The “Sea Urchin”

Belinda Ang Saw Ean J:

[1] The plaintiff, Alpha Bank S.A. (“the Bank”), applied as mortgagees on 20 December 2013 vide Summons No 6520 of 2013 (“SUM 6520”) for the vessel, Sea Urchin, of the port of Limassol, Cyprus (“the Vessel”) to be sold pendente lite to a named buyer and at a stated price (ie, prayer 2 of SUM 6520). As an alternative to a direct judicial sale, the Bank’s fall-back application was for the Vessel to be sold pendente lite by the Sheriff in the usual way by public auction or private treaty (ie, prayer 2a of SUM 6520).

[2] In this case, the Bank arrested the Vessel fully laden with a cargo of soya beans in bulk. At the time of the arrest, the Vessel was in Singapore for bunkers en route to Qingdao, China where the cargo was to be discharged and delivered to receivers. The purpose of the direct sale pendente lite was for the Vessel under new ownership to carry and discharge the cargo in Qingdao. The question to be decided is whether the facts of this case constitute special circumstances to warrant a direct judicial sale to a named buyer at a specified price (see The Turtle Bay [2013] 4 SLR 615 (“The Turtle Bay”) at [29]).

[3] The Vessel, a bulk carrier fully laden with a cargo of soya beans, was arrested by the Bank on 30 October 2013 after the defendant shipowner, Keel Marine Company Limited (“the Defendant”), a company incorporated under the laws of Cyprus, defaulted on a loan agreement that was secured by a first priority mortgage of the Vessel. The Defendant entered an appearance to the Bank’s in rem action on 31 October 2013. On 18 November 2013, the Defendant applied vide Summons No 5874 of 2013 to, inter alia, (a) set aside the warrant of arrest; and (b) stay the action in favour of the Greek courts, including a temporary release of the Vessel to enable her to continue her voyage to China and to discharge the cargo on board. By the time the Bank’s application in SUM 6520 was listed for hearing on 6 January 2014, the Defendant had reached a private arrangement with the Bank. Mr Lawrence Teh for the Defendant thus informed the court that the Defendant was not opposing the Bank’s application for a direct sale. Before this court, the Defendant was no longer challenging the propriety of the Bank’s claim or the arrest.

[4] There were three other interested parties supporting the Bank’s application for a direct sale. It was made known at the outset by counsel representing those interests that their support did not extend to prayer 2a in SUM 6520. Mr Kelly Yap (“Mr Yap”) represented the intervener, Qingdao Bohi Agricultural Development Co Ltd (“the Intervener”), which was granted leave to intervene in these proceedings on 6 January 2014, and entered an appearance on 17 January 2014.

[5] Ms Wendy Tan (“Ms Tan”) represented Pacific Bulk Shipping (Cayman) Ltd (“Pacific Bulk”) which trip-chartered the Vessel from Swissmarine Services S.A. (“Swissmarine”), the time charterers of the Vessel. Pacific Bulk in turn sub-chartered the Vessel to the Intervener. The Intervener is asserting rights of ownership to the cargo of soya beans. Pacific Bulk claims ownership of the bunkers on board. Swissmarine was represented by Mr K Muralitherapany (“Mr Murali”). Mr Edmund Koh stood in for Mr Murali at the adjourned hearing on 27 January 2014. For convenience, Pacific Bulk and Swissmarine are collectively referred to as “the Charterers”.

[6] The Charterers had not intervened but through their counsel undertook to do so on 27 January 2014.

[7] As prayer 2 is for a direct judicial sale, I begin with The Turtle Bay where it was observed that a direct judicial sale at a pre-determined price to a named person is generally not the accepted way to sell a vessel under arrest. A direct judicial sale represents a departure from the normal order that the Sheriff sells a vessel under arrest by appraisement, advertisement, and inviting bids to purchase the vessel: see O 70 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the Rules of Court”). More often than not, an application for a court-sanctioned private sale is advanced for the applicant’s own purpose and benefit and is prima facie unfair (The Turtle Bay at [23]). In The Turtle Bay I referred to Bank of Scotland plc v The Owners of the MV Union Gold and others [2013] EWHC 1696 (Admlty) (“The Union Gold”) where Teare J held at [20] that as a matter of general principle the court should not order a sale to a buyer found by the arresting party at a pre-determined price.

