Judgment

[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.]

Karthigesu JA (delivering the grounds of judgment of the court):

Introduction

1       This appeal arose from the decision of S Rajendran J who granted the respondents judgment in rem for the sum of S$184,779.80 with interest for their claim against the owners of the vessel ‘Capricon’. The respondents’ claim was in respect of materials supplied and works and services performed by them on the said vessel. The owner of the vessel at the time of the issue of the writ in November 1993 was a company known as Valour Offshore Marine Services NV (‘Valour NV’) which was incorporated in the Netherlands Antilles. This company entered an appearance to the action taken out against them by the respondents and filed its defence through its then solicitors, Messrs Ang & Partners. The vessel was released after its arrest when the appropriate security was provided via a letter of guarantee provided by Citibank.

Background facts

2       The main fact in this appeal was the dissolution of Valour NV on 20 September 1995 in the Netherlands Antilles after the writ had been issued by the respondents and Valour NV’s defence filed. Subsequently on 29 May 1996, Messrs Haridass Ho & Partners took over the conduct of the case for Valour NV. The first part of the in rem action was heard in March 1998 and on 4 April 1998, Messrs Rajah & Tann replaced them as the solicitors representing Valour NV.

3       This turn of events was of significance as Messrs Rajah & Tann allegedly only found out that Valour NV had been dissolved in May 1998 and therefore informed the Registrar of the Supreme Court of this fact. They then applied to discharge themselves as the solicitors on record on the ground that Valour NV, as the defendant to the respondents’ claim for payment of ship repairs, no longer existed. As evidence of this, a declaration from the Curacao Commercial Registry that the defendants were dissolved and liquidated was presented to S Rajendran J who granted the discharge on 22 July 1998.

4         Subsequently, Mr Lim Tean of Messrs Rajah & Tann submitted that as the vessel had been released on a guarantee provided to the respondents by Citibank, Citibank should be informed of these proceedings and invited to intervene due to the present circumstances. Time was given to counsel to enquire of Citibank whether it wanted to do so and it was determined that the bank did not wish to intervene. For the subsequent duration of the hearing, Mr Lim Tean addressed the court as amicus curiae and submitted that as the defendant company no longer existed, judgment could not be entered against it. The learned judge however gave judgment for the respondents in rem as claimed. The appellants, having provided counter-security in the form of a time deposit at Citibank in return for which Citibank had issued the letter of guarantee for the vessels’ release, intervened in the action and filed the notice of appeal.

The decision below

5       The learned judge was of the opinion that despite the defendant company having been dissolved, judgment in rem could still be given to satisfy the respondents’ claim. In coming to his decision, the judge examined the nature of an in rem action and what happened to this sort of action after the owner of the arrested vessel entered an appearance to defend the claim.

6       While accepting the submission of appellants’ counsel that when the owner of a vessel enters appearance in an admiralty action in rem, the owner is effectively the defendant in respect of the action in rem as well as the action in personam, S Rajendran J noted that the two proceedings remain separate. Entry of appearance did not result in the fusion of the two. The authorities cited by appellants’ counsel such as The Kusu Island [1989] SLR 119; [1989] 3 MLJ 257 and Republic of India v India Steamship Co Ltd [1998] AC 878 sub nom The Indian Grace [1998] 1 Lloyd’s Rep 1 were in fact in support of the proposition that when an owner of the vessel entered an appearance and thereby assumed personal liability, the owner became the defendant and thus subject to personal liability in the event that he was not successful in defending the action. On the other hand, where the owner did not enter an appearance, the plaintiff in the action could only satisfy his claim against the vessel and would not be able to establish personal liability against the owner. S Rajendran J based this opinion on the dictum of Fletcher Moulton LJ in The Burns [1907] P 137 and the comment by Wee Chong Jin CJ in The Kusu Island that ‘once the defendant to an action in rem has entered an unconditional appearance he submits to the jurisdiction of the court  and from then onwards the action continues as an action in rem and in personam.’ [Emphasis added.]

7       The learned judge was also not completely satisfied that Valour NV had in fact ceased to exist as the only evidence before him was a faxed copy of the declaration from the Curacao Commercial Register stating this fact. As such, S Rajendran J stated that in the absence of clear evidence that Valour NV had been dissolved, the effect of counsel discharging himself from further acting and of Valour NV no longer participating in the proceedings was really no different from a situation where a defendant failed to appear at the hearing. In such a situation, the hearing can proceed and judgment entered against that defendant even though the defendant is not present in court.

