpleader claims in different jurisdictions in which competing claims to the deposited funds have been made by the physical bunker suppliers and ING Bank, the assignee of OW. An interpleader claim has recently been heard by the Federal Court of Appeal in Canada in ING Bank NV and Others v Canpotex Shipping Services Ltd and Others 2017  FCA 47. It concerns the effect of funds deposited by the time charterer and the  potential liability of the vessel under a maritime lien.

In 2014 OW UK supplied bunkers in Vancouver to two vessels on charter to Canpotex. Following the collapse of the OW group, competing claims for payment for the bunkers supplied were made by the physical supplier, Petrobulk, and ING Bank as the assignee of OW UK’s receivables. Canpotex interpleaded and obtained an order that the of OW UK’s invoice be paid into the US trust account of its solicitors, which payment would be treated as a payment into court. The interpleader covered only Canpotex’s liability.

Canpotex subsequently added the shipowners as plaintiffs to its statement of claim and sought a judgment as to whether Petrobulk or ING was entitled to all or part of the trust fund and a declaration  that following payment out any and all liability of both Canpotex and the shipowners was extinguished. In July 2015 Russell J heard the claims against the trust funds, (2015 FC 1108). There was a dispute about which terms governed OW UK’s supply of the bunkers to the vessel: the OW Group standard terms; or Schedule 3 of the OW Fixed Price Agreement. Both terms provided for the variation of the contract where the physical supply of the fuel was undertaken by a third party, but were worded differently.

Russell J found that there had been an oral agreement to apply the latter terms and the consequence was that Canpotex became jointly and severally liable under the contracts made between OW UK and Petrobulk.  Upon payment of that purchase price to Petrobulk, Canpotex would come be under no obligation, contractual or otherwise, to pay any amount representing the purchase price for the marine bunkers to OW UK or the Receivers. He then ordered Petrobulk be paid out of the trust fund and that ING be paid the mark up due to OW UK and that Canpotex’s and the shipowners’ liability in regard to the bunker delivery should be extinguished, as well as any and all liens.

The Federal Court of Appeal has overruled the decision. Interpleader proceedings had to be conflicting claims over the same subject matter which were mutually exclusive. The contractual claims against Canpotex advanced by OW UK and by Petrobulk were such claims, but Petrobulk’s assertion of a maritime lien was not a conflicting claim, and was a claim against the shipowners, and not against Canpotex.  If OW UK was contractually entitled to payment of the trust funds, that would extinguish Canpotex’s contractual liability, but Petrobulk’s maritime lien claim would remain alive. The Judge had been wrong to extinguish the shipowner’s liability for that claim and had also wrongly admitted oral evidence as to the terms of the spot bunker purchases. The terms applicable were those found in the OW Group standard terms and the case was returned to the judge for reconsideration.

If the judge finds that OW UK is contractually entitled to payment of the trust funds, this raises the prospect of ING recovering in full under the OW UK invoices from the trust fund established by Canpotex, and of Petrobulk doing likewise through its maritime lien against the vessel, if the vessel can be arrested in Canada.

 

 

Claims against shipowners by physical bunker suppliers. News from Malaysia.

A familiar claim, this time in Malaysia, by Vitol, the physical bunker supplier, in respect of bunkers supplied to a vessel by OW Bunkers. Vitol sent the shipowners a notice stipulating that it had exercised a lien over the bunkers, and that it should pay the supplier and not OWB. The vessel was later arrested in Malaysia and in Vitol’s  application to amend its pleadings the Kuala Lumpur High Court in Vitol Asia PTE LTD v The Owners of the Ship or Vessel Malik Al Ashtar considered the following issues.

