March 1, 2013
The requirements for arresting a ship in Singapore used to be uncomplicated: the court would accept, on the face of a creditor’s application to arrest a ship, the creditor's assertion it has an arguable case under one of the permitted heads of claim under s 3(1)(a) to (q) of the High Court (Admiralty Jurisdiction) Act (HCAJA). The creditor could be brief and was not required to disclose the strengths or weaknesses of its claim. This ease of arrest, combined with Singapore's position as the second busiest port in the world, made it the choice location for creditors to take security over a debtor's working asset to compel payment.
It could be argued that this may have led to instances of abuse by creditors. As early as 2003, the Court of Appeal cautioned that it recognised arrest to be a "drastic remedy given on an ex-parte basis" and would not overly favour the applicant at the expense of the shipowner. The Court emphasised the applicant's duty to make full and frank disclosure, which the Court saw as "an important bulwark against the abuse of the process of arrest". The Court warned that if it found an arrest to be improperly obtained, the Court may set it aside for non-disclosure if warranted by the facts, even where the Court would otherwise have jurisdiction over the matter and the procedure in the rules had been followed: The Rainbow Spring  3 SLR 362.
More recently, a trio of cases (The Vasiliy Golovnin  4 SLR 994, The Eagle Prestige  3 SLR 294 and the appellate decision in The Bunga Melati 5  4 SLR 546) has significantly expanded and then re-balanced this Court-imposed duty. In the latest case - involving a dispute between bunker supplier and ship owner - the various judgments given in The Bunga Melati 5 have provided practitioners with material to study the proper manner in which to exercise and invoke the court's admiralty jurisdiction over a ship.
The dispute and the lower courts’ decisions
Briefly, the dispute in The Bunga Melati 5 arose when the bunker supplier, Equatorial Marine Fuel Management Services Pte Ltd, claimed payment on bunkers it had contracted to sell to Market Asia Link Sdn Bhd (MAL), which sold on the bunkers to the ship owner, MISC Berhad. The bunker supplier alleged that MAL was acting as buying agent for the ship owner, and commenced an action in rem in Singapore to arrest a sister-ship, The Bunga Melati 5, a vessel which had not received the bunkers. The ship owner applied to the court to strike out the bunker supplier's action for failing to show a "good arguable case on its merits" on these two main grounds:
- the bunker supplier had no supply contract with the ship owner and the ship owner had evidence documenting its dealings with MAL as the buyer's broker and not as its agent; and
- the bunker supplier's application in the United States for a Rule B attachment order on the same debt against another of the ship owner's vessels had been vacated by the California district court, and thus its present claim before the Singapore Court was issue estopped.
The ship owner succeeded before the Assistant Registrar who struck out the bunker supplier's claim (Equatorial Marine Fuel Management Services Pte Ltd v The Bunga Melati 5  SGHC 193, see also: Fine Balance In Ship Arrest Law: The Eagle Prestige And The Bunga Melati 5, reported in Starboard September 2010). When the bunker supplier appealed to the High Court, the judge not only affirmed the decision to strike out but proceeded further to give her detailed opinion on when admiralty proceedings could be set aside if the court's admiralty jurisdiction was not properly invoked; The Bunga Melati 5  4 SLR 1017. The bunker supplier's final appeal to the Court of Appeal succeeded in reinstating its action against the ship owner. However, even though the apex court reversed the High Court decision, the Court of Appeal stated clearly that it upheld the correctness of High Court's principles on the exercise, invocation and setting aside of the Court's admiralty jurisdiction.
A continuum of the duty to disclose
The judicial reasoning in the iterations of The Bunga Melati 5 case may be better understood if it is seen as part of a continuum on the development of the duty to disclose, as first justified by the Court of Appeal in The Vasiliy Golovnin  4 SLR 994. In an expansion of the reservations expressed in The Rainbow Spring, the Court in The Vasiliy Golovnin went as far as describing ship arrest as "a very powerful invasive remedy", and compared the destructiveness of improper arrest with the "nuclear weapons" of civil litigation, Anton Piller orders and Mareva injunctions. As arrest is obtained in a one-sided manner, the Court required the creditor to demonstrate a good and arguable case and to make full and frank disclosure of all matters relevant to the Court’s decision. As for the standard of disclosure required, the Court stated it required the creditor to include not only matters advantageous to the creditor but also those that may be disadvantageous.
