The plaintiff, a British Virgin Islands company, sued for breach of a time charterparty entered into with Eversea Valor Co Ltd (EVCL) in relation to the Es Valor. EVCL was then in possession and control of the vessel as demise charterer under an amended Barecon 2001 form bareboat charter pursuant to a financing charter arrangement with Huihong (Tianjin) Shipping Lease Co Ltd (Huihong) as the registered owner.

About three months later, the plaintiff entered into a voyage charterparty with Phoenix Further Marine Co Ltd. Three days after this, Gu Feng, purporting to act as a director of EVCL, wrote to inform the plaintiff that it would not be able to perform its obligations under the Eversea charterparty. Apart from stating that EVCL was not able to perform the charterparty 'because of our own reasons', no details were given.

The plaintiff proceeded to cancel the Phoenix charterparty, and immediately arrested the vessel as security for its claim against EVCL in an arbitration which the plaintiff had commenced in Singapore. The plaintiff invoked the in rem admiralty jurisdiction of this Court pursuant to s 20(2)(h) of the Senior Courts Act 1981 (UK) (the Act) in respect of 'a claim arising out of an agreement relating to the carriage of goods in a ship or to the use or hire of a ship'.

However, Huihong and EVCL disputed that the Eversea charterparty was valid and enforceable, contending that it was a sham transaction. They also contended that at the time the writ in rem was filed, the demise charter had been terminated, and therefore the vessel was no longer chartered by demise to EVCL. They applied for the writ in rem to be set aside.

Held: Application granted.

The test for invoking the in rem admiralty jurisdiction is trite, and best stated in The Bunga Melati 5 [2012] SGCA 46. The plaintiff must:

(a) show that it has a claim under a claim set out in s 20(2) of the Act [Step 1];

(b) show that the claim arises in connection with a ship [Step 2];

(c) identify the person who would be liable on the claim in an action in personam or otherwise referred to as the 'relevant person' (ie the in personam liability requirement) [Step 3];

(d) show that the relevant person was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship [Step 4];

(e) show that the relevant person was, at the time when the action was brought: (i) the beneficial owner of the offending ship in respect of all the shares in it or the charterer of that ship under a demise charter; or (ii) the beneficial owner of the sister ship as respects all shares in it [Step 5].

In terms of this test, the plaintiff must discharge the following burden of proof:

(a) prove on a balance of probabilities that the jurisdictional fact it is relying on under s 20(2)(h) exists, ie there is an agreement relating to the use or hire of the vessel; and

(b) show an arguable case that its claim is of the type and nature required by s 20(2)(h), ie the type and/or nature of the claim is one arising from the breach of the charterparty.

Quite clearly, to establish the jurisdictional fact in this case, all that is needed from the plaintiff would simply be to produce before this Court a copy of the Eversea charterparty which would establish that a charterparty exists between the plaintiff and EVCL. This will suffice to satisfy on the balance of probabilities that the jurisdictional fact exists in respect of the plaintiff's claim based on s 20(2)(h).

However, EVCL and Huihong contended that at the time when the cause of action arose and/or at the time when the writ in rem in this case was brought, EVCL was not in possession or in control of the vessel, and/or was not the charterer of the vessel under demise. The plaintiff would have to discharge the burden to prove on the balance of probabilities that EVCL had remained in law as the demise charterer of the vessel notwithstanding the notice of termination issued by Huihong. The failure to meet its burden of proof would mean that the writ in rem would have to be struck out on the ground that the admiralty jurisdiction was not properly invoked (the jurisdictional challenge).

Quite apart from the jurisdictional challenge, Huihong and EVCL also challenged the plaintiff's claim on its merits. They claimed that the Eversea charterparty was not a valid and enforceable agreement because Gu Feng, who had purported to sign the charterparty for and on behalf of EVCL as its director was not a validly appointed director of the company, and was not authorised to execute the Eversea charterparty. Further, they also contended that the charterparty was a sham transaction (the merits challenge).

Section 21(4) of the Act gives effect to art 3.4 of the Arrest Convention 1952 which allows for the arrest of a ship under 'a charter by demise'.

There are two divergent views as to whether a ship is, in law, still under a charter by demise during the period after the owner has purported to exercise a right of termination of the bareboat charterparty but the vessel is in the possession of the charterer, ie before physical redelivery of the vessel to the owner. This Court will follow the approach taken by Steven Chong J in The Chem Orchid [2015] SGHC 50, [2015] 2 Lloyd's Rep 666. Where the owner has served a notice of termination and has asserted its right to take possession of the vessel, but the charterer is permitted to continue with possession and control of the operation of the vessel, the nature of the relation has not been altered at all. As a result, the charterer continues to be able to assume debts and liabilities as it trades with third parties who would have no knowledge of the termination and who, if the charter by demise is deemed terminated, would not be able to pursue its claims against the vessel. This would be inconsistent with what is envisaged under art 3.4 of the Arrest Convention 1952 and the Act.

As between the owner and third parties, the Court should strike a balance in favour of the latter so that they can deal with the vessel safe in the knowledge that they can arrest the vessel for their claims regardless of whether the party with whom they directly transact is the owner or the demise charter. Indeed, as rightly pointed out by Steven Chong J, to hold that a demise charter may be terminated by a notice of termination based on a valid contractual termination may expose a third party who deals with the vessel after contractual termination, but prior to physical redelivery, to no effective remedy at all. The Court therefore finds that EVCL continued to be the demise charterer of the vessel at the time the writ in rem was filed and that s 21(4) of the Act requiring the vessel to be under a 'charter by demise' was satisfied.

As to the merits claim, the plaintiff either knew or was recklessly indifferent to the fact that Gu Feng had no actual authority. Wang Bin Qing, who represented the plaintiff, had previously worked for EVCL, and knew that Gu Feng was never a director of the company. By the time Wang Bin Qing left EVCL, he already knew that Zhou Chang had been detained by the authorities. In any case, even if Wang Bin Qing did not know that Zhou Chang had been detained, the plaintiff was put on inquiry as to whether Gu Feng did in fact have authority to act for EVCL and ought to have made reasonable inquiries to verify whether Gu Feng had such authority. There was no evidence that the plaintiff made inquiries to justify relying on Gu Feng's ostensible or apparent authority.

On the balance of probabilities, Gu Feng simply had no authority to sign the Eversea charterparty for and on behalf of EVCL. This means that the charterparty was not a document that was binding on EVCL at all. Quite apart from this finding that Gu Feng had no authority to sign the charterparty, it also appears that it was a sham transaction.

In an exercise of the Court's inherent jurisdiction, the writ in rem is struck out and the warrant of arrest set aside.