  1. Was OWB contracting on behalf of the owners when it entered into the contract with the Vitol for the sale of the bunkers? The court found that there was no no document conferring actual authority on OWB to contract on behalf of the defendants, nor were there any representations by the shipowners that OWB had actual or apparent authority to enter into any agreements on its behalf.
  1. Were the shipowners liable in conversion? No. The court adopted the views of Males J in The Res Cogitans [2015] EWHC 2022  that despite a clause such as cl. 11.2, there would be no claim for conversion against the shipowner as the physical supplier had consented to the use of the bunkers by the vessel. Here, Vitol knew that OWB was a trader and not an end user and that it would sub-contract with shipowners to whom the bunkers would be delivered.
  1. Was there a claim in unjust enrichment? No, Vitol’s sales order confirmation and tax invoice evidenced its intention to contract directly with OWB only, and it should look solely to OWB for payment under its contract with it.
  1. Was there a direct contract whereby the shipowners would be jointly liable pursuant to Clause L4 of OWB’s general trading terms? No. There was no evidence that the shipowners had agreed to be bound by Vitol’s terms when they entered into a direct contract for supply of the bunkers with OWB. Nor had they agreed or authorised OWB to be bound by the Vitol’s terms when OWB contracted with Vitol for the supply of those bunkers. The Canadian decision in Canpotex Shipping Services Ltd v Marine Petrobulk [2015] FC 1108 on which Vitol relied did not reflect the English position and was not binding on the Malaysian courts.
  1. Was there a lien over the vessel or the bunkers? No. There was no contract between Vitol and the shipowners so no contractual lien could arise. If there were such a lien, it would give no right to payment as against the shipowner but would only give a right to retain possession of the bunkers until payment by OWB. There was no maritime lien in respect of the supply of bunkers under either English or Malaysian law.

Halcyon times for shipowners – not so good for physical bunker suppliers.

 

 

A victory for owners in the latest round of arrests by physical bunker suppliers left unpaid by their contracting party, the time charterers. In The Sam Hawk [2016] FCAFC 26 the Full Court of the Federal Court of Appeal of Australia has just held that a claim by bunker suppliers, which would not constitute a maritime lien under Australian law, did not constitute a “proceeding on a maritime lien” under s15(1) of the Admiralty Act 1988 (Cth) (Act). A foreign maritime lien would be recognised, but only if it was analogous to the four categories of lien set out in s15(2) – salvage, damage done by a ship; wages of the master, or of a member of the crew, of a ship; master’s disbursements.

 

The claim arose out of a supply of bunkers to the vessel in Istanbul by a Canadian bunker supplier. Its contract with the time charterer expressly provided that the “laws of the United States and the State of Florida” applied “with respect to the existence of a maritime lien”. The bunker supplier argued that this contractual provision showed that the lex causae was that of the US, which recognises claims by suppliers of necessaries to vessels as a maritime lien.

 

The Court of Appeal unanimously rejected this argument as there was no privity of contract between the bunker supplier and the vessel. For this reason the arrest did not fall under s.17 of the Admiralty Act which covers statutory liens, as the shipowner was not the ‘relevant person’ a “relevant person” who would be liable on the claim in a proceeding commenced as an action in personam. The claim was non-contractual and could be subject to Turkish law as the place of supply, or to the law of Hong Kong where the vessel was flagged. No evidence had been led as to the law on maritime liens in Turkey or Hong Kong and the Court of Appeal dealt with the matter on the assumption that the law of the forum, Australia, applied – under which a claim for necessaries supplied to a vessel did not constitute a maritime lien.

 

The Court of Appeal then went on to consider the position had the bunker suppliers made out their allegation that the lex causae was that of the US. Four of the five Justices, Rares J dissenting, were of the view that the claim would still not fall within s. 15(1) of the Admiralty Act as it did not constitute a maritime lien under the law of Australia, the lex fori, a position previously adopted by the Privy Council in The Halcyon Isle [1981] AC 221.

Arrest of ships and insolvency – Canadian courts apparently confirm orthodoxy

Last Friday Sigurdson J in the British Columbia Supreme Court recognised the Korean Hanjin bankruptcy proceedings under the UNCITRAL Model Law and banned further arrests of Hanjin vessels should they visit Vancouver or other BC ports. Importantly, however, he left existing arrests in place. We have not seen the text of his decision (though it is referred to here and here (£)): but it seems to reflect orthodoxy. Assuming an in rem claim against a vessel does not arise out of a maritime lien, under the orthodox rules of Admiralty in England and Canada it survives insolvency if brought before the inception of insolvency but not if brought afterwards (see Re Aro Co Ltd [1980] Ch 196 and The Oriental Baltic [2011] 1 SLR 487). Where the bankruptcy is foreign the relevant time is that of its recognition. Hence there seems nothing surprising about this determination.

Hanjin in the Far East

Creditors of bust Korean shipping line Hanjin are feverishly looking for jurisdictions where they may be able to arrest Hanjin ships; the company itself, and the insolvency authorities in Korea, one of the most arrest-unfriendly jurisdictions in the world, are trying to stop them.

