The Catur Samudra

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DMC/SandT/10/06

The “Catur Samudra”

Singapore High Court: Judgment delivered by Steven Chong JC, 15 January 2010: [2010] SGHC 18

ADMIRALTY JURISDICTION : WHETHER CLAIM UNDER GUARANTEE IS A CLAIM “ARISING OUT OF AN AGREEMENT RELATING TO THE USE OR HIRE” OF A VESSEL : SECTION 3(1)(H) HIGH COURT (ADMIRALTY JURISDICTION) ACT

Allen & Gledhill LLP for the Plaintiff, the Owners of the “Mahakam”

Gurbani & Co for the Defendant, PT Humpuss Intermoda Transportasi Tbk

Summary

The Singapore High Court held that a claim under a guarantee provided in respect of the charterer’s liability as a condition precedent to a bareboat charterparty was not a claim “arising out of an agreement relating to the use or hire” of a vessel. The claim therefore fell outside of Section 3(1) (h) of the High Court (Admiralty Jurisdiction) Act and did not give rise to a right of arrest.

The Court further held that, on the facts, the Defendant guarantor, which was also the parent company of the bareboat charterer, was not “the person in possession or control of the vessel” under Section 4(b) of the Act.

This case note was contributed by Ang & Partners, the International Contributor to this website for Singapore

Facts

The Plaintiff was the registered owner of the vessel “Mahakam” and the Defendant was PT Humpuss Intermoda Transportasi Tbk.

The Plaintiff had entered into a sale and lease back agreement with Heritage Maritime Ltd, SA (“Heritage”) whereby the Plaintiff purchased the “Mahakam” from Heritage and leased it back to them under a bareboat charterparty (“the Bareboat C/P”). Heritage was a wholly-owned subsidiary of Humpuss Sea Transport Pte Ltd, which in turn was a wholly-owned subsidiary of the Defendant.

It was a condition precedent under the Bareboat C/P that the Defendant executed a guarantee in favour of the Plaintiff to secure the due performance and payment of Heritage’s obligations under the Bareboat C/P.

Heritage defaulted on the payment of the charterhire. The Plaintiff terminated the Bareboat C/P and the “Mahakam” was redelivered to the Plaintiff on 23 June 2009. The dispute between the Plaintiff and Heritage under the Bareboat C/P was referred to arbitration in London, pursuant to the terms of the Bareboat C/P.

The Plaintiff arrested the Defendant’s vessel the “Catur Samudra” in Singapore and brought an action under the guarantee for payment of outstanding charterhire due and owing by Heritage and for damages for breaches of the Bareboat C/P.

Issue

The issue before the court was whether a ship owned by a guarantor could constitute a “sister ship” for the purpose of the High Court (Admiralty Jurisdiction) Act (“HCAJA”), and therefore whether the admiralty jurisdiction of the High Court had been correctly invoked against the “Catur Samudra”.

In deciding this issue, the Court examined:-

(a) Whether the Plaintiff’s claim under the guarantee was a claim ‘arising out of an agreement relating to the use or hire’ of a vessel, and thereby fell within Section 3(1)(h) of the HCAJA; and

(b) Whether the Defendant, being the party who would be liable in personam under the guarantee, was in possession or in control of the vessel at the time the cause of action arose (as required by Section 4(b) of the HCAJA).

Held

(a) Whether the Plaintiff’s claim under the guarantee was a claim ‘arising out of an agreement relating to the use or hire’ of a vessel.

The Court held that while courts have tended to interpret the expression “arising out of” broadly and enlarged the types of claims falling within Section 3(1) (h) of the HCAJA, they have nevertheless restricted the claims falling within that Section to agreements which are in themselves related to the use or hire of a vessel.

In so deciding, the Court cited the House of Lords’ decision in The “Antonio P Lemos” , where it was held that the expression “arising out of” should be given its wider meaning of “connected with” and not the narrower meaning of “arising under”, but noted that the claim in The Antonio P Lemos arose from a sub-sub charter, which, like any charterparty, is an undeniably an agreement relating to the use or hire of a vessel.

As to the expression “in relation to”, the Court referred to various decisions where claims which appeared to be connected with the use or hire of a vessel were nevertheless held to fall outside of provisions equivalent to Section 3(1) (h). The common factor in these cases was that the claims were made under agreements which by themselves were not agreements relating to the use or hire of a vessel, but were based on separate agreements which were a step removed from and only indirectly related to the agreement for the use or hire of a vessel.

