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Singapore Court of Appeal to issue written grounds on the critical question of whether the typical charterparty clause providing a “lien over sub-freight / sub-hire” constitutes a charge which must be registered in Singapore

08.03.2018

On Monday 5 March 2018, a five-judge Court of Appeal (which consisted of Chief Justice Sundaresh Menon and Judge of Appeal (“JA”) Andrew Phang Boon Leong, Judith Prakash JA, Steven Chong JA and Tay Yong Kwang JA) heard the ship-owner’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 (for our analysis of the High Court decision please see our previous article).

This five-judge Court of Appeal coram is a departure from the usual coram of three, but was not unexpected given the far-reaching consequences of the High Court’s decision and correspondingly the Court of Appeal’s decision.  It could revolutionise the negotiation of the various possible types of security interests open to ship owners, charterers and subcharterers, with wider ramifications on the financial institutions providing facilities to the shipping industry, and change what has been the decades-old practice of the Singapore shipping industry in terms of not having to / not registering lien clauses as charges. 

Ms. Samantha Kong of Incisive Law LLC (in a formal law alliance with Ince & Co Singapore LLP) appeared for the ship-owner Appellant, Diablo Fortune Inc.

Broadly speaking, the debate at the hearing was between three different possible characterisations of a lien over sub-freight/sub-hire (the “Lien”). The Appellant took the position that the Lien has historically been and should remain construed as a contractual right to intercept because, amongst other reasons, there is no immediate proprietary interest granted with the lien and quite often the Lien is granted before there is even a subcharter. The characterisations raised on behalf of the Respondents (liquidators of the insolvent charterer) and by the amicus curiae appointed by the Court (Professor Hans Tjio) were that the Lien was either a floating charge or an agreement to give a right / charge in the future.  Apart from considering the characteristics of a lien, the Court of Appeal also considered the lack of express legislation in Singapore on this issue – unlike in Hong Kong whereby section 334(4) of the Companies Ordinance stated that liens shall not be regarded as charges.

Having considered the specific facts of the matter the Court of Appeal decided that it was inclined to follow the High Court’s decision below but having considered the submissions the Court of Appeal’s reasoning and detailed grounds of decision will be issued by way of a written judgment at a later date.

We will provide a further update upon release of the written judgment.  Meanwhile, suffice to say, speaking generally without particular knowledge of the factual scenario your company / client may be in, it would be prudent to encourage registration of the Lien.  At least till (if and when) the Court of Appeal’s written judgment provides further guidance on any particular exceptions or the general legal correctness of the different characterisations and approaches of the shipping industry.

If you would like to discuss this matter, please approach Edgar Chin of Incisive Law LLC or your usual Ince contact.

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