An interesting suggestion here (£) comes from Ivan Ng of Stephenson Harwood in Hong Kong that that jurisdiction may be a safe haven. This is a bit surprising. Traditionally the view of the common law, which applies in Hong Kong to the exclusion of the UNCITRAL Model Law on Cross-border Insolvency, has been that while the common law may recognise and help foreign insolvency proceedings, it won’t take away the substantive secured status that arrest in Admiralty gives the claimant. But the suggestion is that all this has changed. This based on a Singapore decision of Aedit Abdullah JC in the Singapore High Court about four weeks ago, namely Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd) [2016] SGHC 195, in which, apparently also on the basis of the common law, he did prohibit arrests of Hanjin vessels.

No doubt Hanjin will take comfort at all this. But their joy may be short-lived. The Singapore decision is controversial, and is in any case an interim ex parte one, due to come to a full hearing in early November. Don’t bank on its being upheld. Also remember that at least one fairly recent Hong Kong decision, The Convenience Container [2007] 3 HKLRD 575, seems to uphold the strict common law view.

Watch this space: we live in interesting times.

Collecting containers from bankrupt shipowners: liens, security and life at the sharp end.

An excellent post from The Maritime Advocate (issue 667) describes some events following the arrest of the Hanjin California in Sydney. Reproduced below:

Hanjin Crisis – Welcome to the Hanjin California

Frazer Hunt of Mills Oakley in Sydney writes –

September 19 2016 –

As we enter the third week following Hanjin Shipping filing for receivership, let’s review how the various stakeholders handled the fallout following arrest of MV “Hanjin California” in Sydney and whether there are any lessons to be learned before further containers are discharged from MV “Hanjin Milano” which remains anchored off Melbourne awaiting advice from Korea.

“So I called up the Captain…”

“Hanjin California” was arrested by unpaid bunker suppliers earlier this month after it berthed at SICT. The terminal discharged some of the containers and since Hanjin would not be paying any of the charges, exercised a lien over the containers for the stevedoring costs and administration charges. Consignees who had already paid freight were also required to pay these charges to obtain release of their containers. Still, if you wanted your container….

Then it got a lot more complicated: to secure return of container to the depot, Hanjin also required a deposit, bond or a solicitors letter of undertaking that the deposit would be paid on demand.

For a short period, the terminal ALSO required security for the return of the container. Consignees were then faced with the dilemma that if they returned the container to Hanjin’s depot, they would lose their security to the terminal but if they returned the container to the terminal, then they would lose the security provided to Hanjin. Fortunately, common sense quickly prevailed and the terminal withdrew their parallel demand.

“What a nice surprise (what a nice surprise)… bring your alibis…”

THEN the port authority got in on the act and asked the consignees to pay the wharfage costs that would have otherwise been paid by the vessel.

“There were voices down the corridor, I thought I heard them say.. Welcome to the Hanjin California…”

OH, your container holds dangerous goods? While grappling with the delays associated with the procedures referred to above and getting Hanjin to answer the phone, you are then served with a notice from the port authority to remove the container and threatened with penalties if it is not removed immediately. The notice then continued “You are invited to present information on any difficulties encountered in complying with the permitted time periods on the terminal which may be taken into account by the port authority when making a determination for the above alleged offence”.

“Mirrors on the ceiling, the pink champagne on ice…”

OK, so you have finally paid the stevedoring charges, wharfage costs and provided security for the return of the container and then picked up the container having also paid multiple fees for missed slots. Great, you now have your goods BUT: Hanjin’s container depots refused to accept re-delivery of Hanjin containers, presumably fearing that they would never be collected. You are asked to hold onto the container until further notice, presumably without further container demurrage accruing….hopefully….

“…Plenty of room at the Hanjin California”

In one sense, the consignees who got their containers out of the terminal were lucky – you have to feel sorry for the owners of goods in the Hanjin containers which were bundled up at the terminal and loaded on “Hanjin California” which remains under arrest at Glebe Island terminal that does not have facilities to load and unload containers with no appearance from the owners of the vessel in the arrest proceedings at this stage. Consignees who wish to have their containers discharged from “Hanjin California” will have to wait or apply to court to have their containers unloaded. Whether the costs associated with moving the vessel again for that purpose will be economically viable is another matter.