8       However, the judge decided to proceed as if Valour NV had indeed been dissolved on 20 September 1995. As the law of the Netherland Antilles was not pleaded before him, S Rajendran J assumed that the foreign law was the same as the local law relating to the position of proceedings against a company in the process of being wound up or which had been wound up. The learned judge found as a fact that in the present case, the respondents, as repairers, had a possessory lien over the vessel for their unpaid charges. In addition, the arrest of the vessel which was done before Valour NV was wound up, created a statutory lien in favour of the respondents on the vessel. This meant that the respondents could assert against all the world that the vessel was a security for their claim. As such, this was a case which was suitable for leave for the proceedings to continue under s 262(3) of the Companies Act (Cap 50) to be granted.

9       In coming to his decision, S Rajendran J relied largely on Lim Bok Lai v Selco (Singapore) Pte Ltd [1987] SLR 423; [1987] 2 MLJ 688. Lai Kew Chai J granted the plaintiffs in this case the requisite leave to continue proceedings under s 262(3) of the Companies Act. He said that the issue of a writ in rem in exercise of the statutory right of action had crucial consequences which enured to the benefit of the plaintiffs and made them secured creditors. This was a substantial factor influencing him to exercise his discretion to allow them to proceed with their claim against the defendants. Similar comments in The Hull 308 [1991] SLR 304; [1991] 3 MLJ 393 and Re Aro Co Ltd [1980] Ch 196 also led the judge to reach his decision to allow the continuation of the present proceedings.

10     The judge was of the view that Lazard Brothers & Co v Midland Bank Ltd [1933] AC 289 was not applicable to the facts of the present case as it did not concern an admiralty action in rem. Furthermore, it was a case where at the time the writ was issued, the defendant was already non-existent. In this case, Valour NV was in existence at the time of issue of the writ. As such, the judge granted the respondents their claim for the amount due for the repairs done on the vessel.

The appeal

11     The appellants submitted that the learned judge erred in allowing judgment in rem to be entered for the respondents’ claim for four reasons. Their main ground of appeal was that the judge had erred in concluding that judgments in rem could be entered notwithstanding the fact that the defendant company had been dissolved. This was based on the authorities of Lazard Brothers & Co v Midland Bank Ltd. The appellants argued that once a company is dissolved, no judgment can be entered against it and the dissolution must be first set aside in order for proceedings to continue.

12     The appellants further submitted that the judge had no jurisdiction to exercise his discretion under s 262(3) of the Companies Act as the defendant company was a company incorporated in the Netherlands Antilles and was dissolved there. As such, the Singapore court has no jurisdiction under Part X of the Companies Act [in which s 262(3) is found] in respect of it as the corporation was not wound up under Part X.

13     Finally, the appellants argued that the judge was not correct in holding that there was insufficient evidence that Valour NV had been dissolved in the Netherlands Antilles in spite of the declaration from the Curacao Commercial Registry.

Preliminary issue

14     Before discussing the main crux of the appeal, the appellants’ contentions regarding the judge’s finding that there was insufficient evidence to suggest that the defendants had been dissolved must be dealt with. This contention was easily rejected by the fact that the judge, while making the above comment, did not actually base his decision on it. In fact, he proceeded on the basis that Valour NV had indeed been dissolved. In this event, the notice of motion filed by the appellants to adduce as fresh evidence, an affidavit purporting to prove that Valour NV had indeed been wound up, was dismissed as this fact had not affected the judge’s decision in any way.

The nature of an admiralty action in rem

15     We now turn to the appellants’ main ground of appeal. They asserted that in in rem proceedings, the defendants are the shipowners, whether an appearance is entered by them or not. As such where no appearance is entered, the enforcement of the judgment would be restricted to the res only. However, the person against whom judgment is entered still remains the owners of the res and not the res itself.

16     There have been many cases in which both the nature of the in rem claim, and what happens subsequently when the defendant enters an appearance to the action which turns it into an in personam claim as well, have been discussed. The most relevant comments can be found in The Kusu Island, The Fierbinti [1994] 3 SLR 864, The Dictator [1892] P 304, The Tervaete [1922] P 259, and the recent House of Lords case of The Indian Grace which reviewed most of the English authorities on this issue. As such, it would be appropriate to discuss the principles of law laid down in these cases.

