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Case Report: The One-ship Corporate Structure And Its Risk To Charter Hirers
April 2011 | Finance | Maritime | Litigation & Arbitration | Maritime | Maritime | Starboard

Janice NGEOW
Lawrence TEH

In the case of The "Shen Ming Hong 7" [2010] SGHC 269 the court dealt for the first time with the issue of whether or not to allow the owner to take its ship, the sole company asset, out of the jurisdiction or require it to lie idle a working asset pending the court's final decision on the legitimacy of the vessel's earlier arrest.

The plaintiff, an Indian company manufacturing and exporting iron ore, chartered "Shen Ming Hong 7" owned by the defendant, a company incorporated in Panama to transport cargo from Mormugao, Goa, India to Tianjin, China. The plaintiff alleged that the defendant wrongfully delivered the cargo to a third party instead of the plaintiff. The defendant claimed that the plaintiff had failed to come forward to claim the cargo at Tianjin and the cargo was, and still is, stored under the supervision of the Chinese customs authority.

In order to recover the cargo (or, alternatively, damages), the plaintiff commenced an admiralty action and the vessel was arrested as security for the plaintiff's claims. As is typical of shipping companies, the defendant is a one-ship company whose only asset of any value was the vessel. The defendant successfully obtained a registrar's order to set aside the arrest and the release the vessel. The plaintiff applied to the court for a stay of execution of the registrar's order pending its appeal against that order.

Deciding to grant a stay of execution, the judge balanced the claims of the plaintiff (that if the defendant were allowed to take its vessel out of the jurisdiction, the plaintiff's appeal against the registrar's decision would be nugatory) against the financial cost to the defendant.

The judge was swayed by the plaintiff emphasises that the defendant was a foreign company with only one notable asset - the vessel ordered to be released. The judge also inferred from the defendant's argument that the defendant had intentions to take the vessel out of Singapore and put it to work. If so, it would be improbable that the plaintiff would be able to obtain any security for their Admiralty claim should it succeed on appeal.

The judge also found that, although it is a common liability-insulation tactic for ship-owning companies to only own one ship and hardly anything else, for the purposes of stay of execution applications, is not to be measured by the ordinariness or particularity of the situation but by whether the prevailing circumstances are likely to render the appeal toothless.

As for the financial costs of a stay, the defendant should be able to recover from the plaintiff damages for wrongful arrest if the arrest was indeed unwarranted.