PetroChina International has secured a key victory in the High Court of Singapore that could pave the way for other creditors to file legal cases targeting ships previously operated by Ocean Tankers.

High Court Justice Ang Cheng Hock dismissed a petition by the judicial managers of Ocean Tankers to strike out or set aside admiralty writs that PetroChina International filed against four product tankers in April 2020.

The judge's decision allows creditors to file actions for security against ships bareboat chartered by the tanker owner even though it was under court protection amid its restructuring efforts.

But he stopped short of opening the door to take further steps to enforce that security.

PetroChina International, a unit of oil company PetroChina, filed the cases after the ships allegedly failed to deliver cargoes for which the Chinese company held the bills of lading.

At the time of the delivery, the 37,300-dwt Ocean Winner (built 2002), 73,600-dwt Chao Hu (built 2008), and 12,000-dwt Ocean Goby (built 2017) and Ocean Jack (built 2018) were operated by Singapore's Ocean Tankers under bareboat charter from the Xihe Group.

Both Ocean Tankers and Xihe, together with Hin Leong Trading, formed a trio of affiliated companies controlled by Singaporean tycoon Lim Oon Kuin and his family.

The judicial managers of Ocean Tankers argued that the in rem writs — a legal term for claims made against a particular piece of property — were invalid because they were legal proceedings against the tanker operator's property through its bareboat charter interest in them.

They argued that as such, PetroChina could not file writs against the ships because by the time it did so, Ocean Tankers had already obtained an automatic moratorium under the Singapore Companies Act protecting its assets and property from creditor enforcement action.

Furthermore, they claimed PetroChina’s writs were filed without court permission required by the statutes covering the moratorium, and therefore they were filed in “flagrant disregard” of the moratorium. That constituted a “serious abuse of process”, the judicial managers argued.

PetroChina hit back by contending that Ocean Tankers failed to provide evidence of creditor support when obtaining the moratorium, and the company argued that an in rem case was an action against a vessel rather than the company.

The oil giant's lawyers argued that the vessels were also not the property of Ocean Tankers, which was merely the bareboat charterer and not the shipowner.

Furthermore, PetroChina alleged there was a “triable issue” as to whether Ocean Tankers was the genuine bareboat charterer of the vessels. The oil company's lawyers argued that the tanker operator's executives had produced two different versions of the charter contracts, which cast doubt on their veracity.

PetroChina argued that if Ocean Tankers was not the genuine bareboat charterer, but perhaps acting only as an agent, the moratorium protecting it would be irrelevant.

Fundamental questions

Justice Ang Cheng Hock dismissed a petition by the judicial managers of Ocean Tankers to strike out or set aside writs against Ocean Tankers ships. Photo: Singapore Prime Ministers Office

Ang, in his decision published on Friday, said that application to dismiss or strike out PetroChina’s writs against the four tankers raised “fundamental questions” about the interaction between insolvency law and admiralty law.

In particular, he said it raised issues over “the extent to which the protections afforded by the statutory moratoria for schemes of arrangement conflict with the ability of maritime claimants to protect their interests”.

He said that two main issues needed to be determined in this case.

First, did the filing of writs against the ships amount to commencement of legal proceedings against Ocean Tankers? And did it fall under “execution, distress or other legal process” against the property of Ocean Tankers?

Ang said he took the view that Ocean Tankers’ bareboat charter interest in the vessels came within the meaning of “property” under the Singapore Companies Act.

That means the statutory moratorium for companies protecting companies planning to propose schemes of arrangement prevented taking steps to enforce security over any of the company’s property without court permission.

However, he ruled that the mere filing of an admiralty writ was not an “execution, distress, or other legal process” within the meaning of the Singapore Companies Act. That's because it merely created the security interest in the form of statutory liens over the vessels.

“It is thus not a step taken to enforce that security,” he said. "That security interest would not even exist without the filing of the writs."