Introduction

Ship arrest, which allows a party to seize a vessel as security for a claim or to enforce a maritime lien, is a draconian remedy and may cause economic hardship on the shipowner’s operations.

When facing a claim of ship arrest, the shipowner may apply to strike out the proceeding, set aside the warrant of arrest and claim damages for wrongful arrest.  This article focuses on the principles governing wrongful arrest and award of damages, as demonstrated by a recent Singapore admiralty appeal case The Xin Chang Shu [2015] SGHC 308.

Background

The Plaintiff, Big Port Service DMCC, and OW Bunker Far East (Singapore) Pte Ltd (“OW Singapore”) entered into a contract (the “Contract”) for the supply of 4,000 metric tonnes of marine bunker fuel to Xin Chang Shu (the “Vessel”).  On 29 November 2014, the Plaintiff, while alleging that OW Singapore had acted as the Defendant’s agent in entering into the Contract on the Defendant’s behalf, commenced admiralty in rem proceedings against the Defendant for money due under the Contract.

On 9 December 2014, the Plaintiff obtained a warrant of arrest against the Vessel (the “Warrant of Arrest”). The Vessel was arrested on 10 December 2014 and released on 12 December 2014 when the Defendant agreed to provide security by making payment to the court to secure the release of the Vessel.  On 15 December 2014, the plaintiff applied for a stay of proceedings in favour of arbitration. Subsequently, on 29 December 2014, the defendant applied to strike out the proceedings, set aside the Warrant of Arrest and sought damages for wrongful arrest. The assistant registrar (the “AR”) ordered that the in rem writ be struck out while the other applications be dismissed.

Both parties appealed against the decision of the AR, with the Plaintiff appealing against the strike out of its writ and dismissal of its stay application while the Defendant appealing against the refusal in awarding damages for wrongful arrest and also in setting aside the Warrant of Arrest on the basis of material non-disclosure.  This article will focus on the Defendant’s claim for damages for wrongful arrest.

Principles governing wrongful arrest

A shipowner may be entitled to damages if the ship arrest is proved to be wrongful.  An arrest is wrongful if “the action and the arrest were so unwarrantably brought, or brought with so little colour, or so little foundation, as to imply malice or gross negligence on the plaintiff’s part”: The Evangelimos (1858) 12 Moo PC 352; 14 ER 945 (the “Test”).  The Test entails on the one hand a subjective enquiry into whether the arresting party had a genuine and honest belief at the time of the arrest that the arrest was legitimate, and on the other hand an objective enquiry into the prevailing circumstances and the evidence available at the time of arrest.

The focus of the enquiry is on the malice of the arresting party.  Malice can be actual if there is direct evidence on the arresting party’s state of mind or belief at the time of the arrest.  Malice can also be inferred if the case is so hopelessly lack of merit which warrants a finding that the claim is brought “unwarrantably” or seriously lacking in “colour” or “foundation”.  Inferred malice may be found if there is material non-disclosure on the part of the arresting party or the writ of summons does not disclose a reasonable cause of action: The Vasiliy Golovnin [2008] 4 SLR(R) 994.

Judgment

The Court held that the arrest of the Vessel was wrongful:

1.       the arrest of the Vessel was both factually and legally unsustainable; and

2.       the Plaintiff failed to disclose material facts when seeking the Warrant of Arrest.

The lack of factual and legal basis for the Warrant of Arrest

The Plaintiff’s claim, which was solely premised on the allegation that OW Singapore acted as the Defendant’s agent in entering into the Contract, was held to be both legally and factually unsustainable.

The factual foundation of the Plaintiff’s case was held to be misconceived.  While the Plaintiff alleged that OW Singapore provided the Plaintiff important commercial details in respect of the supply of marine bunker fuel, which purportedly gave the Plaintiff the appearance that OW Singapore was acting as the Defendant’s agent, the Court however found that such important commercial details in fact emanated from the Plaintiff instead of OW Singapore. Also, the Court referred to the correspondence between the Plaintiff and the Defendant prior to the arrest of the Vessel.  While the direct communication between the parties began with a letter of demand dated 12 November 2014, no assertion of OW Singapore being the Defendant’s agent could be found in any of the correspondence until the Plaintiff’s solicitors’ letter to the Defendant dated 17 December 2014 (which was issued after the arrest of the Vessel).  The Court rejected that the alleged agency of the Defendant was the Plaintiff’s genuine belief during the time of the arrest of the Vessel.  Otherwise, the same would be specifically highlighted in the parties’ correspondence all along.

