October 1, 2014
It has always been the case that even if a claim was unsuccessful on the merits, losses suffered by an arrest of a vessel can only be recovered when the arresting party is guilty of mala fides (where the arresting party has no honest belief in his entitlement to arrest the vessel) or crassa negligentia (where objectively there is so little basis for the arrest that it may be inferred or implied that the arresting party did not believe in his entitlement to arrest the vessel)1.
This meant vessel owners, more often than not, have to bear the brunt of the inconvenience and hardship caused by an arrest. This also bears very harshly on vessel owners who for some reasons are unable to put up adequate security (or put up security in a short time to minimize delays to operations) in order to obtain the release of their arrested vessels.
Increasingly, there are calls made to reconsider this position on the law. The proponents of such change cite various supporting reasons2. Firstly, there is no necessity, at least in the first instance, for a plaintiff to establish any link with the jurisdiction, save that the vessel to be arrested is within the jurisdiction. Secondly, unlike a mareva injunction, there is no requirement for a cross-undertaking in damages from an arresting party who obtains the benefit of the security for his claim. Further, there is generally no minimum claim in order to exercise a right to arrest a vessel. Hence, a plaintiff with a $100,000 claim is able to arrest a vessel worth more than $10 million (a vessel that probably would be carrying valuable cargo too). However, the discretion to issue a warrant of arrest also considers whether a reasonable amount of alternative security has been offered in lieu of arrest.
Whilst there are justifiable reasons for the change, doing away with requirements of mala fides or crassa negligentia in cases of wrongful arrest or requiring a cross-undertaking in damages before a warrant of arrest is issued, may lead to discourage plaintiffs with valid claims from effecting arrests. Plaintiffs with modest claims may not proceed with an arrest, no matter how valid the claim is, especially with the prospect of a counterclaim for damages.
However, that does not mean that the courts will allow arresting parties to commence action and maintain arrests where there is no justifiable cause of action. Singapore, being an admiralty hub which depends on the smooth operations of shipping and transport lines, demands that such a right for vessel arrest be exercised with prudence and utmost care. Where necessary, the courts have found that such arrests are wrongful and ordered damages to be paid.
The High Court of Singapore in The STX Mumbai  SGHC 122 had the opportunity to restate the Singapore law position on wrongful arrest. In that case, the arresting party, a bunker supplier argued that the insolvency of STX Pan Ocean, the group owner of the vessel STX Mumbai registered under the name of the defendants, would necessarily result in an anticipatory breach of the defendant's obligations. Accordingly, it claims that it is justified in arresting the vessel even though payment for the bunker supply was not due and owing until a later date.
The court held that the bunker supply was an executed contract where the only remaining obligation was on the defendants to make payment on a specified date. Accordingly, after examination of the cases from various jurisdictions, the Court held that the plaintiffs would have to bide their time until the defendants default on the contract before taking action. Further, the Court was of the view that the insolvency of a group owner, which at best was just a parent company of the defendants, was irrelevant because (1) no attempt to lift the corporate veil was made by the plaintiffs to show beneficial ownership of the vessel by the group owner and (2) in any event, insolvency per se is not automatically considered a breach of contract at common law. Consequently, the plaintiffs' claim was struck out.
On the facts, due to timing and short notice given, the Court also found that a demand issued by the plaintiffs was "designed to achieve and create a semblance of a refusal to pay as amounting to repudiation that was clearly artificial"3 . The decision to arrest the vessel was actually triggered by news of the insolvency of the group owner, which had nothing to do with the defendants. The Court, endorsed the Evagelismos test for wrongful arrest which was followed in the Singapore Court of Appeal cases of The Kiku Pacific4 and Vasiliy Golovnin5 and found that there were both mala fides and crassa negligentia.
Just like all things in life, a balance has to be struck - between the ease of availability of a vessel arrest and the safeguard of vessel owners' interest against wrongful arrest. The case of The STX Mumbai epitomizes such balance where the Court had carefully dissected the plaintiffs' failed attempt to create a semblance of a cause of action against a defendant vessel owner. To put things in perspective, the plaintiffs in The STX Mumbai had maintained the arrest even after being informed by the defendants that there was no legal basis for the arrest and the plaintiffs had even delayed in providing information on the amount of security required for the release of the vessel. The threat of damages for wrongful arrest should keep potential arresting parties mindful of the consequences in arresting (and indeed, maintaining an arrest) of a vessel and at the same time, not deter arrests based on valid admiralty in rem claims.
One of the reasons why the arresting party's arguments failed is because the bunker supply agreement did not prescribe clear events of default to trigger early termination or provide for acceleration of the debtor's unilateral obligation to pay before the fixed date. If a parent company's insolvency is a cause of concern, then it should have been clearly specified as an event of default. In this regard, it is useful to review present contractual arrangements to provide for such contingencies.
1 The Kommunar (No. 3)  2 Lloyd's Rep 22
2 These authors include the Hon. Mr Justice Bernard Eder (in his paper "Wrongful Arrest of Ships: A Revisit" delivered at the 2013 Tetley Lecture in Maritime Law), Stewart Boyd QC (in "Shipping lawyers: land rats or water rats?"  LMCLQ 317) and Shan Nosel (in "Damages for the wrongful arrest of a vessel"  LMCLQ 368).
3 See  of The STX Mumbai
4  2 SLR(R) 91
5  4 SLR(R) 994