Precious Shipping & Ors v OW Bunker Far East & Ors
Precious Shipping Public Company Ltd & Ors v OW Bunker Far East (Singapore) Pte Ltd & Ors and other matters
Singapore High Court; Chong J;  SGHC 187, 21 July 2015
WHETHER INTERPLEADER RELIEF AVAILABLE TO ULTIMATE PURCHASERS OF BUNKERS: WHETHER POTENTIAL CLAIMS BY PHYSICAL SUPPLIERS (WHO SOLD THOSE BUNKERS TO INTERMEDIATE BUYERS) WERE SUFFICIENT TO FOUND THE COURT’S INTERPLEADER JURISDICTION
Interpleader relief (Fn.1) could not be granted to parties (principally ship charterers) that had purchased bunkers from intermediate sellers – the OW companies - as (amongst other reasons) in Singapore the physical suppliers, who had sold the bunkers to the OW companies but not been paid for them, had no prima facie claim against those bunker purchasers. There were, therefore, no competing claims on which interpleader jurisdiction could be founded
This note has been contributed by Justin Gan Boon Eng, LLB (Hons) NUS, Advocate & Solicitor, Singapore (non-practising); Solicitor, Hong Kong.
On 7 November 2014, O.W. Bunker & Trading A/S (“OW Bunker”), one of the world’s largest bunker suppliers, announced that it (and some of its related entities) had commenced proceedings in the Danish courts to seek bankruptcy protection. In December 2013, OW Bunker and several of its subsidiaries entered into an omnibus security agreement with a syndicate of banks with ING Bank N.V. (“ING”) appointed as the security agent. As part of the agreement, OW Bunker assigned its rights, title, and interest in its third party and inter-company receivables to ING.
The general modus operandi of the OW entities was to enter into contracts with the end-users (“the purchasers”) for the supply of bunkers to vessels and separately to contract with bunker traders (“the physical suppliers”) — at a lower price — to have them deliver the requisite bunkers, making a small margin in the process.
The bunkers here in question had been stemmed and had been consumed but, in light of the liquidation, the physical suppliers had not received payment from the OW entities.
After the collapse of OW Bunker, many of the purchasers received two competing claims: (a) the first was from ING for the sum owing under the seller-purchaser contract; (b) the second was from the physical supplier for the sum owing under the seller-physical supplier contract. With one exception, none of the purchasers before the Court was the owner of the vessel to which the bunkers were delivered.
The purchasers accepted that payments for the bunkers were due and owing but claimed that they were unable to decide which party to pay. Under these circumstances, the purchasers decided that it would be prudent to seek interpleader relief from the court.
The two substantive issues which arose for determination were: (a) had the conditions precedent for interpleader relief been satisfied; and (b) if so, what consequential orders should the court make?
In the event, interpleader relief was not granted.
Interpleader relief may be sought “where the person seeking relief is under liability for any debt, money, or goods or chattels, for or in respect of which he has been or expects to be, sued by 2 or more parties making adverse claims thereon… ”(Fn.2) In short, there is an admitted liability but a dispute over to whom the liability is owed.
An applicant must prove the existence of the competing claims on a prima facie basis – at this stage the Court assumes that the applicant’s evidence is true, unless inherently incredible.
The purchasers and physical suppliers argued that a liberal approach to the requirement above should be taken, and that the physical suppliers - although having no contractual claim against the purchasers - had the following other prima facie claims against the purchasers:
(1) By reason of the retention of title clauses in the contracts between OW and the physical suppliers, OW had no title in the bunkers (and therefore could not have passed title to the purchasers) until the physical suppliers were paid. So, pending payment to the physical suppliers, OW were “fiduciary agents” (and held any payment for the bunkers on trust for the physical suppliers) or bailees of the bunkers. (The assumption appeared to be that an account for the proceeds of sale could therefore be sought from the purchasers, though this was not expressly stated.)
(2) An action in tort for conversion, as the purchasers had consumed the bunkers.
(3) An action under collateral contracts between the purchasers and physical suppliers, whereby the purchasers would pay the physical suppliers directly if OW did not.
(4) A claim in restitution against the purchasers, which had been unjustly enriched (by having had the use of the bunkers) at the physical suppliers’ expense.
(5) Potentially, maritime lien claims in jurisdictions that recognized a maritime lien for unpaid bunker stems.
Justice Chong found that the physical suppliers had no prima facie claims against the purchasers.
(1) First, there was clear authority to the effect that retention of title clauses alone would not entitle the physical suppliers to an account of the proceeds of sale of the bunkers.
