Marubeni International Petroleum (S) Pte Ltd v Projector SA

Belinda Ang Saw Ean J:

[1] The plaintiff is Marubeni International Petroleum (S) Pte Ltd. The writ of summons in this action was issued on 28 November 2003 to enforce the plaintiffs’ rights under two letters of indemnity dated 16 and 18 July 2003 respectively. On the same day, Tay Yong Kwang J granted ex parte an interim mandatory injunction against the defendant, Projector SA (“the interim order”). The interim order provided that the defendant, inter alia, secure the release from arrest of the vessel Dynamic Express by payment into court in South Korea of approximately US$2.6m in respect of gas oil shipped under bills of lading nos DMEXP-A and KAKR-001.

[2] Mitsui OSK Lines Ltd (“Mitsui”), as disponent owner of Dynamic Express, time chartered the vessel to the plaintiff who in turn entered into a voyage sub-charter with the defendant on 3 July 2003 for the carriage of gas oil from Taiwan to South Korea. As the originals of bills of lading nos DMEXP-A, DMEXP-B and DMEXP-01 and KAKR-001 had not arrived at the discharge port, the defendant requested the plaintiff to deliver the gas oil to Petaco Petroleum Inc (“Petaco”) without production of the originals bills of lading. The plaintiff acceded to the defendant’s request in exchange for two letters of indemnity dated 16 and 18 July 2003 (“the LOI”). The gas oil was released to Petaco at the port of Pyongtaek, South Korea. The bank creditors of Petaco arrested the Dynamic Express in Daeson, South Korea, on 21 November 2003 for loss and damage suffered by reason of the delivery of gas oil to Petaco without production of the original copy of bills of lading nos DMEXP-A and KAKR-001.

[3] The basis of the plaintiff’s application before Tay J, as it was before me, was that the defendant had not, contrary to the LOI, provided security to secure the release from arrest of the vessel Dynamic Express. The plaintiff wanted the defendant to furnish the necessary security to the registered owners of Dynamic Express so that the plaintiff itself need not provide it. The purpose of the LOI was to achieve this.

[4] On 2 December 2003, the defendant filed an application to discharge the interim order. It denied being in breach of the LOI. Under cl 4 of the LOI, the defendant agreed to provide, but only on demand, bail or the security as might be required to prevent the arrest or detention or to secure the release of the vessel from arrest. Security or bail was furnished within a reasonable time of the plaintiff’s demand. Furthermore, there was no obligation to indemnify the plaintiff in respect of any loss, damage or expense caused by such arrest or detention, as the plaintiff had suffered no loss. There was no obligation under cl 5 of the LOI to produce and deliver the originals bills of lading until the defendant had them in their possession.

[5] The plaintiff’s demand to post bail by way of a cash deposit was made on 27 November 2003. This demand was received on 28 November 2003, which was the same day the plaintiff applied and obtained ex parte the interim order. The defendant submitted that it was entitled to a reasonable time within which to comply with the demand and such a reasonable time would, at the earliest, expire on 1 December 2003. As early as 24 November 2003 the plaintiff’s solicitors, Drew & Napier LLC, were notified in a fax that the defendant would comply with its contractual obligations under the LOI. The plaintiff’s application for an interim injunction was thus unnecessary and decidedly premature.

[6] The thrust of the defendant’s argument was that the other written communications from Drew & Napier LLC on behalf of the plaintiff calling the defendant to meet its LOI obligations did not constitute a demand of the kind envisaged by cl 4 of the LOI. For instance, the first fax dated 21 November 2003, which the defendant passed on to its London office on 24 November 2003, did not specify the form of security required to prevent an arrest of the vessel. Drew & Napier LLC sent two further faxes both dated 24 November 2003. The defendant was told that, under South Korean law and practice, a preferred guarantor would be a first class international bank with a presence in South Korea. The defendant duly worked towards furnishing this form of security with the assistance of its lawyers in South Korea and their counterparts representing the arresting party. This form of security was rejected on 27 November 2003. The defendant’s anticipation of an alternative proposal, that Mitsui provide security directly to the arresting party and that the defendant in turn counter-secure Mitsui, did not materialise. Instead, Mitsui’s lawyers asked the defendant to post cash bail. Counsel for the defendant, Mr Govindarajalu Asokan, submitted that the defendant’s efforts were in keeping with the promises made under the LOI. He argued that security was furnished pursuant to the LOI, and not because of the interim order.

[8] The contest as to whether the interim order should have been granted centred on whether or not the defendant had breached its obligations under cll 4 and 5 of the LOI. The defendant, in its written submissions, recognised that this primary issue had to be determined at trial. In its action, the plaintiff sought various declarations and specific performance of the terms of the LOI. One declaration was that the defendant should indemnify and hold harmless the plaintiff in respect of any liability, loss or damages of whatsoever nature (whether direct or indirect) on account of the delivery of gas oil to Petaco at the defendant’s request as well as for the arrest of Dynamic Express. In addition, the plaintiff also sought an inquiry and an account to be taken to ascertain the amounts so due and payable by the defendant to the plaintiff. Alternatively, the plaintiff sought damages against the defendant for breach of the LOI.

[9] A determination of the primary issue will also answer the question whether or not the plaintiff acted reasonably in seeking interlocutory relief on 28 November 2003 and whether the interim order was rightly or wrongly obtained. The defendant suggested that the plaintiff had acted in bad faith when it sought the interim order. In my view, the factual issues raised and argued by the parties, the determination of which the rights of the parties depend on, are best reserved to the trial judge. They cannot be justly dealt with at this inter partes hearing without permitting the defendant the right of trial and the court the opportunity to go into the full merits of the case. It is not a matter of simply deciding whether Tomongo Shipping Co Ltd v Heng Holdings SEA (Pte) Ltd [1997] 2 SLR 550 was rightly decided.

[12] When the matter came up for hearing before me, security for the release of the vessel had already been deposited with the South Korean courts. The risk of injustice if the interlocutory relief was granted or refused, which Tay J had to weigh at the time of the plaintiff’s application, had all but disappeared. The vessel has since been released. I was of the view that the interim order was no longer necessary and should therefore be discharged. On that footing, it is clearly open to the defendant to contend at the trial that the interim order ought not to have been granted in the first place as there was no breach of the LOI.

[13] Accordingly, I discharged the injunction on the condition that the money deposited with the South Korean courts was to be retained to abide by the outcome of the proceedings in South Korea. I imposed the condition for two reasons. First, it was not free from doubt that the security could not be withdrawn. Second, Mr Asokan informed the court of the defendant’s willingness to leave the security in place, but he had no instructions to give an undertaking to the court that if the interim injunction were to be discharged the security would not be withdrawn.

[15] Upon discharge of the interim order, the court has discretion whether or not to enforce the undertaking in damages. In this case, it was appropriate to reserve prayer 3 (inquiry as to damages) to the trial judge. A proper time to consider prayer 3 is when the merits of the action have been finally decided at trial. It is convenient to mention that two questions usually arise when a defendant seeks to enforce an undertaking in damages. The first question is whether the undertaking should be enforced at all. The answer depends on the circumstances in which the order was obtained and the success or otherwise of a plaintiff at the trial. If the first question is answered in favour of the defendant, the next question is whether the defendant has suffered any damage from the granting of the interlocutory injunction: per Lloyd LJ in Financiera Avenida SA v Shiblaq [1991] TLR 21.