17     In The Kusu Island, the issue of whether the owner of the res was the party to the action in rem arose. Here, there had been an unconditional appearance to the action by the defendant company, yet there were submissions that in an action in rem, the actual defendant is the res. Wee Chong Jin CJ, delivering the judgment on behalf of the Court of Appeal, found that the authorities suggested that where a defendant enters an unconditional appearance to an admiralty action in rem, he submits to the jurisdiction of the court personally and from then onwards, the action continues as an action in rem and in personam. That is, if judgment is entered for the plaintiff and is not fully satisfied by the enforcement thereof against the res, execution proceedings for the balance may be instituted against the defendant personally. On the other hand, Wee Chong Jin CJ went on to consider the English cases of The Parlement Belge (1880) 5 PD 197 and The Cristina [1938] AC 485 which showed that while a defendant in an action in rem is as much impleaded as by an action in personam and the actual defendant is not the res but the owner of the res, an action in rem is in its true sense against the res, although the actual defendant is the owner of the vessel. This principle was based on the decision of Fletcher Moulton LJ in The Burns. Therefore where no appearance is entered by the defendant to such an action, judgment when entered is enforceable only against the res and no more.

18     In another local case of The Fierbinti [1994] 3 SLR 864, the principles in The Kusu Island were reiterated. At p 870 of the judgement, LP Thean JA stated that:

An action in rem once commenced against the ship is an action against the ship itself and continues as such even though it may also be an action in personam against the owner thereof. If the owner does not enter an appearance and the judgment is obtained, the judgment is enforceable only against the ship and to the extent of the value of the ship. If, however, the owner enters an appearance the action will continue as an action in rem against the ship and an action in personam against the owner, and if judgment is obtained it is enforceable against the ship and also against the owner to the full extent of the judgment.

The tone of these two local cases seems to suggest that the appearance of the defendant does no more than to provide another source against whom the judgment can be satisfied in the case where the value of the ship is not sufficient to meet the plaintiff’s claim. The nature of the in rem action remains as one which is against the ship even though the defendants are the owners of the ship.

19     We now turn to the English cases. The Indian Grace being the most recent, considered most of the older authorities on this issue. This case concerned an action in rem and personam against the owners of the vessel for damage to cargo carried on board the vessel. An in personam action was taken out against the defendants in India. Subsequently, an action in rem was brought in England. Judgment was then entered against the defendants in India. The defendants sought to strike out the proceedings on the ground that the action in England was barred by res judicata under s 34 of the Civil Jurisdictions and Judgments Act 1982. The House of Lords ordered the in rem proceedings in England to be struck out as the rationale of s 34 was that it was unjust to permit the same issue to be litigated afresh between the same parties. As such, it would be wrong to permit the action in rem to proceed despite a foreign judgment in personam obtained in the same cause of action.

20     In this case, the judge at first instance had concluded that the authorities showed that although an action in personam and an action in rem may involve the same cause of action, historically they have been regarded as being between different parties. The House of Lords thus found it necessary to examine the nature of the action in rem. In doing so, they relied heavily on the judgment in The Dictator which was followed and endorsed in another English Court of Appeal case of The Gemma [1899] P 285. They also remarked that Fletcher Moulton LJ’s statement in The Burns did not reflect the reasoning of the other cases and the reasoning of the majority in that case. As such, following The Dictator and The Tervaete, the House of Lords stated that the procedural theory of admiralty actions prevailed and revealed that in substance, the owners of the vessels were the parties to an action in rem and exchewed the mystique of the personification theory which had previously regarded the ship as the ‘wrongdoer’. The Law Lords chose not to comment on maritime liens which seemed to accrue independently of personal liability of the shipowner as the case at hand did not concern this subject.

21     The House of Lords also discussed The Parlement Belge (1880) 5 PD 197 and The Cristina [1938] AC 485 which were approved of in The Kusu Island. They felt that as the sovereign whose ship was served in an action in rem was directly impleaded as a defendant, this had to carry with it the legal consequence that the sovereign in the party to the action in rem. Furthermore, the Law Lords quoted a passage from the judgment of Lord Brandon in The August 8th [1982–1983] SLR 32; [1983] 2 AC 450; [1983] 1 Lloyd’s Rep 351, a case also discussed in The Kusu Island, which said that where the defendant entered an appearance to an action in rem, ‘the action continues against him not only as an action in rem but also an action in personam.’ [Emphasis added.]

22     The main crux of the matter is the status of the admiralty in rem action after the defendant has entered an appearance. This question was considered by this court in The Kusu Island where this court rejected the argument that the defendant to an admiralty action in rem is the res, even where the defendant has not entered an appearance, and held that the defendant is the owner of the res: see The Kusu Island [1989] SLR 119 at pp 127 and 128; [1989] 3 MLJ 257 at pp 261 and 262.