The legal foundation of the Plaintiff’s case was premised on its own General Terms and Conditions for Sale and Delivery of Marine Bunkers (“GTC”), which asserted that OW Singapore was contracting as agent on the Defendant’s behalf.  OW Singapore was alleged to have confirmed acting as the Defendant’s agent by signing the Bunker Sale Confirmation dated 25 September 2014 issued by the Plaintiff, which incorporated the GTC by reference.  The Court held that the GTC could not assist the Plaintiff to establish an agency relationship between OW Singapore and the Defendant, as a person cannot hold itself out as an agent on behalf of a principal. On the same footing, a third party cannot unilaterally establish an agency relationship by relying on its own terms without the principal’s consent.  Examining all the evidence, nothing suggested that the Defendant was aware of OW Singapore’s involvement in the Contract, let alone the appointment of OW Singapore as its agent.

The Court held that the Plaintiff’s case, which was premised on the alleged agency of the Defendant, lacked both factual and legal basis.  The Plaintiff therefore knew or ought to have known that there was no agency relationship between the Defendant and OW Singapore.  The Plaintiff’s claim and the arrest of the Vessel were held to be so unwarrantably brought, or brought with so little colour that malice could be implied, which rendered the arrest wrongful.

The non-disclosure of material facts

Apart from the lack of factual and legal basis of the Plaintiff’s case and the arrest of the Vessel, the Court also found malice on the basis of the non-disclosure of material facts.  The Court held that the Plaintiff was obliged to disclose “defences that might be reasonably raised by the defendant”, which extended to “plausible, and not all conceivable or theoretical, defences”.  Plausible defences refer to matters which are “of such weight as to deliver the “knock-out blow” to the claim summarily”: The Vasiliy Golovnin [2008] 4 SLR(R) 994.

The plaintiff was aware of the fact that the Defendant had entered into a contract with OW Bunker China Limited (“OW China”) for the purchase of the same bunkers on different terms as well as at a higher price (the “OW China’s Contract”).  The Court held that the OW China’s Contract was not only relevant to the Plaintiff’s claim, but operated as the effective “knock-out blow” to the Plaintiff’s claim.  This significant fact should have been brought to the attention of the AR specifically.  Given the importance of the differences in the terms between the Contract and the OW China’s Contract, the mere exhibiting of the OW China’s Contract in the Plaintiff’s arrest affidavit was held to be insufficient to discharge the duty of full and frank disclosure.  The Court further held that this case was not simply a case with “so little foundation”, or “no foundation”, but was a case based on a false foundation.

Based on the above, the Court held that the Plaintiff knew or ought to have known that there was no agency relationship between the Defendant and OW Singapore and that it had no right to arrest the Vessel at the time of the arrest.  Due to the lack of factual and legal basis of the Plaintiff’s claim and the non-disclosure of material facts in establishing the agency relationship, the Plaintiff’s case had “so little foundation” that the malice threshold was crossed.

The Court therefore ordered that the Warrant of Arrest be set aside and that the Plaintiff shall pay the Defendant damages to be assessed for the wrongful arrest of the Vessel.  It was noteworthy that the Court also suggested that the setting aside of the Warrant of Arrest was not a prerequisite to pursue a claim for damages for wrongful arrest.

Conclusion

This case demonstrates that in order to seek damages for wrongful arrest of vessels, the shipowners must prove that the arrest was so unwarrantably brought or brought with so little colour or foundation which implies malice.  While the Test is the guiding principle on wrongful arrest of vessel, the issue of how malice can be inferred is in practice inevitably a matter to be determined on a case-by-case basis.