30 October 2018

The Swiber Concorde [2018] SGHC 197

An admiralty in rem proceeding often results in the judicial sale of the subject vessel to satisfy the claimant’s claims. The judicial sale is handled through the offices of the Sheriff of the Supreme Court (“Sheriff”) under a commission for appraisement and sale granted by the court. The normal method of conducting the sale is via a closed-bid tender system on the Sheriff’s usual conditions of sale (“Conditions of Sale”). To encourage serious bidders, the Conditions of Sale provide that each bidder must also submit a deposit (usually of either S$50,000 or US$50,000 depending on the currency of the sale) with their bid in order to be considered.

What happens to the deposit when the successful bidder subsequently decides not to complete the purchase? The long-standing admiralty practice in Singapore is that the deposit forms part of the sale proceeds to be distributed to the
claimant(s). This practice was recently affirmed by the Singapore High Court in The Swiber Concorde.

Facts

United Overseas Bank Limited (“UOB”), as the mortgagees of the vessel “Swiber Concorde” (“Vessel”), caused the Vessel to be arrested in Singapore following the insolvency of the Swiber group of companies. When the owners of the Vessel failed to defend UOB’s claim to recover its loan, the High Court ordered the Vessel and the bunkers on board to be appraised and sold by the Sheriff. Following two rounds of bidding, the highest bid price received by the Sheriff was placed by Valentine Maritime Ltd (“Valentine”). As Valentine’s bid was below the reserve price, leave of court was required for the Sheriff to proceed with the sale of the Vessel to Valentine. This was duly obtained on 1 November 2017.

On 3 November 2017, the Sheriff informed Valentine that its bid had been accepted. Upon acceptance of the bid, Valentine was obliged to pay the balance purchase price to the Sheriff.

Despite multiple reminders from the Sheriff, Valentine failed to make payment of the balance. On 20 November 2017, Valentine informed the Sheriff of its intention not to complete the purchase and requested that the Sheriff return the US$50,000 deposit. On 28 November 2017, the Sheriff accepted Valentine’s repudiatory breach of the sale and informed Valentine that the deposit had been forfeited pursuant to Clause 16 of the Conditions of Sale. The Sheriff then conducted a third round of bidding and the Vessel was successfully sold to another buyer.

Following the sale of the Vessel and expiry of the usual 90-day moratorium, UOB applied for the determination of priorities and payment out of the sale proceeds of the Vessel, including the deposit forfeited from Valentine. At the hearing of the application, the High Court judge raised the question of whether a forfeited deposit was to be rightly considered as the sale proceeds of a vessel accruing to the benefit of the parties interested in the arrested vessel. The alternative was that the forfeited deposit accrued to the benefit of the State.

Decision of the High Court

Prior to this decision, the usual admiralty practice was that the forfeited deposit forms part of the sale proceeds of a vessel, to be eventually distributed to the admiralty claimants according to their priorities. This was the case in an earlier unreported decision of the “LCT Madhooni” Admiralty in rem No 111 of 2015, where Steven Chong J (as he then was) treated a forfeited deposit as part of the sale proceeds. However, as there were no written grounds of decision issued in the “LCT Madhooni” and there was apparently no published case law on this issue, the juridical basis for treating the forfeited deposit as part of the sale proceeds remained obscure.

The High Court ruled that the forfeited deposit was to be rightly considered as part of the sale proceeds of the Vessel.

In coming to that decision, the High Court reasoned that while the Sheriff was a public officer, in the judicial sale of a vessel, the Sheriff was not contracting on behalf of the State since the State did not have title to pass to the prospective purchaser. More importantly, the Sheriff was acting under a commission for appraisement and sale, and this was for the benefit of all parties interested in the arrested vessel. Therefore, there was no involvement by the State and no reason for the State to lay claim over the forfeited deposit.

Comment

This decision is to be welcomed insofar as it clarifies a grey area in Singapore admiralty law. This decision also affirms the commitment of the Singapore courts to provide a user-friendly forum to the maritime community in line with commercial expectations. Certainly, in the case of an abortive judicial sale, the costs of keeping the vessel under arrest while another buyer is sought is ultimately borne by parties interested in the arrested vessel. It is therefore only to be expected that the proceeds from the abortive sale should accrue to the benefit of the parties interested in the arrested vessel.

This decision is also a timely reminder to potential bidders about the ramifications of not proceeding with the purchase. It bears highlighting that Clause 16(d) of the Sheriff’s Conditions of Sale allows the arresting party and/or the owner of the vessel to pursue a defaulting purchaser for losses caused by the default. Accordingly, a defaulting purchaser’s exposure may not be limited only to the amounts already paid to the Sheriff.

Allen & Gledhill Partner Corina Song represented the successful bank.

 

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