Collision and change of ownership: Who is the defendant in an action in rem?

Legal firm Dentons Rodyk senior partners in Singapore, Lawrence The and Jen Wei Loh, have reported on the case of The Echo Star ex Gas Infinity [2020] 5 SLR 1025,

Brief facts of the case

Bulk carrier Royal Arsenal (IMO 9186766, now dead) and LPG tanker Echo Star (IMO 9134294) collided in the straits of Hormuz in April 2019 (IMN, November 21st 2019). After the collision the Echo Star was sold by its owner, Sea Dolphin Co Ltd, to Cepheus Ltd. After the sale of the Echo Star the owner of the Royal Arsenal commenced an action in rem and, in the normal fashion, named the defendant as the “Owner and/or Demise Charterer of the vessel Echo Star”.

The Echo Star was arrested when it came into Singapore.

Cepheus, by now the owner of the vessel, appeared as defendant in the proceedings, and provided security for the release of the Echo Star.

Subsequently Sea Dolphin appeared as defendant and Cepheus sought to withdraw its appearance as defendant, and to appear instead as intervener in the proceedings.

The owner of the Royal Arsenal did not agree to Cepheus’s request to change its status to that of an intervener.

The main issue before the Court was to determine the correct defendant to enter appearance in the in rem proceedings following the change of ownership of the Echo Star.

The Singapore High Court decided that the party who was the defendant in an action in rem concerning a claim in damages for a collision was the owner at the time of the collision.

The Court used what it regarded to be a first-principles approach. It considered that collision claims enjoyed the status of a maritime lien, which operated as an “encumbrance” (a security interest) on the ship from the moment the “cause of action” (the right to make a claim) arose.

The maritime lien was enforceable through the procedure of an action in rem. Actions in rem were such that they were actions against the ship itself in the sense that, if the defendant did not appear, the judgment would be enforceable  against the ship only.

If the defendant appeared in the action in rem, then the judgment was enforceable  against not only the ship but any other property owned by the defendant.

The Court also considered that collision claims were fault-based and looked to the owner of the ship at the time of the collision as the party responsible to compensate the claimant for loss and damage caused by the owner’s representatives.

The Court thought that, if the current owner of the ship was the defendant in an action in rem, there would be illogicality in a situation where the current owner appeared as defendant and the Court subsequently gave judgment favouring the claimant. In that situation, said the court, it would be illogical that the current owner’s other property became available for enforcement when the current owner was not the party responsible for the collision.

The Court therefore found that the defendant in an action in rem in this situation was the owner of the “Echo Star” at the time of the collision.

The legal firm observed that the case of The Echo Star revived “the age-old question” of the identity of the defendant in an action in rem.

It said that this was not an easy question to answer, not least because, historically, common law jurisdictions tended to regard the ship, an inanimate object, as if it was a legal person who was potentially liable to compensate the claimant.

This evolved gradually towards the view that the owner of the vessel was considered the party potentially liable, with the ship as property which stood as security for the claim, and which could ultimately satisfy the claim.

Dentons Rodyk observed that the Singapore High Court’s view that an illogical situation would arise if the current owner of the ship, by appearing as defendant in an action in rem, became personally liable to satisfy the claim beyond the property of the ship was undoubtedly correct, noting that “the collision claim holds the previous owner of the ship responsible and, if there is anyone who should be personally liable to satisfy the claim beyond the property of the ship, it must be the previous owner”. However, the writers went on to note that in situations like these the previous owner might not be around to defend the claim. The previous owner might no longer be a going concern or might, indeed, be dissolved and no longer exist as an entity.

“It seems awkward that the current owner of the ship, who is the party who stands to lose the ship if the claim is undefended, should not be regarded as a party who can appear as a defendant to the claim and to otherwise protect the ship. It also seems awkward that the current owner can only do so as an intervener (third party) in the action in rem”.

The writers said that one possible solution to this long-running question lay in remembering that an action in rem when served on a ship put a ship at risk of being sold to satisfy a meritorious collision claim, if no party appeared to defend the claim. “The party who stands to lose is the current owner of the ship and the current owner of the ship ought to be entitled to appear as defendant in the action in rem to put the claimant to proof of the claim”, said Dentons Rodyk, noting that, in doing so, the current owner ought to be allowed also to put up any defence that the previous owner could have put up, with the only sanction being that of a reimbursement of legal costs should the adopted defences fail.

If the claimant could not prove its claim, or if the defences succeeded, the claim would be dismissed and the ship protected.

“The rule that a party who appears as defendant in an action in rem exposes its other property to legal execution to satisfy any judgment given on the claim, ought not to apply in the case of an owner who was not the owner of the ship at the time of the collision”, the writers said, giving as their reason the fact that the claim holds the previous owner, not the current owner, liable. “The current owner of the ship ought to be allowed to apply to the court for clarification or, if necessary, dispensation of the rule, such that only the ship is liable to execution for the purpose of satisfying the claim.”

Dentons Rodyk thanked and acknowledged Associate Chengxi Tan for his contributions to this article.

1999-built, St Vincent & Grenadines flagged, 26,586 gt Royal Arsenal (a total loss) is owned and managed by North Baltic Maritime SA of Kingstown, St Vincent & Grenadines.

At the time of the court action, 1997-built, Belize-flagged, 44,652 gt Echo Star was owned and managed by Cepheus Ltd of Monrovia, Liberia. It is now owned by Dede Maritime SA (since July 2020) care of manager Pacific Petroline of Dubai, UAE.