[8] Basically, an admiralty judicial sale confers on the purchaser clean title of the vessel by transferring existing maritime claims of all in rem claimants against the vessel to the sale proceeds of the vessel. I explained in The Turtle Bay at [15] that “this concomitant transfer of maritime claims (and priority) from the vessel to the proceeds of sale in court is the raison d’etre of the principle that a judicial sale is for the protection and benefit of all persons interested in the res; it is not only for the interest of the arresting party alone”. At [17]–[18], I went on to explain the procedural safeguards in the sale process in the following manner:

[9] With regard to the importance of placing advertisements, I further held at [20] that:

[10] In The Turtle Bay, I concluded that a direct sale may be allowed in special circumstances. The applicant for a direct sale must identify the existence of “powerful special features” or ‘special circumstances” before the court will be prepared to order a direct sale to a named buyer at a pre-determined price (The Turtle Bay at [29]). Needless to say, such an application for a direct sale will be scrutinised carefully.

[11] I begin with the Bank’s arguments for a direct sale of the Vessel pendente lite to a named buyer at a specified price. As stated, the purpose of the direct sale pendente lite was for the Vessel under new ownership to carry the cargo to China.

[12] The application was premised on several factors that were advanced by the Bank, the Intervener, and the Charterers. First, there was a named buyer of the Vessel, Okeanos Shipping Inc. (“Okeanos”), a company incorporated in the Marshall Islands, whose offer price of US$17.5m was US$1.5m more that the value of the Vessel, which the Bank claimed to be US$16m. In addition, Okeanos, a subsidiary company of a customer of the Bank, was willing to purchase the Vessel and carry the cargo to China for delivery to the Intervener. In that connection, the Intervener and the Charterers had entered into an undated agreement with Okeanos. When queried on when that agreement was concluded, Mr Murali informed the court that Swissmarine had signed the undated agreement on 20 December 2013. It was also pointed out that Okeanos was prepared to sign on the existing crew members under new ownership for the voyage to China.

[14] Mr Winston Kwek (“Mr Kwek”) acting for the Bank relied on the Canadian case of Bank of Scotland v “Nel” (The) (1997) 140 FTR 271 (“The Nel”) in support of its application for a direct sale. Mr Yap and Mr Murali also relied on The Nel and The Union Gold (see [7] above). These cases were discussed in my earlier decision of The Turtle Bay.

[15] In this application, the Bank submitted that Okeanos had offered to buy the Vessel at US$17.5m which was US$1.5m above her market value of US$16m. The Bank produced the valuation certificate of a Greek shipbroker known as Golden Destiny. Relying on Golden Destiny’s valuation certificate, Mr Kwek, Mr Yap, Mr Murali and Ms Tan collectively emphasised that the direct sale to Okeanos would be above the valuation of US$16m. On the other hand, Assistant Registrar Ms Jacqueline Lee (“AR Lee”) acting on behalf of the Sheriff contended that Golden Destiny’s valuation certificate addressed to the Bank was so qualified that it had little or no evidential value.

[16] I agree with AR Lee that the valuation certificate issued by Golden Destiny was unsatisfactory and that the absence of a satisfactory valuation undermined the Bank’s application. Significantly, Golden Destiny expressly stated in its valuation certificate that the value of US$16m was specifically for 10 December 2013 and that it was not expressing an opinion on the Vessel’s value for any other date. It is helpful to set out the relevant parts of Golden Destiny’s valuation certificate:

[17] Mr Yap in his written submissions also mentioned that the court had an independent valuation of the Vessel. This submission is misguided. Throughout the proceedings, the parties had relied on US$16m as the value of the Vessel. This figure came from Mr Kwek’s affidavit and was purportedly supported by Golden Destiny’s certification. There was no other independent valuation disclosed to the court. Mr Kwek had applied for an order to appraise the Vessel but this was soon after the court had indicated on 6 January 2014 that it was going to adjourn SUM 6520. As far as this court was concerned, the appointment of Insight Marine Services Pte Ltd (“Insight”) was made in connection with prayer 3 of SUM 6520 and was being sought early in the event the Bank’s application for a direct sale was not allowed, and the sale was to be made by public auction or private treaty pursuant to O 70 of the Rules of Court. It is well known to maritime law practitioners that the Sheriff only consults the appraiser’s valuation after all sealed bids have been received following an order to advertise and sell the vessel. Until then, the appraiser’s valuation, which is received by the Sheriff in a sealed envelope, would not be opened. As was the case here, Insight’s valuation which the Sheriff received was in a sealed envelope was unopened. As I previously held in The Turtle Bay at [18], the amount of the appraisal would not be revealed to the public in order to preserve the integrity of the judicial sale process.

[18] The evidential gap arising from Golden Destiny’s valuation certificate as stated in [16] above effectively undermined the Bank’s application for a sale pendente lite. Evidence of the expenses of maintaining a vessel under arrest and the value of the vessel must be present before the court. In the absence of such evidence, the court cannot decide if the vessel under arrest is or is likely to be a wasting asset if it is not sold before judgment is obtained against the shipowner. Mr Kwek identified ongoing expenses such as the crew wages of the 21 Filipino crew at US$13,673.75 per week, port charges and guard charges incurred for the period of 30 October 2013 to 20 December 2013 amounting to S$144,070.60 and S$25,680 respectively, and the usual port charges of S$4,477.87 and security guard charges of S$513.60 which are being incurred daily. However, the evidence before the court remains incomplete without a proper valuation of the Vessel.