The Plaintiff submitted that the guarantee was an agreement relating to the Bareboat C/P, as it was a condition precedent under the Bareboat C/P for the Defendant to execute the guarantee. Without the guarantee, there would have been no Bareboat C/P of the “Mahakam”.

The Court rejected the Plaintiff’s submission, stating that an agreement which in itself was not an agreement intrinsically related to the use or hire of a vessel, could not be transformed into such an agreement by characterizing it as a term or condition precedent of the charterparty. This would effectively alter the “direct connection” test into a “but for” test and enlarge the Court’s admiralty jurisdiction to cover claims which were never contemplated to give rise to a right of arrest.

The approach in the Australia case of Port of Geelong Authority v The “Bass Reefer” was, however, considered instructive. In The “Bass Reefer”, the Court stated the test to be whether there was a strong argument for the existence of a reasonably direct connection between the agreement relating to the carriage of goods by or use or hire of the ship, and the agreement under which the claim was brought.

The Court cited with approval the approach adopted in The “Stella Nova” and stated: “In determining whether a claim can be considered to fall under s 3(1) (h), it would be useful to pose the question, “How did the claim arise?” The answer in this case would be “under the guarantee”. The next relevant question would be “Did the guarantee relate to the use or hire of the “Mahakam”? The answer to that would be in the negative.”

The Plaintiff submitted that the agreements previously held to fall outside Section 3(1) (h) made no reference to the vessels, while the “Mahakam” was specifically referred to in the recital to the guarantee in this case. However, the Court held that this was not a material or critical distinction, and reference to the vessel was not decisive, as there had been cases where agreements which did not refer to the vessel had been held to be within provisions equivalent to Section 3(1) (h), and yet other cases where agreements which did refer to the vessel had been held to fall outside the section. The touchstone was still whether the agreement under which the claim was brought had the requisite “direct connection” with an agreement relating to the use or hire of the vessel.

(b) Whether the Defendant being the party who would be liable in personam under the guarantee, was in possession or in control of the vessel at the time the cause of action arose.

The court found that the Defendant was not in possession or control of the “Mahakam” at the time when the cause of action under the guarantee arose.

The cause of action against the Defendant under the guarantee accrued no earlier than 16 April 2009, which was when the Plaintiff’s principal claim against Heritage for non-payment of charterhire accrued.

The Plaintiff submitted that the Defendant was in possession or control of the “Mahakam” at the time the cause of action arose because Heritage and the Defendant were effectively “a single economic unit with no corporate distinction between them, this rendering each liable for the debts of the other.” In support of this submission, the Plaintiff pointed to, inter alia, the common ownership, operations and/or premises of Heritage and the Defendant, the fact that the Defendant conducted its business through Heritage which was a shell corporation, and the fact that the Defendants used Heritage as a “paying/receiving agent” and made, received, approved and/or directed payment on behalf of Heritage.

The Court observed that the material used by the Plaintiff in support of its submission appeared to be an invitation to the Court to lift the corporate veil in order to show that the Defendant was in reality the charterer of the “Mahakam”. However, it was clear from the indorsement in the writ of summons that the Plaintiff’s claim against the Defendant was based solely on a guarantee and not under the Bareboat C/P. It was also acknowledged that there was no basis to lift the corporate veil and the Plaintiff was not seeking to do so. In the circumstances, the Court held that the Plaintiff could not rely on the same material to show that the Defendant was in possession or in control of the “Mahakam”, as it had accepted that Heritage was the bareboat charterer of the vessel at all material times.

The Court held that there were no exceptional circumstances to justify disturbing the legitimate practice of establishing one-ship companies within a group of companies in this case. The Plaintiff did not allege fraud, and had chosen and agreed to enter into the Bareboat C/P and to accept the Defendant’s guarantee with full knowledge that Heritage was related to the Defendants.

The Court further held that the neither the Defendant’s appointment as ship managers of the “Mahakam”, nor the Defendant’s supply of crew to the vessel established the Defendant’s possession or control of the vessel. A ship manager’s responsibilities over the vessel arise out of its appointment by its principal, and the supply of crew was made at Heritage’s request