Second, there had been no payment to OW for the bunkers, and hence no proceeds of sale to which a “trust” could affix.
Third, there was no evidence of an OW-physical supplier fiduciary relationship. Notwithstanding that some of the OW-physical supplier contracts provided that pending payment, the bunkers delivered would be held as “fiduciary agent and bailee”, the 30-day credit terms and the absence of a requirement to keep the sale proceeds separate from OW’s other funds pointed away from such a conclusion.
The bailment claim failed because (a) most of the purchasers did not own the vessels to which the bunkers were stemmed and so never came into possession of the bunkers, and (b) for the one purchaser which was a vessel owner, a breach of bailee’s duties alone would not entitle the physical suppliers to lay claim to the proceeds of sale of the bunkers.
(2) The conversion claim would fail because there was no unauthorized dealing in the bunkers – OW’s standard terms permitted the bunkers to be used for propulsion, before payment.
(3) There was no evidence of a “collateral contract” between the physical suppliers and the purchasers.
(4) The unjust enrichment claim would fail because the purchasers were not denying that payment for the bunkers was required (and so were not unjustly enriched by using the bunkers and refusing to pay for them) – instead the question was to whom the purchasers should make payment.
(5) A maritime lien cannot be created by contract, and whether a maritime lien exists depends on the lex fori. Singapore law does not recognize a maritime lien for unpaid bunkers – consequently there was no prospect of the purchasers facing a maritime lien claim in Singapore. (For the purpose of interpleader relief, the Court had to consider whether there would be competing claims in Singapore.) There was also no evidence before the Court that the (vessel-owning) purchaser faced a threat of vessel arrest elsewhere.
Further and in any event, “adverse claims” are required to obtain interpleader relief. To be “adverse”, inter alia the competing claims had to be (a) in respect of the same subject matter – that is, the legal obligation to which the applicant had admitted – and (b) mutually exclusive, that is, resolving the interpleader would extinguish the unsuccessful competing claim. That was not the case here, since payment under the seller-purchaser contract would not, for example, extinguish any maritime lien that the physical suppliers might have.
Assuming that OW could maintain an action for the price of the bunkers (Fn.3), Justice Chong found that the physical suppliers’ alleged claims were not “adverse claims” as none asserted a contractual right to the price of bunkers under the OW-purchaser contracts:
(1) A “fiduciary agent” claim would be proprietary, not contractual.
(2) A claim in conversion would be in personam, against the purchasers, for damages.
(3) A claim under a collateral contract would be under a separate contract.
(4) An unjust enrichment claim would be in restitution against the purchasers.
(5) A maritime lien claim would be against the purchasers’ vessels, in rem.
The applications for interpleader relief were dismissed.
Separately, Justice Chong also decided:
(1) As winding-up of OW had commenced, leave of Court was required (Fn.4) before continuing – interpleader proceedings were to be considered proceedings “against the company”. (Leave was, in fact, granted.)
(2) Notwithstanding that the physical suppliers had no prima facie claim against the purchasers, the interpleader process did not allow the Court to issue summary judgment for OW under the seller-purchaser contracts – at this stage the Court could only deal with whether the preconditions for interpleader relief existed.
The position under English law appears to be that purchasers may seek interpleader relief and make payment into Court in that respect. See Stena Bulk AB v Copley & Ors,  1 Lloyds Rep 280, which confirmed that such payment into Court could be made (though the question of whether interpleader relief could be sought was not directly raised there).
The Precious Shipping case confirms that the opposite applies in Singapore – interpleader relief is not available to purchasers. Purchasers may however take some comfort from the High Court’s finding that the physical suppliers have no prima facie claim against the purchasers in Singapore.
Fn.1 A procedure whereby a party holding property and facing competing claims does not know to which competing claimant the property should be released, and seeks the Court’s aid in resolving the matter.
Fn.2 Supreme Court of Judicature Act (Cap.322), s.18(2) and First Schedule, paragraph 4; Rules of Supreme Court Order 17 rule 1.
Fn.3 This point was decided after the instant applications were heard, by the English High Court in PST Energy 7 Shipping LLC & Product Shipping and Trading SA v OW Bunker Malta Limited & ING Bank NV, the “RES COGITANS”. A note on that decision is found at http://www.onlinedmc.co.uk/index.php/PST_Energy_7_Shipping_%26_Product_Shipping_and_Trading_v_OW_Bunker_Malta_%26_ING_Bank_the_Res_Cognitans
Fn.4 Pursuant to the Singapore Companies Act (Cap.50), s.299(2): “After the commencement of the winding up no action or proceeding shall be proceed with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.”