Piraeus Bank SA v Owners of Vessel “Posidon”: Priorities in Admiralty Claims

In Piraeus Bank SA v Owners of the Vessel “Posidon” and Owners of the Vessel “Pegasus”, the Singapore High Court addressed the priority of claims against the proceeds from the judicial sale of the vessels Posidon and Pegasus. Piraeus Bank SA, the plaintiff and second preferred mortgagee, sought to determine the order of priorities of various in rem claims. World Fuel Services (Singapore) Pte Ltd, World Fuel Services Europe Ltd, and World Fuel Services Trading DMCC, the interveners and necessaries providers, opposed the summonses, arguing their claims for bunkers supplied should take precedence over the bank's mortgage claims. The court ruled in favor of Piraeus Bank SA, holding that the interveners failed to demonstrate special circumstances warranting a departure from the established order of priorities.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

The interveners' challenge to prayer 4 of both SUM 4072 and SUM 4073 fails.

1.3 Case Type

Admiralty

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Singapore High Court judgment on priorities between a mortgagee's claim and necessaries claims for bunkers supplied to vessels.

1.7 Decision Date

6 June 2017

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Piraeus Bank SA	Plaintiff	Corporation	Challenge to prayer 4 of both summonses fails	Won	K Murali Pany, Ng Lip Kai
Owners of the Vessel “Posidon”	Defendant	Other	Challenge to prayer 4 of both summonses fails	Lost
World Fuel Services (Singapore) Pte Ltd	Interveners	Corporation	Challenge to prayer 4 of both summonses fails	Lost	Kendall Tan Chuan Bing, Yip Li Ming, Tay Jia En
World Fuel Services Europe Ltd	Interveners	Corporation	Challenge to prayer 4 of both summonses fails	Lost	Kendall Tan Chuan Bing, Yip Li Ming, Tay Jia En
World Fuel Services Trading DMCC	Interveners	Corporation	Challenge to prayer 4 of both summonses fails	Lost	Kendall Tan Chuan Bing, Yip Li Ming, Tay Jia En
Owners of the Vessel “Pegasus”	Defendant	Other	Challenge to prayer 4 of both summonses fails	Lost

3. Judges

Judge Name	Title	Delivered Judgment
Belinda Ang Saw Ean	Judge	Yes

4. Counsels

Counsel Name	Organization
K Murali Pany	Joseph Tan Jude Benny LLP
Ng Lip Kai	Joseph Tan Jude Benny LLP
Kendall Tan Chuan Bing	Rajah & Tann Singapore LLP
Yip Li Ming	Rajah & Tann Singapore LLP
Tay Jia En	Rajah & Tann Singapore LLP

4. Facts

Piraeus Bank SA entered into a loan facility agreement with the owners of the Posidon and Pegasus for US$17.1 million.
The loan was secured by second preferred Liberian Ship Mortgages over the two vessels.
The loan agreement included a grace period where unpaid interest could be capitalized.
The borrowers failed to pay interest after the grace period, leading to an event of default.
The bank enforced the mortgages and arrested the vessels in Singapore.
World Fuel Services supplied bunkers to the vessels and obtained default judgments against them.
The interveners argued that the bank's claims should be subordinated to theirs due to the bank's alleged control and benefit from the bunker supplies.

5. Formal Citations

The Posidon, Admiralty in Rem No 170 of 2014(Summons No 4072 of 2015), [2017] SGHC 138
The Posidon, Admiralty in Rem No 171 of 2014(Summons No 4073 of 2015), [2017] SGHC 138

6. Timeline

Date	Event
2012-02-16	Piraeus Bank SA entered into a loan facility agreement with the registered owners of the Posidon and the Pegasus.
2012-02-21	Loan amount was drawn down.
2013-08-21	The 2012 LFA was amended by a supplemental agreement.
2014-09-11	The bank communicated its decision to enforce the Mortgages.
2014-09-29	A Notice of Default and Acceleration of Loan was issued.
2014-10-03	In rem writs were issued against the Posidon and the Pegasus in Singapore.
2014-10-04	The Posidon was arrested.
2014-10-05	The Pegasus was arrested.
2014-12-05	The bank obtained default judgments in the sum of US$19,366,909.97.
2015-03-09	The interveners obtained judgment in default of appearance against the Posidon and Pegasus.
2015-08-20	The plaintiff filed Summons No 4072 of 2015 and Summons No 4073 of 2015.
2015-09-18	The interveners obtained leave to intervene in ADM 170 and ADM 171.
2015-12-10	The interveners obtained an order for the discovery and/or inspection of documents.
2016-07-31	The interveners obtained answers to Interrogatories.
2016-11-30	Cross-examination of Mr Konstantinos Petropoulos via video conferencing took place.
2016-11-30	Court gave directions.
2017-02-20	Judgment reserved.
2017-06-07	Judgment reserved.

