Singapore Case Update: Court Ordered Interim Relief Over Foreign Assets (Five Ocean v Cingler Ship [2015] SGHC 311)

I.  INTRODUCTION

This case concerns the Singapore Court’s powers to order interim measures in aid of arbitration under s 12A of the International Arbitration Act. The court articulated its approach to urgent applications to preserve assets under s 12A(4) and granted an order for sale of assets that, slightly unusually, were not located in Singapore. In granting the relief requested even though the tribunal had not yet been constituted, the court also demonstrated how it can assist parties who do not have access to or choose not to use emergency arbitrator provisions.

II.  BACKGROUND

The case involves the shipment of a cargo of coal from Indonesia to India with the charterparty chain as illustrated above.[1] The underlying dispute arose when the Defendant failed to pay freight due after the release of the Bill of Lading. At the time of the hearing, the court proceeded on the basis that the cargo belonged to the Intervener and physical possession was with the Owner of the vessel.[2]

The Head Voyage Charterparty between the Plaintiff and the Defendant contained a lien clause as well as an arbitration clause referring disputes to arbitration in Singapore under the Singapore Chamber of Maritime Arbitration Rules. Both the Owner and the Plaintiff subsequently gave notice of lien and the exercise of the lien to the Defendant and Intervener. The Plaintiff issued a Notice of Arbitration to the Defendant, who did not respond or appoint an arbitrator. The Plaintiff then applied to this court for an order for sale so as to preserve the value of the cargo, which had shown visible signs of heating damage.

At the hearing, the court first found that the Head Voyage Charterparty was properly incorporated in the Bill of Lading.[3] It also found that the Plaintiff had an equitable right over the cargo against the Interveners and could exercise a lien over the cargo for unpaid freight.[4] The court then examined its powers to grant the order for the sale of the cargo under s 12A(4) of the IAA.

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III.  S 12A(4) COVERS ASSETS OUTSIDE OF SINGAPORE

At the time of the hearing, the vessel and cargo were lying in international waters because discharge in India, the last nominated port, might lead to a loss of lien rights. This raised the preliminary question of whether the court had the power to preserve assets situated outside Singapore.

The court found that although the main legislative intention behind the enactment of s 12A was to give the court powers over assets and evidence situated in Singapore, s 12A was wide enough to confer the court with the power to preserve assets outside of Singapore provided the seat of the arbitration is Singapore.[5] The court took into consideration how the grant of the sale order would not interfere with the jurisdiction of any court since the vessel was in international waters.

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IV.  THE REQUIREMENTS OF S 12A(4)

The court’s analysis proceeded in three stages:

A. Was there an ‘asset’ within the meaning of s 12A(4)?[6]

B.  Could the asset be effectively preserved through an order for sale?[7]

C.  Was the order for sale urgent and necessary?[8]

A.  Was there an ‘asset’ within the meaning of s 12A(4)?

The court found that a contractual right to a lien over the cargo qualified as an ‘asset’ within the meaning of s 12A(4). A contractual lien was defined as “a right to retain possession of goods or documents belonging to another until all claims against that other are satisfied.” These were “in the nature of security” and “capable of being preserved under s 12A(4).”

On the facts, the Plaintiff was held to possess both (i) a right to postpone discharge and delivery of the cargo until it received payment; and (ii) a derivative right in the benefit of the Owner’s security in the cargo. Together, these constituted a “right to detain possession” that qualified as an ‘asset’ within the meaning of s 12A(4).

B.  Could the asset be preserved through an order for sale?

The court then found on the basis of several authorities that the right to detain possession could effectively be preserved through an order for sale because the right to detain possession is transferred or transformed to a right to the proceeds of the sale. In the instant case, the proceeds of the sale could be held in court in Singapore until further order by the arbitral tribunal.

C.  Was the order for sale urgent and necessary?

The court found that the facts of the instant case presented a “clear case of urgency” for the following reasons:

1. Condition of the cargo: Overheating of the cargo had been detected, with some risk that the coal would self-ignite.
2. Living Conditions: The crew had been on board the vessel for almost four months, with a lack of fresh food, water and medical supplies.
3. Safety: The weather conditions due to the monsoon season were exacerbating the situation.
4. Tribunal was not yet constituted.

The court then found that the order for sale was necessary for the purpose of preserving the assets because:

1. No reasonably available alternatives. As Indian law would not recognize the Owner’s lien rights, the Plaintiff and/or Owner would prolong the grim situation on board unless an effective order preserving the parties’ rights was made.
2. Non-negligible risk of diminishment of value. The steady diminishment of the value of the cargo could result in a situation where the Interveners retained no residual financial interest in the cargo.
3. No end in sight to the impasse. There was substantial reason to believe the parties would not reach any satisfactory solution between themselves. <br>

V.  COMMENTARY

Beyond setting out the relevant test for applications under s 12A(4) and confirming that s 12A can in principle cover assets located outside of Singapore, this case also demonstrates how the Singapore courts can be of assistance to parties that do not use emergency arbitrator provisions.

The Singapore Chamber of Maritime Arbitration Rules do not contain emergency arbitrator provisions, potentially creating difficulties in situations like the instant case where immediate relief is required but the tribunal had not yet been constituted. Fortunately, this case demonstrates that the Singapore courts can be of assistance in such situations.

Even when the chosen arbitral rules contain emergency arbitrator provisions, the standards a tribunal and a national court might apply to determine applications for interim relief might differ. Parties might for practical reasons consider applying to courts for relief and this case illustrates what they can expect.

This article may be cited as follows: Wilson Koh, “Court Ordered Interim Relief Over Foreign Assets (Five Ocean v Cingler Ship [2015] SGHC 311) International Arbitration Asia (25 January 2016) <http://www.internationalarbitrationasia.com/Court-Ordered-Interim-Relief-Over-Foreign-Assets>.