Elaborating on, but not expressly following, The Vasiliy Golovnin, the High Court in The Eagle Prestige  SGHC 93 clarified the types of disclosure required at particular stages. If the creditor applicant seeks to invoke the court’s admiralty jurisdiction, the creditor must make full and frank disclosure whether it has a claim under one of the s 3(1) HCAJA heads of claim. At this procedural stage, the creditor does not need to prove either a good arguable case on the merits, nor the ultimate success of the claim. If the debtor ship owner applies to strike out the creditor’s claim, then at this substantive stage the creditor is obliged to disclose the merits of its case. If the debtor can show that the creditor’s claim is wholly and clearly unarguable (which is enough to summarily strike out the creditor’s case), the creditor’s nondisclosure may be tantamount to an abuse of process. In this regard, the High Court in The Eagle Prestige implicitly distinguished its decision from The Vasiliy Golovnin.
It should be noted that the same judge decided both The Eagle Prestige and the appeal against the Assistant Registrar's decision in The Bunga Melati 5. Unsurprisingly, this judge repurposed the reasoning in The Eagle Prestige in her comments in The Bunga Melati 5. In the judge's opinion, at the stage of applying to arrest a ship, there is no need for the applicant to demonstrate a good arguable case on the merits if the applicant asserts it has a claim falling under one of the s 3(1) HCAJA heads of claim. However, there is a duty for full and frank disclosure but this duty only relates to the question of whether the applicant has or does not have an assertable claim under the heads of claims and this duty does not extend to having to disclose material matters relating to the merits of the claim.
The Court of Appeal decision
The Court of Appeal accepted the High Court’s opinion on disclosure, and lent its authority to the High Court’s opinions on the steps a creditor-applicant must take when its arrest application is challenged:
- Step 1: prove, on the balance of probabilities, that the jurisdictional facts under the s 3(1) HCAJA heads of claim exist; and show an arguable case that its claim is of the type or nature required by that provision.
- Step 2: prove, on the balance of probabilities, the claim arises in connection with a ship.
- Step 3: identify, without having to show in argument, the person who would be liable in an action in personam.
- Step 4: prove on the balance of probabilities, that the relevant person was, when the cause of action arose:
- the owner or charterer of the ship; or
- in possession or in control of the ship.
- Step 5: prove, on the balance of probabilities, that the relevant person was, at the time when the action was brought:
- the beneficial owner of the offending ship as respects all the shares in it or the charterer of that ship under a demise charter; or
- the beneficial owner of the sister ship as respects all the shares in it.
This descent into granularities by the Court of Appeal may be seen as its attempt at re-balancing the right of a creditor to take security against protecting the debtor from abuse of this process. A creditor, if its claim meets the requirements of the HCAJA, can apply to arrest as of right. If the debtor challenges this right, however, the creditor must prove the existence of this right, in the steps as set out above, before it is allowed to continue with its action.
Although the decision in The Vasiliy Golovnin does appear to suggest the court imposed a requirement, independent of the HCAJA, for the creditor to show a good arguable case before it allows arrest, The Bunga Melati 5 subsequently clarified that the court did not introduce a new merits requirement before admiralty jurisdiction can be invoked under the HCAJA.
This "clarification" can perhaps be better understood by considering disclosure in relation to the creditor's intentions and behaviour. As is the case of many shipping disputes, the facts of The Vasiliy Golovnin and The Bunga Melati 5 were complicated, involving interests of parties in addition to that of www.rodyk.com MARCH 2013 STARBOARD the main antagonists and raising a multitude of issues. However, going to the root of what interests and issues should be disclosed, the Court in The Vasiliy Golovnin found the creditor intentionally failed to disclose because the creditors' application to arrest arose from "an ill-conceived and reckless attempt to steal a march on" the ship owner and "to force its hand in providing additional security for their claims".
In contrast, in The Bunga Melati 5, the matters (agency, issue estoppel) which the creditor did not disclose were those which would be better determined at trial of its substantive claims against the ship owner. Accordingly, the Court's discussion in The Vasiliy Golovnin vis a vis "a good arguable case" should be seen as a decision made in recognition of an extreme situation where the arrest application was one which should not have been made in the first place as the creditor's claim was without foundation. The decision in The Bunga Melati 5 addresses the more general situation, where the merits of creditor's claims would be more appropriately evaluated by the Court in adversarial proceedings, but at the present stage, the creditor has a right under the HCAJA to apply for arrest.