7. Legal Issues

Priority of Claims
- Outcome: The court held that the interveners failed to demonstrate special circumstances to justify altering the established order of priorities.
- Category: Substantive
- Sub-Issues:
  - Necessaries claims vs. mortgage claims
  - Alteration of established order of priorities
  - Special circumstances
Insolvency
- Outcome: The court found that the bank did not have knowledge of the borrowers' insolvency at the relevant times.
- Category: Substantive
- Sub-Issues:
  - Knowledge of insolvency
  - Control over finances
  - Interest payment obligations
Benefit to Mortgagee
- Outcome: The court held that the interveners failed to demonstrate that the bank had benefitted from the supply of bunkers.
- Category: Substantive
- Sub-Issues:
  - Direct benefit
  - Indirect benefit
  - Protection of security interest

8. Remedies Sought

Determination of Priorities
Payment out of Sale Proceeds

9. Cause of Actions

Enforcement of Mortgage
Statutory Right of Action in Rem

10. Practice Areas

Admiralty
Maritime Claims
In Rem Claims
Priorities

11. Industries

Banking
Shipping
Fuel Services

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
The “Andres Bonifacio”	Court of Appeal	Yes	[1993] 3 SLR(R) 71	Singapore	Approved the principle that the order of priorities and the distribution of sale proceeds of a vessel in an action in rem between competing claimants against the same fund is governed by the law of the forum.
The “Halcyon Isle”	Privy Council	Yes	[1979-1980] SLR(R) 538	Singapore	Approved the majority’s observations that the right to proceed in rem against a ship as well as the question of priorities in the distribution of the sale proceeds are to be determined by the lex fori.
The Ship “Sam Hawk” v Reiter Petroleum Inc	Federal Court of Australia	Yes	[2016] FCAFC 26	Australia	The order for the ranking of maritime claims in a fund will be a matter for the law of the forum and is capable of flexible variation by reference to equity, public policy, commercial expediency and justice.
ABC Shipbrokers v The Ship ‘Offi Gloria’	High Court	Yes	[1993] 3 NZLR 576	New Zealand	The priority rules are not immutable and should not be varied or not applied unless the circumstances are exceptional and equity demands such course to be taken.
The “Eastern Lotus”	Court of Appeal	Yes	[1979-1980] SLR(R) 389	Singapore	Expenses incurred by the Sheriff in connection with the arrest, detention, appraisement and sale of the res and for the preservation and good management of the res could justifiably be treated as Sheriff’s expenses and be paid out as such in priority to all other claims upon the vessel.
Keppel Corp Ltd v Chemical Bank	High Court	Yes	[1994] 1 SLR(R) 54	Singapore	The court had a wide discretion in balancing the equities in a proper case and the category of Sheriff’s expenses was not a closed category, but could be enlarged where, in the opinion of the court, the expenses incurred would necessarily be incurred by the Sheriff in carrying out his duties in connection with the arrest, detention, appraisement and sale and for the preservation and good management of the res.
The “Makassar Caraka Jaya Niaga 111-39”	High Court	Yes	[2012] SGHC 175	Singapore	The principle stated in Keppel Corp, as observed by Prakash J is that the court had a wide discretion in balancing the equities in a proper case and the category of Sheriff’s expenses was not a closed category.
The Linda Flor	N/A	Yes	(1857) 166 ER 1150	England	English courts did not allow crew wages to take precedence over damage claims for to do so would give relief to the wrongdoer whose crew had somehow been the cause of the damage.
The Elin	N/A	Yes	[1883] P 129	England	The court’s equitable maritime jurisdiction could be exercised independently of the question of priority.
The “Pickaninny”	N/A	Yes	[1960] 1 Lloyd’s Rep 533	N/A	The established order of priorities should only be disturbed if there is a “powerful reason” to do so. There must be truly exceptional or special circumstances and the departure must be essential to prevent an obvious injustice.
Scott Steel Ltd v “The Alarissa”	N/A	Yes	[1997] FCJ No 139	N/A	The established order of priorities should only be disturbed if there is a “powerful reason” to do so. There must be truly exceptional or special circumstances and the departure must be essential to prevent an obvious injustice.
