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11 May 2016
This case concerned competing claims for the vessel Safir Kish 4. The first plaintiff was the shipbuilder. The second plaintiff was Malayan Banking Berhad (the bank). The bank had provided various credit facilities to the shipbuilder for its shipbuilding business. The first defendant was a private limited company incorporated under the Labuan Companies Act 1990. The second defendant was a director of the first defendant. The third defendant was a company incorporated in Iran.
The shipbuilder created a total of six debentures in favour of the bank to secure the repayment of the credit facilities. The debentures had been lodged with the Malaysia Companies Commission (CCM). Consequently, the CCM issued certificates of registration of charge pursuant to Section 111(2) of the Companies Act 1965 for all six debentures.
On March 27 2008 the shipbuilder entered into two contracts (the Borcos contracts) with Syarikat Borcos Shipping Sdn Bhd. Only one of the two contracts was adduced in the case at hand. The terms of the contract, among other things, stated as follows:
The bank provided financing to the shipbuilder to build two ships for Borcos. The full purchase price for the two Borcos contracts had not been paid to the shipbuilder or the bank. By way of a letter dated February 27 2009, the bank agreed to the shipbuilder's assignment of the proceeds from the two Borcos contracts to the bank.
On March 6 2010 the shipbuilder entered into a shipbuilding contract with the third defendant. The shipbuilding contract provided that the shipbuilder was to build and deliver two ships (Hull 1159 and 1160) to the third defendant, and payment was to be made by way of an "irrevocable by sight letter of credit", issued in accordance with the Uniform Customs and Practice for Documentary Credits on behalf of the third defendant by Refah Kargaran Bank (RK Bank) in Iran.
A pro forma invoice dated March 6 2010 was issued by the shipbuilder to the third defendant for payment of the ship and Hull 1159. On May 25 2010 RK Bank issued a letter of credit to the bank.
On May 26 2010 the shipbuilder issued a bill of sale acknowledging receipt of the third defendant's payment and, in consideration of the payment, transferred all shares in the ship to the third defendant. The shipbuilder held that it had the power to transfer the ship free from encumbrances and mortgages.
On August 30 2012 the Registrar of Malaysian Ships issued a certificate of Malaysian registry, stating that the ship had been registered under the name Safir Kish 4 and that the shipbuilder was its owner.
On September 17 2012 the shipbuilder, third defendant and Shanghai Sea Pride Shipping Ltd (SSPSL) entered into an agreement. The SSPSL agreement set out as follows:
On October 29 2012 the shipbuilder and third defendant entered into a settlement agreement wherein the shipbuilder confirmed that:
On November 5 2012 the shipbuilder entered into a further agreement with the third defendant, wherein it was provided that:
On March 14 2013 a winding-up petition was presented against the shipbuilder by Nordic International Ltd.
On March 20 2013 the bank's solicitors gave notice to the shipbuilder that pursuant to the terms and conditions of the debentures, all floating charges had been converted into fixed charges with immediate effect.
On March 27 2013 the shipbuilder executed a bill of sale in favour of the first defendant (second bill of sale). According to the second bill of sale, in consideration of the $8.5 million paid by the first defendant to the shipbuilder, the shipbuilder agreed to transfer all of its shares in the ship to the first defendant.
On April 23 2013 the ship was transferred from the shipbuilder to the first defendant and registered in the first defendant's name. The transfer and registration was recorded in the Register Book of the Registrar of Malaysian Ships at Port Klang.
On April 3 2013 the bank appointed Duar Tuan Kiat as the receiver and manager of the shipbuilder.
On May 14 2013 the winding-up petition was allowed by the high court and the shipbuilder was wound up.
On July 12 2013 the shipbuilder, first defendant and third defendant concluded an agreement which, among other things, stated that:
On October 25 2013 the first defendant's solicitors informed the receiver and manager that the first defendant was the registered owner of the ship and that the second bill of sale and original certificate of Malaysian registry with the endorsement of the transfer of the ship's ownership to the first defendant were in the first defendant's possession. On October 30 2013 the first defendant's solicitors put the receiver and manager on notice that the first defendant wanted delivery of the ship by November 6 2013.
The defendants had failed to pay any sum to the bank in order to redeem the ship. As of May 31 2013 the shipbuilder owed an outstanding sum in excess of RM732 million to the bank under the credit facilities. In light of this, the bank commenced a suit in the high court against the guarantors for the credit facilities. On November 21 2013 the bank obtained summary judgment for the outstanding sum owed with interest against the guarantors.
On June 19 2014 the shipbuilder and the bank (the plaintiffs) filed suit against the defendants seeking for the:
The defendants denied the plaintiffs' suit and filed a counterclaim against the plaintiffs and receiver and manager. In the counterclaim, the defendants sought:
The defendants' counterclaim against the receiver and manager sought:
The main issue in the plaintiffs' suit and the defendants' counterclaim was which party had priority over the ship. The priority issue was separate from the monetary aspect of the defendants' counterclaim. The court, relying on Order 15, Rule 5(1) of the Rules of Court 2012, ordered that the priority issue be tried separately from the defendants' monetary counterclaim. The court's reasoning for this was that the priority issue could be expeditiously and economically disposed of first, before the likely lengthy trial in respect of the defendants' monetary counterclaim. Further, after the court decided on the priority issue, the parties may have wished to reconsider their legal position in respect of the defendants' monetary counterclaim.
The following issues arose for the court's determination:
The court's decision can be summarised as follows:
Based on the above reasons, the following orders were made:
For further information on this topic please contact Rajasingam Gothandapani or Aswath Ramakrishnan at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email (firstname.lastname@example.org or email@example.com). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
(1) The 11th and 12th variations of the shipbuilding contract agreed on October 10 2012 and January 28 2013, respectively; the SSPSL agreement dated September 17 2012; the settlement agreement dated October 29 2012; the agreement dated November 5 2012; the second bill of sale and the agreement dated July 12 2013.
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