23     If one were to follow the reasoning of the House of Lords in The Indian Grace, the result would be that the defendant to the action in rem is not the ship but the shipowners, whether or not the shipowners had entered an appearance in the in rem action as the owner is in fact directly impleaded as a defendant once the ship has been served with the writ. However, the factual situation in The Indian Grace must be recalled. There, the plaintiffs were in fact seeking to institute two actions, one in personam action in India and the action in rem in England. The decision to strike out the proceedings in England was based on the doctrine of res judicata and s 34 of the Civil Jurisdictions and Judgments Act. For these reasons, The Indian Grace is clearly distinguishable from this appeal. It must be reiterated at this juncture that this does not mean that where the shipowner has not entered an appearance in the action, he is liable personally. This view is shared by the judges in The Kusu Island and The August 8th. S Rajendran J in the present case also felt the same way.

24     We were however of the view that S Rajendran J was correct in stating that the in rem action continues to proceed against the res even though the real party to the action is the shipowner as was indicated in The Indian Grace. That is how Lord Brandon’s otherwise apparently contradictory statements in The August 8th can be interpreted and thus reconciled. Otherwise the whole purpose of the in rem action would be defeated in cases where the defendants turn out to be insolvent or if it proves difficult to enforce the judgment. The ship or the subsequent security provided is the res against which the judgment can be enforced in favour of the claimants, even if the defendants to the action in the sense that an inanimate object cannot be a defendant, are the shipowners. The portions of the House of Lords judgment relied on by the appellants were theoretical expositions on the nature of in rem actions and did not constitute the ratio. Moreover, the comments were due to the specific context of the facts in the case.

25     We were therefore of the view that the general perception accepted by the local cases that an admiralty action in rem is an action against the res remains intact despite the comments by the House of Lords in The Indian Grace. The decision in J Gadsden Pty Ltd v Australian Coastal Shipping Commission (1977) 131 FLR 157; [1977] 1 NSWLR 575 makes this clear while at the same time holding that the shipowner is the defendant in an action in rem. It would be preposterous for this court to hold otherwise as this would mean that a perfectly good action in rem would be defeated in this manner as soon as the defendant company was dissolved after having entered an appearance. The admiralty action in rem in the present case therefore could proceed against the Capricon or the security which represented it.

Whether judgement can be entered even though the defendant company has been dissolved

26     One of the main advantages of an admiralty action in rem is that the plaintiff’s claim is secured before judgment is obtained in an action in rem. Toh Kian Sing in his book Admiralty Law and Practice (1998) comments that when a ship is arrested and judicially sold, the proceeds are used to pay off the claimants. If security is provided for the ship’s release, the security provided can be looked to for satisfaction of any judgment subsequently obtained. More importantly, with security obtained before judgment, satisfaction of the plaintiff’s claim will not be hampered by any intervening financial impecuniosity which may embarrass the shipowner.

27     The dictum of Hewson J in The Zafiro; John Carlbom & Co v Zafiro (SS) (Owners of) [1960] P 1; [1959] 2 All ER 537 also indicates that the nature of the pre-judgment security provided by the arrest of a ship in an in rem action is special. In this case, a writ in rem was issued against the owners of the Zafiro and the plaintiffs arrested her. The owners, a company, then passed a resolution for voluntary winding up and the Zafiro was subsequently sold under an order of court made at the instance of the liquidator of the company. The plaintiffs moved for judgment in default and for payment out of court of the sum due for necessaries. The judge held that there should be judgment for the plaintiffs as they were secured creditors.

28     What is clear is that once a vessel is arrested, the ship, or the security provided in lieu of it, represents pre-judgment security. It also turned the respondents in this case into secured creditors of the owners of the ‘Capricon’. As such, it was held by the English Court of Appeal in Re Aro Co Ltd that a plaintiff who issued a writ against the ship before the owners were wound up becomes a secured creditor and that when the writ in rem is issued, the statutory lien accrues in favour of the plaintiff. This entitles the plaintiff to arrest and detain the ship and if the court adjudicates in his favour, to a judicial sale and satisfaction of his claim out of the proceeds of sale. The plaintiff’s statutory lien is not defeated by any transfer of property apart from one effected by a judicial sale. The court in this case was exercising its discretion under s 262(3) of the Companies Act to allow the action to proceed against the company despite the winding up order being made. This case was approved of and applied in Singapore in Lim Bok Lai v Selco (Singapore) Pte Ltd and The Hull 308.

