We live in unprecedented times and strange situations have occurred in a number of ways due to the Covid-19 pandemic. The suggestion that bleach injections can be a miracle cure for Covid-19 is one such strange occurrence but that is another story for another times, perhaps over a beer or single malt whisky once the bars re-open.
In the meantime, the case of the “Miracle Hope”  EWHC 995 (Comm) is another example of an unusual situation which arose due to the Covid-19 pandemic.
Facts of the case
The claim arose out of the arrest of the vessel “Miracle Hope” in Singapore. The arresting party was Natixis Bank who claims against the vessel for delivering of cargo without presentation of the original bills of lading. The amount of security demanded was $76 million.
The owner of the vessel was Ocean Light. Ocean Light time chartered the vessel to Trafigura, who in turn sub-chartered it to Clearlake. Clearlake in turn sub-sub-chartered it to Petrobas. As is common in the oil trade, the cargo was delivered against back-to-back letters of indemnity instead of the original bills of lading. The letters of indemnity provide for the jurisdiction of the High Court of England.
After the vessel was arrested, Trafigura obtained a mandatory injunction against Clearlake in England to compel Clearlake to “provide bail or other security as may be required to prevent such arrest or detention or to secure the release of the vessel”. Clearlake similarly obtained a separate mandatory injunction against Petrobas on largely similar terms.
Following from the grant of the mandatory injunctions, Clearlake and Petrobas negotiated with Natixis Bank on the terms for securing the release of the vessel from arrest. Natixis Bank wanted security in the form of a banker’s guarantee and although the parties were in agreement on the mode of security, they were unable to come to an agreement on the terms of the banker’s guarantee to be provided.
In a normal situation, when parties are unable to come to an agreement on the form of security to be provided, the usual recourse would be to file an application to the Court that ordered the arrest, and for that Court to determine the form of security to be provided in exchange for the release of the vessel.
For this case, it appears that an application was filed in the Singapore Courts to determine the security to be furnished in order to release the vessel from arrest. However, due to the Covid-19 pandemic, the Singapore Courts deferred all non-essential hearings. For reasons which are not set out in the judgment except that it was due to the Covid-19 pandemic, the application before the Singapore Court for an order to release the vessel was fixed for hearing on 18 May 2020.
Trafigura then proceeded to file an application in the English High Court for a variation of the mandatory injunction to seek an order that Clearlake either (1) provide a bank guarantee in the form as required by Natixis Bank, or (2) pay the sum of $76 million into the Singapore Court as security for the release of the vessel.
The UK Court’s Decision
The first question to be answered is one of construction as to the meaning of the sentence “bail or other security as may be required”. The Court noted that there are three possible interpretations:
(1) Bail or other security as may be required by the arresting party. Such an interpretation would mean that the owner would have to put up security in whatever form the arresting party desired.
(2) Bail or other security as may be required by the Court which ordered the arrest. Such an interpretation would mean that it would be for the Singapore Court in this case to determine the form of security and the wordings to be provided. The English High Court considers such an interpretation to be the most logical. The court that arrests the vessel would be the same court that has the power to release the vessel from arrest. Therefore, where there is a dispute as to the reasonableness of the security offered, the arresting court should also be the one that determines if the security offered is sufficient before ordering the release of the vessel.
(3) Bail or other security as may be ordered by the Court having jurisdiction to determine the dispute between the owner and charterer. The English High Court notes that while it has jurisdiction over any disputes between the owner and charterer, the proper interpretation of what is required for the release of the vessel should be based on what is required by the arresting court. And what would be required by the Singapore Court would have to be proved as a matter of fact before the English High Court.
The English High Court goes on to say that in normal circumstances, the application should be made before the Singapore Court to determine the form of security to be provided for the release of the vessel. However, the ongoing Covid-19 pandemic is anything but normal. So while the English High Court acknowledges the importance of comity, given the unusual circumstances, the English High Court proceeded to make a determination on the form of security to be provided for the release of the vessel from arrest in Singapore.
After going through the various differences between the parties on the wordings of the bank guarantee that Petrobas’ banker was prepared to give, and what Natixis Bank was prepared to accept, the Court decided that it was not practicable nor realistic to force the bank to issue any sort of guarantees that it was not prepared to give in the first place. Eventually, the English High Court ordered Clearlake to pay the sum of $76 million into the Singapore Court as security for the release of the vessel.
Firstly, we agree with the English High Court’s comments that matters regarding adequacy of security should be determined by the arresting court.
Although the English High Court may have jurisdiction over the parties by virtue of the jurisdiction clause in the letters of indemnity, an arrest is an action in rem, which is a claim against the res. By making an in personam order against the parties regarding the provision of security, the English High Court had effectively crossed its jurisdiction and indirectly ordered the release of the vessel by means of payment of the security into the Singapore Court.
While one may say that the Covid-19 pandemic is anything but usual, and unusual times call for unusual means, we pause to note that the Singapore Court was not under any form of lockdown nor was it unable to hear the application to determine security.
It was set out in the judgment that Clearlake filed the application with the Singapore Court on 7 April 2020 for an order that security be in the form as proposed by Clearlake and that substitute security may be put up by Petrobas.
It appears also that Clearlake did not apply to intervene in the Singapore action early on in the action. Leave to intervene was only granted on 9 April 2020.
It further appears that there was a directions hearing before the Registrar on 14 April 2020. At the directions hearing, the Registrar directed Petrobas to file its application to determine security by 17 April 2020.
Directions were also given for parties to file their affidavits on 24 and 30 April 2020, and for the applications to be fixed for hearing on 6 May 2020. It is unclear what happened but the hearing that was originally fixed on 6 May 2020 was postponed to 18 May 2020.
Seen in the context of the time lines as described, the only delay which may have been caused by the Covid-19 pandemic is possibly the delay between 6 and 18 May 2020, or a period of 12 days.
This brings us to our query; is a delay of 12 days sufficiently long to warrant the English High Court extending its jurisdiction over a matter that ought to be decided by the Singapore Court?
Going by this rationale, does it mean that every time a vessel gets arrested in a jurisdiction where hearings get delayed, it becomes open to the English High Court to determine the form of arrest so long as it has jurisdiction over the parties? If so, that is effectively paying lip service to international comity but not really practicing it.
And yet we live in strange times where stranger things have happened. Like injecting bleach to cure Covid-19.
Photo by Dayne Topkin on Unsplash
1 thought on “Unusual times call for unusual means – when the English Courts decides on security for a vessel arrested in Singapore”
This is an interesting decision and I entirely agree with your in depth analysis arising therefrom.