Singapore: The "Xin Chang Shu" – Malice Inferred

Last Updated: 19 February 2016
Article by Probin Dass

In a judgment that must serve as a model of clarity, Steven Chong J explained why justice demanded that the plaintiff had to compensate the defendant for its act in arresting the defendant's vessel. In the process, Chong J brought welcome clarity to aspects of both the procedural and substantive law relating to ship arrests which should be welcomed by practitioners.

1. Background

This is yet another case which arose out of the fallout from the insolvency of the OW Bunkers group. The plaintiff supplied bunkers to the defendant's vessel, the "Xin Chang Shu". However, there was no contractual nexus between the plaintiff and the defendant. Rather, the defendant had contracted with an OW entity – OW China – which in turn contracted with another OW entity – OW Singapore – and it was OW Singapore that contracted with the plaintiff. Naturally, with the insolvency of the intermediate OW entities, the plaintiff wanted to recover the price of the bunkers directly from the shipowner i.e. the defendant. The plaintiff therefore commenced admiralty in rem proceedings against the defendant and arrested the "Xin Chang Shu" to obtain security for the claim.

The plaintiff based its claim on the contract it had with OW Singapore and the argument that OW Singapore had acted as the defendant's agent and therefore bound the defendant to this contract. As there was no direct dealing or communication between the defendant and the plaintiff at any time prior to the supply of the bunkers, the plaintiff asserted that the agency of OW Singapore for the defendant was established on the following bases:

  1. OW Singapore's acceptance of the plaintiff's Bunker Sales Confirmation which included a term that OW Singapore accepted that the order was placed on behalf of the ship's registered owner, i.e. the defendant. ("the Legal Basis")
  2. The transmission of "important commercial details" relating to the ship and the manner in which the bunkers should be delivered to the ship, with the plaintiff alleging that these commercial details were supplied by OW Singapore to the plaintiff and thereby giving the plaintiff the impression that OW Singapore was fully authorised by the defendant to order the bunkers on its behalf. ("the Factual Basis")

2. Was the threshold crossed?

Not every arrest that is successfully impugned will result in the imposition of damages for wrongful arrest on the arresting party. The mere fact that an arrest is made on the basis of a plainly and obviously unsustainable claim does not always justify an award of damages. The threshold is high and very much involves an assessment of the merits. As Chong J put it, "While the courts have held that malice may be inferred if the claim is without colour or foundation, what that means in practice is inevitably a matter of judgment, and can only be determined by the court on the facts of each case."

Therefore, at issue was the question of whether the agency argument had sufficient merit so it could not be said that the claim was brought with "so little colour or foundation that it implies malice".

Chong J found the Legal Basis completely unmeritorious. In his words, "it is trite law (an expression which I use very sparingly) that a person cannot hold itself out as an agent on behalf of a principal. Equally, a third party cannot unilaterally create an agency relationship when none existed by relying on its own terms without the knowledge or consent of the principal". In other words, the plaintiff's term in its Bunker Sales Confirmation could not, on its own, make OW Singapore the agent of the defendant. The facts showed that the defendant did not even communicate with the plaintiff let alone do anything else to lead the plaintiff to believe that OW Singapore was acting as the defendant's agent. These are necessary elements to establish an agency by estoppel which requires evidence showing that the defendant did or said something to give the plaintiff the impression that OW Singapore was acting as the defendant's agent.

Chong J also dismissed the Factual Basis. He did so simply because the facts showed that the "important commercial details" were supplied by the plaintiff itself and not OW Singapore as alleged. The defendant managed to show that the Factual Basis was premised on false assertions and that the court which granted the ex parte arrest warrant was misled by the plaintiff.

Chong J concluded that the malice threshold had been crossed by the plaintiff. The legal foundation of the plaintiff's case i.e. the Legal Basis was "a complete legal non-starter" as the principle of law involved was simple and well established and the plaintiff had no excuse to get it wrong. The factual foundation of the plaintiff's case (i.e. the Factual Basis) was "equally misconceived" as it was based on a false foundation which the plaintiff knew, or ought to have known, of. The plaintiff's conduct was particularly egregious as correspondence between the parties' solicitors prior to the arrest showed that the plaintiff knew, or at least ought to have known, of the fact that OW Singapore had acted as principal, and not as agent for the defendant, in entering into the contract with the plaintiff. In summing things up, Chong J eloquently added that "the plaintiff's dismissive and cavalier attitude towards the defendant's position that it had purchased the bunkers from OW China on different terms, which it knew was effectively a 'knock-out blow' to its claim, is deserving of opprobrium."

3. Conclusion

Given the facts of the case the result is not surprising. Detaining a ship by arresting it can potentially cause the shipowner to suffer significant losses. In this case the ship was arrested for approximately three days and the losses will be assessed when the question of the quantum of damages arises for determination. Interestingly, Chong J expressly directed that the assessment hearing be fixed before him. This case serves as a reminder to admiralty practitioners that they must tread carefully when advising clients on the merits of an admiralty claim. Perhaps the lesson is that if one is ttoo err it should be on the side of caution and caution dictates that a hopeful claimant refrains from arresting the ship.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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