The Juridical Nature of Shipping Liens Over Sub-freights

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The shipowner’s appeal against the Singapore High Court’s decision in Duncan, Cameron Lindsay and another v Diablo Fortune Inc and another matter [2017] SGHC 172, was heard by a 5-member Court of Appeal (comprising the Honourable Chief Justice Sundaresh Menon and the Honourable Judges of Appeal Andrew Phang Boon Leong, Judith Prakash, Steven Chong and Tay Yong Kwang) on 5 March 2018, reports the Mondaq.

This landmark decision has been closely watched because of its significance to the shipping industry. The liquidators, who had prevailed in the court below, were once again successfully represented in the appeal by Shook Lin & Bok’s partner Debby Lim (assisted by associate Cheryl Chong). Professor Hans Tjio of the National University of Singapore was also appointed as amicus curiae for the appeal.

Appeal Against Lien Over Sub-freights

Essentially, the liquidators had filed an application in the Singapore High Court to void a lien over sub-freight for non-registration under section 131 of the Singapore Companies Act.

The Singapore High Court had considered, for the first time in Singapore, the juridical nature of a lien over sub-freights.

In a watershed decision by the Honourable Judicial Commissioner Audrey Lim, the High Court found that the lien over sub-freights was a charge that was void for non-registration under section 131 of the Companies Act.

Refusal on Stay

The Court also refused the ship-owner’s application for a stay of proceedings, and for an extension of time to register the charge. Subsequently, the ship-owner filed an appeal in relation to the issue of whether the lien over sub-freights was a charge that had to be registered.

The Arguments

At the appeal, there was a fervent debate involving three different possible characteristics of a lien over sub-freights.

  • The ship-owner argued that such a lien merely confers a sui generis personal contractual right to intercept sub-freights, primarily because there is no immediate proprietary interest granted with the lien.
  • The liquidators on the other hand argued that the lien was an equitable assignment by way of security. The amicus curiae argued based on the Singapore Court of Appeal decision in Asiatic Enterprises (Pte) Ltd v UOB [1999] 3 SLR(R) 976, that the lien was a “springing security” or an agreement to give a charge in the future.
  • On both the liquidators’ and the amicus curiae’s arguments, the lien was indeed registrable, however, there was a difference as to when the need for registration arose.

High Court Decision Upholds

The Court of Appeal upheld the High Court’s decision – agreeing with the liquidator’s interpretation of how such a lien should be classified – and dismissed the ship-owner’s appeal immediately after hearing oral arguments, but indicated that it would issue grounds of decision at a later date.

The Court of Appeal’s grounds of decision is much anticipated by both the admiralty and insolvency communities, as it will clarify a legal issue which has not been previously tested by an appellate court in a common law jurisdiction (there having only been a few English High Court decisions on the juridical nature of a lien over sub-freights).

A further update will be provided upon the release of the written judgment. In the meantime, it will be prudent for ship-owners to register their lien(s) over sub-freights.

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Source: Mondaq

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