High Court rejects Hin Leong-linked firm’s bid to halt payout of ship sale proceeds

The High Court has rejected an attempt by a shipping company connected to the collapsed Hin Leong oil trading giant to delay the distribution of millions of dollars to creditors from the sale of two vessels.

The company, Da Hui Shipping, had applied to temporarily halt payments to other creditors who were seeking to collect money they were owed from the vessel sale proceeds. This was Da Hui’s second attempt to claim money from the vessel sales, after the court rejected its earlier legal challenge seeking the same funds.

The dispute stems from a loan that Bank of America (BOA) had provided to both Da Hui and An Rong Shipping. Both companies were subsidiaries of Ocean Tankers, Hin Leong’s shipping arm, and the loan was secured by mortgages on their vessels.

Following the companies’ default, one of Da Hui’s vessels, the Sea Equatorial, was sold for US$21.4 million to partially repay the debt.

The bank then commenced admiralty proceedings against An Rong’s two remaining vessels, the Ocean Goby and the Ocean Jack. Admiralty actions are maritime legal proceedings that allow creditors to arrest vessels and sell them to recover debts.

Both vessels were subsequently sold, with proceeds paid into court. Other creditors intervened in the admiralty actions to assert claims against the sale proceeds, including PetroChina International Singapore, the local unit of state-owned Chinese oil company PetroChina, and French bank Societe Generale (SocGen).

Da Hui subsequently sought to claim a higher priority to the remaining proceeds, arguing that An Rong owed it US$12.4 million because Da Hui had helped pay off part of An Rong’s debt.

Da Hui filed what is called an “in personam” legal action against An Rong – a lawsuit targeting the company directly rather than its assets.

In this lawsuit, Da Hui sought a court declaration that it was entitled to “subrogation” to BOA’s mortgages on the vessels. This means the company was allowed to step into the bank’s position and claim the same mortgage rights after helping to pay off the debt.

In this case, Da Hui argued that because it had helped pay BOA’s loan, it should inherit the bank’s mortgage rights over An Rong’s ships. However, both the High Court and Court of Appeal rejected this claim, ruling that BOA’s mortgage rights had already been extinguished when the vessels were sold.

The current dispute

Following the courts’ decision, Da Hui started new “in rem” admiralty actions, meaning it was now suing the vessels themselves rather than the company that owned them. This is a different type of maritime lawsuit that targets the ship as property, allowing creditors to make claims directly against the vessel and its sale proceeds. Concurrently, PetroChina and SocGen filed applications to have the sale proceeds paid out to them, as they had already obtained court judgments against the vessels for cargo claims.

Da Hui then filed stay applications to halt these payments, arguing that the funds would be dissipated before its new legal actions could be resolved. The company essentially wanted the court to freeze the money until it could prove its entitlement to a share.

In his judgment delivered on Sep 15, Justice Kwek Mean Luck dismissed Da Hui’s stay applications, finding that there was no “real risk of overlapping issues” between Da Hui’s new admiralty claims and the existing payment applications.

The judge ruled that Da Hui’s fundamental legal premise – that it could be subrogated to BOA’s mortgage rights – had already been definitively rejected by higher courts. Since the Court of Appeal had upheld the High Court’s finding that the bank’s mortgage rights were extinguished when the vessels were sold, there was no viable basis for Da Hui to start a new type of lawsuit targeting the same funds.

While companies have the right to choose how and where they want to sue someone, they do not get unlimited chances to keep trying different approaches if their first attempt fails, he added.

Justice Kwek also found that even if there had been overlapping legal issues, he would have refused the stay application because Da Hui’s conduct had been prejudicial to other creditors.

The judge noted that PetroChina and SocGen had acted promptly to secure their claims, while Da Hui was “very late in the day” and had already been given one opportunity to pursue its case, which it lost.

Further, PetroChina and SocGen’s claims were “far more advanced” than Da Hui’s admiralty actions. It would thus be grossly unfair to deny them finality and payment of their legitimate claims due to mistakes they did not make, after having already waited more than two years for Da Hui’s first case to be resolved.

“Therefore, although Da Hui may be disadvantaged if the stay applications were not granted, I assessed that whatever prejudice or disadvantage that Da Hui may suffer would be entirely self-inflicted,” said Justice Kwek.

“Such prejudice would also not outweigh the prejudice suffered by PetroChina and SocGen occasioned by yet another delay to their fruits of litigation.”

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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