“Relax,” said the night man, “we are programmed to receive.
you can check-out any time you like, but you can never leave!”

Meanwhile, the residents near Glebe Island Terminal are not happy – it is most inconvenient for them to have to pull the shades down on their windows.

Up ahead in the distance, I saw a shimmering light….

Seriously, you cannot make this stuff up!

Hopefully, the service providers at other ports will learn from our experience and that procedures for the release of the remaining Hanjin containers will be more streamlined and with less angst.

AND I was thinking to myself, “This could be Heaven or this could be Hell”

 

 

OWB Bunkers. Arrests by physical suppliers in US.

 

 

The OWB Bunker saga has placed owners on the horns of a dilemma. Pay ING as assignee of OWB or pay the physical supplier? Owners certainly do not want to have to pay twice. Three recent arrest cases in the US by the physical suppliers indicate that they will not obtain a maritime lien for necessaries. Valero Marketing & Supply Co v M/V ALMI SUN, 2016 US Dist 2016 AMC 632 (ED La Feb 8 2016); O’Rourke Marine Servs LP, LLP v M/V COSCO HAIFA, 2016 (SDNY April 8 2016);Bunker Holdings v M/V YM SUCCESS, 2016 (WD Wash June 6 2016).

There are three elements to the maritime lien for necessaries. 1. Necessaries must be furnished (2) to a vessel (3) on the order of the owner or person authorised by the owner. In these three decisions by district courts it has been held that a person with authority to bind the vessel must have some control over the subcontractor’s selection or performance in order for the subcontractor to have a maritime lien for necessaries. Accordingly, the third requirement for a maritime lien had not been satisfied as OW Bunker selected the physical supplier without the direction or involvement of the party with authority to bind the vessels. The Fifth Circuit is expected to give its decision in the Valero appeal by the end of the year.

Arrest of ships and insolvency: the “affaire Hanjin”

The Hanjin debacle, like the previous Pan Ocean collapse, looks set fair to occupy marine lawyers for some time to come. Hanjin, one of the top ten container lines of the world, finally filed for bankruptcy protection in its home jurisdiction of Seoul 9 days ago, on 31 August. This has immediately led to a scramble to issue arrest proceedings against its ships (reportedly carrying over $14 bn worth of other people’s goods): in turn, the story is that a number of Hanjin vessels have been told to circle the seven seas, rather like the Flying Dutchman, rather than put into a port where they might be seized.

All this raises one of the currently sexy issues in ship arrest: how far can foreign bankruptcy proceedings stymie the right a creditor otherwise has to pay himself from the proceeds of the vessel arrested ahead of the owner’s other creditors? The point is particularly important in the Korean context, since Korean law is notoriously unwelcoming towards maritime claims in rem.

In many jurisdictions, including Australia, New Zealand, the US and the UK, this depends on the interpretation of the UNCITRAL Model Law on cross-border insolvency, and in particular how each jurisdiction has taken advantage of Art.20.2 of that provision. It has been decided in Australia (Yu v Pan Ocean (2013) 223 FCR 189, see too Kim v SW Shipping Co Ltd [2016] FCA 428) that maritime lien claimants continue to be able to thumb their noses at general creditors. In New Zealand the courts have gone further and said the same about in rem claimants generally (eg irate cargo claimants or bunker suppliers), provided they issue proceedings before the foreign bankruptcy is recognised (see Kim v STX Pan Ocean [2014] NZHC 845). One suspects the same would follow in England. But the US may well be different: Evridiki Navigation, Inc v Sanko SS Co, 880 F.Supp.2d 666 (2012).

An unanswered question in Australia and New Zealand is what happens to in rem claimants relying on claims — notably by repairers or bunker suppliers — which by local law do not create a maritime lien, but which give rise to such a lien under the law governing the original supply (see The Sam Hawk [2015] FCA 1005).

One place one suspects Hanjin masters may have been told to avoid like the plague is Hong Kong, which applies the old common law rules and which is not in the UNCITRAL system. There the authority seems to say that no account at all is taken of bankruptcy elsewhere as regards priorities: see The Convenience Container [2007] 3 HKLRD 575. Singapore, doubtless, which applies similar principles, will also be given a wide berth.

One is tempted to say that this is a ship’s dog’s dinner. Is it too much to hope that the IMO or some similar body could sponsor a convention to deal with the priorities arising from rights of arrest?