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Singapore Court Clarifies "Sister Ship" Arrest
March 2010 | Finance | Maritime | Litigation & Arbitration | Maritime | Multidisciplinary Practices | Maritime | Starboard

The Catur Samudra raised novel and interesting issues of statutory construction relating to the Singapore High Court's admiralty jurisdiction. The case required the court to examine whether a claim arising out of a guarantee of the performance of a charter of a ship allowed the claimant to arrest another ship belonging to the guarantor.

On 11 December 2007, the plaintiff had purchased the vessel M from H and leased it back to H under a bareboat charterparty. As a condition precedent, H's performance and payment obligations under the bareboat charterparty were guaranteed by HIT, which wholly owned H through another subsidiary. When H defaulted on charter hire payments, the plaintiff served a notice of termination and H redelivered M to the plaintiff. The plaintiff claimed against H in excess of US$30 million for payment of hire and damages for breach of the bareboat charterparty. This claim was put to London arbitration. The plaintiff also claimed against HIT under the guarantee for H's payments owing under the charterhire and for damages for breaches of the bareboat charterparty. When HIT did not pay on the guarantee, the plaintiff arrested HIT's vessel, the C, in Singapore.

Before deciding on whether C could be considered a "sister ship" to M for purposes of the High Court (Admiralty Jurisdiction) Act, and thus whether the admiralty jurisdiction of the High Court had been correctly invoked against the C, the High Court had to decide on whether:-

1. a claim under a guarantee would be a claim arising out of an agreement relating to the use or hire of a vessel; and
2. HIT, the party who would be liable in personam under the guarantee, was in possession or in control of the vessel at the time when the cause of action arose.

On the first issue, the judge found that the guarantee provided by HIT was not intrinsically related to the use or hire of the M, but ancillary to the contract of carriage. The judge posed two questions, "How did the claim arise?" (answer: "under the guarantee") and "Did the guarantee relate to the use or hire of the M?" (answer: "no") Thus he found no direct connection between the guarantee on the one hand and the claim arising out of an agreement relating to the use or hire of a vessel on the other.

On the second issue, the judge resisted what was regarded to be an indirect attempt to lift the corporate veil by asking the court to consider H and HIT as a single economic unit and concluded that the evidence tendered by the plaintiff was insufficient for him to find that HIT possessed or controlled the vessel.

As a result, the judge found that the admiralty jurisdiction of the High Court was improperly invoked against HIT's vessel, C, and set aside the proceedings.