Fournier v The “Margaret Z”	N/A	Yes	[1999] 3 NZLR 111	N/A	The established order of priorities should only be disturbed if there is a “powerful reason” to do so. There must be truly exceptional or special circumstances and the departure must be essential to prevent an obvious injustice.
Royal Bank of Scotland v The “Golden Trinity”	N/A	Yes	[2004] FCJ No 992	N/A	The established order of priorities should only be disturbed if there is a “powerful reason” to do so. There must be truly exceptional or special circumstances and the departure must be essential to prevent an obvious injustice.
The “Fortune Founder”	N/A	Yes	[1987] HKLR 156	Hong Kong	A tardy mortgagee who puts forward his claim only after the priorities of competing claimants have been determined by the court may find himself unable to assert his usual priority over a statutory lien holder.
The “Jenny Lind”	N/A	Yes	(1872) LR 3 A & E 529	N/A	Where a shipowner who is also the master of the ship obtains the supply of necessaries for the use of his ship or seeks financing for his ship, the master’s claim for wages and disbursements may be postponed to that of the statutory lienee or mortgagee.
Canadian Imperial Bank of Commerce (CIBC) v The “Orion Expeditor”	N/A	Yes	[1990] FCJ No 1160	N/A	Where a mortgagee is fully aware, in advance, of arrangements made for repair of a vessel, the repairer, who supplies necessaries for the vessel, may rank in priority to the claim of the mortgagee to proceeds from sale of a vessel.
JPMorgan Chase Bank v Mystras Maritime Corporation	N/A	Yes	[2006] FC 409	N/A	The usual order of priorities should not be altered because there was no evidence that the mortgagee was able to receive additional payments from the shipowner or that the ship value had increased because of the services rendered by the necessaries men.
The “Myrto”	N/A	Yes	[1977] 2 Lloyd’s Rep 243	N/A	So long as the security is in the possession of the mortgagor, the mortgagor exercises complete control over the vessel, and may freely use the vessel without regard to the interest of the mortgagee, save that the mortgagor’s employment of the vessel must not impair the security.
Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA	N/A	Yes	[1985] 1 WLR 925	N/A	Acceptance of an offer cannot be inferred from silence save in the most exceptional circumstances.
Sudha Natrajan v The Bank of East Asia Ltd	N/A	Yes	[2017] 1 SLR 141	Singapore	A party seeking to draw adverse inference must have a case to answer on the issue sought to be strengthened by the drawing of the inference.
Koh Bee Choo v Choo Chai Huah	N/A	Yes	[2007] SGCA 21	Singapore	The court’s ability to draw an adverse inference cannot displace a party’s legal burden of proof.
Chan Tin Sun v Fong Quay Sim	N/A	Yes	[2015] 2 SLR 195	Singapore	The court’s ability to draw an adverse inference cannot displace a party’s legal burden of proof.
Tribune Investment Trust Inc v Soosan Trading Co Ltd	N/A	Yes	[2000] 2 SLR(R) 407	Singapore	The drawing of an adverse inference, at least in civil cases, should not be used as a mechanism to shore up glaring deficiencies in the opposite party's case, which on its own is unable to meet up to the requisite burden of proof.
Chip Thye Enterprises Pte Ltd (in liquidation) v Phay Gi Mo	N/A	Yes	[2004] 1 SLR 434	Singapore	The question to be asked is “when was the company unable to pay its debts as they fell due?” This is an enquiry to be answered by focusing on the company’s financial position taken as a whole by reference to whether a person would expect that at some point the company would be unable to meet a liability.
Tong Tien See Construction Pte Ltd v Tong Tien See	N/A	Yes	[2001] 3 SLR(R) 887	Singapore	A temporary lack of liquidity does not amount to insolvency.
The “Afoyos”	N/A	Yes	[1982] 1 Lloyd’s Rep 562	N/A	Where a thing is to be done on a certain day, it may be done at any time before twelve o’clock at night, unless there be any particular usage [to the contrary].

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
High Court (Admiralty Jurisdiction) Act	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Mortgagee
Necessaries men
Bunkers
In rem claims
Priorities
Event of Default
Grace Period
Operating Account
Capitalization
Insolvency
Benefit
Special circumstances

15.2 Keywords

Admiralty
Shipping
Mortgage
Priorities
Bunkers
In Rem
Singapore
Vessel
Maritime Law

16. Subjects

Admiralty
Shipping
Maritime Law
Banking
Finance

17. Areas of Law

Admiralty Law
Shipping Law
Practice and Procedure