This matter concerned the arrest of a vessel as security for a claim for non-payment of hire and the application to the Singapore High Court to set aside the arrest. The twist in the tale is that the vessel arrested by the claimants was owned by a third party, whose connection to the non-payment of hire dispute was as guarantor of the charterers. The application to set aside was brought on the basis that the Admiralty Court did not have jurisdiction.
By way of background, the facts were as follows:
The plaintiffs were the owners of the ”Mahakam” which they chartered on a bareboat basis to “Heritage”, a wholly-owned subsidiary of Messrs “HIT”, the defendants in this matter. HIT guaranteed Heritage’s obligations under the charter including the payment of hire.
When Heritage defaulted on hire payments notice to terminate the charter was issued. Pursuant to that notice the “Mahakam” was redelivered and, together with various other steps to secure the claimants claims, arbitration was started under the bareboat charter in London against Heritage for the outstanding hire payments and loss of profit. The claimants then arrested the “Catur Samudra”, a vessel owned by HIT as security for their claim. On the application to set aside the arrest, the court was asked to consider whether the claimant had satisfied the burden of proof to successfully invoke the admiralty jurisdiction and constitute a valid arrest.
Key to the success or otherwise of the application to set aside the arrest were two issues; under the High Court (Admiralty Jurisdiction) Act 2001
(i) was the claim arising out of an agreement relating to the carriage of goods in a ship or the use or hire of a ship, and
(ii) was the ”Mahakam” in the possession of HIT at the time the cause of action arose?
In each instance, the burden of proof was on the claimant to show that the claim came within the parameters of the Act.
Firstly, the test as to whether the claim arose out of an agreement for hire or use of a vessel can be compared to the test used when considering Rule B applications; is the claim “salty” enough? In this case, Steven Chong JC gave careful consideration to the wording of the Act, specifically the requirement that it was a claim “arising out of” any agreement “relating to” the […] use or hire of a ship.
Counsel for the claimant argued that the terms of the Act should be interpreted widely, that the guarantee from HIT was a pre-condition of the charterparty without which there would have been no agreement, and the bareboat charter for the ”Mahakam” was referred to in the guarantee. Following previous case law, the court held that the claim against HIT did not have a reasonably direct connection to the use and hire of the ship to invoke admiralty jurisdiction. Consideration was given to The “Antonis P Lemos” ([1985] AC 711) which discussed the expression, a claim “arising out of”,with the House of Lords holding that it should be given a broad interpretation. However the plaintiffs were not able to establish the direct connection as laid down in The “Sandrina” ([1985] 1 Lloyd’s Rep 181) which considered the expression a claim ”relating to”. Chong JC held that [para 35] “the guarantee is not an agreement which in itself relates to the use or hire of MAHAKAM. The sole purpose of the guarantee was to provide financial protection to the Plaintiff against the risk of default by heritage under the bareboat charter”. Thus the claim did not come within the scope of the Act.
The court concluded that the claim was based on agreements which were indirectly related to the use or hire of the vessel and could not be said to have the required “reasonably direct connection”’ simply because the provision of a guarantee was a condition precedent of the bareboat charter party; Any other finding, according to Chong JC (at para. 37 of his judgment), would enlarge the admiralty jurisdiction of the court to cover “claims which were never contemplated to have the right of arrest.”
The second element under the Act to be established by the claimant was control or possession by HIT of the ”Mahakam” at the time the cause of action accrued. While it is not essential that HIT are the owners, they should be shown to have legally enforceable rights as regards the possession or control of the vessel, as for example, a charterer or mortgagor would have- that is a (at para. 58) “substantive as opposed to a nominal or formal interest in relation to the ship.” In arguing that HIT did have sufficient possession of the vessel, the claimant position was that, as a wholly owned subsidiary of HIT, Heritage should be considered as one economic unit with HIT, with each being liable for the other’s debts. On the facts however, the invitation for the court to pierce the corporate veil did not succeed, nor was it specifically pleaded. But, in any event, the court decided that there was no allegation of fraud which would necessitate the corporate veil to be lifted, nor were there exceptional circumstances which would warrant it. Rather, Chong JC considered the role of HIT; whether they had rights which would be legally enforceable in relation to the employment of the vessel and whether that possession or control was an independent legal right? On the facts, he was minded to accept the submissions of the defendant that they did not have sufficient control or possession of the ”Mahakam” at the time the cause accrued to come within the ambit of the Act, and further, notwithstanding the relationship between HIT and Heritage and the role of management of the vessel undertaken by HIT, (at para. 63) “having control over Heritage does not translate into “possession or control” over MAHAKAM”. He also accepted the submissions of the defendant who, in citing the decision in The “Fua Kavenga” ([1987] 1 NZLR 550) argued that (at para 67) “the mere fact that a person who had provided a guarantee was found to be “in possession or control” of a vessel in one case does not mean that all guarantors would likewise be treated in the same way”- each case to be considered on its own facts.
The court therefore held that the claimant had failed to invoke the jurisdiction of the Admiralty Court and the arrest was set aside. This decision will have an impact on those creditors and claimants whose most effective (and often only) way of securing their claim is by arresting the vessel. Owners would be well advised to consider carefully the terms of any guarantee from any third party for the performance of their charterers to try to preserve the right of arrest as a means of security for their claim. Unfortunately for claimants, this case appears to have placed a more onerous burden on the applicant to establish a reasonably direct connection between the claim and the agreement for use or hire of the ship, and narrowed the scope for arrest of sister vessels if the second element of possession or control cannot be satisfied.
The “Catur Samudra” [2010] SGHC 18
Article by Sarah McGuire