29     In Lim Bok Lai v Selco (Singapore) Pte Ltd, the plaintiffs had filed the writs in admiralty in rem before the commencement of the winding up of the company, although none of the writs were served before the liquidation. Lai Kew Chai J granted the plaintiffs’ application in this case for leave to continue and pursue the action under s 262(3) of the Companies Act. In doing so, Lai Kew Chai J said that the issue of the writ in rem in exercise of the statutory right of action in rem has crucial consequences which enure to the benefit of the plaintiffs. Furthermore, their claims are not affected by any subsequent change in ownership. As such, the  learned judge exercised his discretion and granted the plaintiffs’ application. The timing of the issue of the writ was established further as a crucial factor in the granting of leave under s 262(3) in The Hull 308. Here, the Court of Appeal found that the plaintiffs had taken out their writ in rem against the ship, after the commencement of the winding up of the defendants. They could not therefore be considered as secured creditors for the purpose of deciding whether or not the discretion under s 262(3) should be exercised in their favour.

30     The difficulty with the present case was the fact that Valour NV was a company incorporated and dissolved under the laws of the Netherlands Antilles, whereas in the two cases above, the ship-owning companies appeared to have been wound up under Singapore law in Singapore.

31     However, even though Valour NV was dissolved in the Netherlands Antilles, this does not mean that the respondents’ in rem claim necessarily had to fail. As Lai Kew Chai J remarked in Lim Bok Lai v Selco (Singapore) Pte Ltd, the claim was not affected by any subsequent changes in ownership once the writ in rem relating to the statutory lien had been issued. This conclusion was reached in The Helene Roth [1980] QB 273. Sheen J stated in this case that one of the functions of the admiralty court and jurisdiction is to assist creditors to obtain satisfaction of their claims. Accordingly, if a writ is issued before any change in the ownership of a ship has occurred, a subsequent change of ownership would provide good cause for renewing the writ unless those who have the conduct of the action have obviously not pursued it with diligence. In effect, where a claimant had issued a writ against a ship to enforce a claim against the owner, but before the writ had been served, the owner transferred the ship to another person, the claimant’s right to enforce his claim against the res should be protected.

32     The respondents in this case were therefore able to satisfy their claim against the vessel ‘Capricon’ due to the special nature of the action in rem which additionally, required them as the plaintiff in an in rem action, to prove their claim. This has to be carried out in the same manner even when the defendant has not entered an appearance to the action. As stated above, once the writ had been issued and furthermore in this case was served on the vessel, the action survives a change in ownership with the exception of the case when a judicial sale has taken place. This was not the case here as there was evidence to suggest that ‘Capricon’ was sold to Valour Singapore, of which the appellants are directors as well, before Valour NV was dissolved. It therefore makes no difference to the respondents’ in rem claim that the original defendant had been dissolved. As noted earlier, after the owners of the vessel have entered an appearance to the action, the action continues as a parallel in rem and in personam action. The in rem characteristics of the action do not become subsumed by the additional in personam characteristics. Clearly, the plaintiff’s fortunes in such a case cannot depend on the existence of the ship-owning company when the writ has already been issued against the vessel. Otherwise, this would defeat the whole point and the advantages of taking out an action in rem.

33     We were therefore of the opinion that the respondents remained entitled to pursue their claim and agreed with S Rajendran J that judgment could be entered in favour of the respondents despite the dissolution and non-existence of the owners of the ship. To do so otherwise would result in an astounding loophole and defeat the purpose of the admiralty in rem action being a means of providing a prejudgment security for a plaintiff with a claim against the ship. This is so especially after the statutory lien has accrued against the vessel before the owners have been wound up or dissolved.

34     The appellants cited in support of their submission that judgment could not be entered in this case, Lazard Brothers & Co v Midland Bank Ltd. As pointed out by the trial judge, this case could not really apply to the present situation as it did not involve an admiralty action in rem. Furthermore, in Lazard Brothers, the facts indicated that at the time the writ was issued, the defendant was not in existence already. In this case Valour NV was very much in existence at the time of issue of the writ. The appellants’ submissions on the general principle that judgment cannot be entered against a non-existent company were not really applicable at any rate due to the fact that in this case, the action was an in rem claim which could be said to be against ‘Capricon’ even though the true defendant to the action was Valour NV.

Conclusion

35     As there was little merit in the appellants’ case, we dismissed both the motion and the appeal for the reasons stated above.

Appeal dismissed.

Reported by Sharon Lim