[19] In addition, I agree with AR Lee that there was nothing in writing from Okeanos stating its willingness or readiness to purchase the Vessel at US$17.5m and on the Sheriff’s terms and conditions. The affidavit in support of the direct sale which was deposed by Mr Kwek stated that Okeanos would “apply to purchase the Vessel” directly from the Sheriff. In another paragraph, Mr Kwek deposed that Okeanos had offered to purchase the Vessel at a price of US$17.5m. There was no indication at all as to whom the offer was made, which is an important consideration seeing that SUM 6520 was the Bank’s application for an order that Okeanos buys the Vessel in a direct judicial sale from the Sheriff at US$17.5m. Evidentially speaking, the purported buyer’s offer itself and the terms of the offer were uncertain. It was not clear whether there was a buyer ready and willing to commit to a purchase of the Vessel on the usual Sheriff’s terms and conditions.

[20] I also note that the inspiration to find a buyer prepared to carry the cargo to China started from a conversation Mr Kwek had with the representative of Swissmarine’s P&I Club. Okeanos is the subsidiary of a customer of the Bank. There was no evidence and it was not the Bank’s case that it had casted the net wider in search of more interested parties to attract the best price for the Vessel (see [8]–[9]).

[22] What was extraordinary in The Nel was the cargo of sulphur. When sulphur comes into contact with moisture, a chemical reaction is triggered resulting in the potentially devastating (and dangerous) effect of corroding the steel of a vessel. On the facts, the court found that there was a real likelihood of the vessel being corroded (The Nel at [10]):

[23] The court in The Nel observed that should there be corrosion the vessel’s seaworthiness would be affected, thus making it difficult to sell at a good price (at [15]). In that case, there was evidence that the vessel “could well, within weeks and certainly within months, become unsaleable except as scrap or at a minimal speculative price” (The Nel at [16]). The consequence of that was the likelihood of a smaller pool of sale proceeds available for distribution to in rem creditors. In light of the very special circumstances, the court granted the sale pendente lite to a buyer who was prepared to carry the cargo to its destination.

[26] Interestingly, Prothonotary Hargrave J in a subsequent decision of Royal Bank of Scotland plc. v. Kimisis III (The) [1999] F.C.J. No. 300 (“Kimisis III”), held in obiter dicta that the Canadian position as to whether such expenses should fall upon the cargo interests or the Sheriff was actually still open to debate:

[29] For similar reasons, the Supreme Court of Hong Kong adopted the English position in Dharamdas & Co. (Nigeria) Ltd. and another v. The Owners of the Ship or Vessel “Mingren Development” and Panasia Realty & Finance Ltd [1979] HKCU 19 (“Mingren Development”). I find it useful to recite the following passage by Cons J:

[31] It bears mentioning that courts in The Jogoo and Mingren Development appeared to be largely persuaded by their respective Law Reform (Frustrated Contracts) Act which expressly excluded contracts for carriage of goods by sea. I note parenthetically that the position in Singapore under the Frustrated Contracts Act (Cap 115, 1985 Rev Ed) (“the Act”) is no different, as s 3(5)(a) expressly provides that the Act does not apply to “any charterparty, except a time charterparty or a charterparty by way of demise, or to any contract (other than a charterparty) for the carriage of goods by sea”. However, since this point was not argued by any of the counsel, and is likely to arise on another occasion, I will say no more in this decision.

[35] The facts in The Union Gold are also different from the facts of the present case. In The Union Gold, Teare J sanctioned the direct sale of “an elderly vessel” built in 1984 which was “unlikely to attract many buyers” (at [24]). The vessel in question was valued at only €315,000. The court there found it compelling that the proposed buyer in that case offered to buy the vessel because it was in a position whereby he was able to retain and operate a long term contract which provides business for her (and other vessels). If that contract was lost, the proposed buyer would not be willing to buy the vessel. The court also took into consideration the fact that the jobs of 21 crew members would be lost. In those unique circumstances, the court came to the conclusion that the vessel would probably fetch a higher price through a direct private sale than it would through a public auction. In the present case, while Okeanos has offered to employ the crew members of the Vessel, that by itself does not constitute a “special circumstance”. Unlike The Union Gold, the present case by no means concerns a very old vessel. The Vessel was built in 2001. The Defendant’s forecast to the Bank in June 2013 stated that the Vessel was capable of trading until December 2017. There was no urgency to recoup whatever value remaining in the Vessel.