Pemilik Dan/Atau Pencarter Demis Kapal atau Vesel Edzard Schulte v Pemilik Dan/Atau Pencarter Demis Kapal atau Vesel Setia Budi (WA-27NCC-33-07/2022)

Enclosure 93 is the Plaintiff’s application for the appraisement and sale of “SETIA BUDI” (“Vessel”) and for consequential orders thereon.

The Defendant resisted the application on the ground that there are no good reasons for the Vessel to be sold.

This judgment deals with the factors to be taken into account when the Court considers an application for sale pendente lite.

The Defendant raised the preliminary objection in its letter to Court dated 4.10.2023 that the Plaintiff’s Affidavit in Support of Enclosure 93 was affirmed by a solicitor.

With respect, I find no merit whatsoever in that objection for the following reasons: a) the Affidavit in Support consists of largely undisputed facts. The facts stated in the Affidavit are also within the knowledge of the Plaintiff’s solicitors through documents, correspondence or records to which the solicitors have access; b) there were also valid reasons why the Plaintiff’s Director (Mr Graham Bates) could not affirm the affidavit in time. All of the Plaintiff’s earlier affidavits in this action were affirmed by Mr Bates. However, Mr Bates explained that he had authorised his solicitors to affirm the Affidavit in Support in the first instance, as he was overseas travelling at the time the Affidavit was due for filing; 3 c) in any case, the Plaintiff had on 5 October 2023 filed and served its Affidavit in Support affirmed by Mr Bates, on the same terms as the earlier affidavit affirmed by the solicitor, save for slight amendments made to correct 2 inadvertent errors in the exhibit references.

The Defendant also contended that the Enclosure 93 stated that the application is filed pursuant to O. 70 r. 22 when it ought to be pursuant to O. 29 r. 4(1) and O. 70 r. 20 of the Rules of Court 2012 (“ROC 2012”).

Again, I do not find any prejudice to the Defendant owing to the failure by the Plaintiff in Enclosure 93 to refer to the aforesaid provisions of the Rules of Court 2012. The Defendant was under no illusion as regards the nature of the application under Enclosure 93 and their written submissions had been filed fully addressing the merits of the application.

Accordingly, the preliminary objections raised by the Defendant are hereby dismissed.

The Plaintiff’s claims arise from an allision that occurred on 12.1.2021 (around 1932 hrs) at the inner anchorage of Kuantan Port.

The Plaintiff claims that Defendant’s vessel “SETIA BUDI” (ie. the Vessel) with the accommodation barge “SETIA STATION 2” 4 in tow, caused the latter to allide into the Plaintiff’s vessel “EDZARD SCHULTE” (“Allision”). At the time of the Allision, and this is not in dispute, “EDZARD SCHULTE” was at anchor.

As a result of the Allision, “EDZARD SCHULTE” suffered loss and damage. The Plaintiff’s claims against the Defendant are for repair costs, dry-docking and general services, class survey, superintendent, agency and surveyor fees, totaling USD 219,433.70.

On 9.6.2022, the Plaintiff’s solicitors, wrote to the Defendant demanding payment of the Plaintiff’s claims or alternatively, security in respect of the Plaintiff’s claims. The Defendants however did not respond at all to this demand for security or payment. To date, the Plaintiff’s claims remain unsatisfied, and no security has been provided by the Defendant for the Plaintiff’s claims.

On 11.7.2022, the Plaintiff commenced these proceedings. On 12.7.2022, this Court issued a Warrant of Arrest in respect of the Vessel.

On 14.9.2022, the Plaintiff’s solicitors and the Bailiff of the Kemaman Sessions Court, Tuan Nik Ismail Bin Ali proceeded to Kemaman waters, where the Vessel had been located. At around 15.00 hrs, the Writ and Warrant of Arrest was served by the Bailiff on the Vessel.

The Vessel has remained under arrest since due to the Defendant’s failure and or inability to provide any alternative security. As of date, she has remained under arrest for 1 year and 2 months.

Pertinently, the Defendant has recently admitted in its letter to Court dated 28.7.2023 that its financial situation does not allow it to bear the burden and costs of maintaining the Vessel under arrest. The Defendant has also admitted at [16] of Nur’s Affidavit (filed in reply to this Application) that it is currently “going through a period of financial difficulties”. In fact, the Defendant has filed for a scheme of arrangement under section 366 of the Companies Act 2016 to restructure its debts in the Originating Summons in WA-24NCC-1079-12/2022 (“OS 1079”).

The Defendant is plainly unable or unwilling to furnish any alternative security for the Plaintiff’s claim voluntarily. Accordingly, the Plaintiff claims that unless the Vessel is sold by order of this Court, the Plaintiff will be severely prejudiced as the Vessel continues to remain a wasting and deteriorating asset whilst under arrest, pending the final determination of the Plaintiff’s claims in this action.

Learned counsel for the Defendant contended that there are no good reasons provided by the Plaintiff to support an order for the sale pendente lite because; 6 a) the Plaintiff’s claim for USD 219,443.70 being the costs of repairs for the damage arising from the Allision is a weak claim and it included an inflated sum of RM 250,000.00 for the solicitor’s costs; b) the Defendant had at paragraph 24 in their affidavit in reply dated 13.09.2023 (Enclosure 96) and Exhibit NAT-04, exhibited a valuation report as at 16.3.2022, wherein the said Vessel had been valued at USD893,000.00. The Plaintiff has not disputed the said valuation report; c) the value of the said Vessel of USD893,000.00, is very much more than the sum claimed by the Plaintiff. Moreover, the Defendant has a counterclaim of RM559,339.00 (approximately USD118,000.00); d) currently, the Defendant is bearing the costs of maintaining the Vessel under arrest.

This Court’s power to make an order for appraisement and sale pendente lite is derived from its inherent jurisdiction and is regulated by O 29 r 4(1) of the ROC 2012. An application for appraisement and sale pendente lite is made pursuant to O.70 r

Malaysian Civil Procedure at paragraph 70/20/8 states: “The court has the power to make an order for appraisement and sale pendente lite, ie pending litigation. This power is derived from the inherent jurisdiction of the court; Castrique v Imrie (1870) LR 4 HL 414; The Hercules (1885) 11 PD 10; Hobbs, Savill & Co Ltd v The Vasilia (Owners), Albaran Bay Corp [1972] 1 Lloyd’s Rep 51. The power of the court in this respect appears to be supplemental and exercise of it is regulated by O 29 r 4(1). In any action, a court has the power to order the sale of property (the subject of a claim) which is perishable, likely to deteriorate or in relation to which there is good reason for sale ... A sale pending suit is normally ordered on the grounds that retention of the property will cause the plaintiff’s security to diminish if for no other reason than the mounting costs of arrest.” [emphasis added] [20] In the leading decision of The Myrto [1977] 2 Lloyd’s Rep 243 at 260, which has been followed by our Courts including recently in Winning Loyalty v Shi Pu 1 [2020] 11 MLJ 603, a decision of Atan Mustaffa JC (as His Lordship then was) (“Winning Loyalty”), the English Court held that an order for appraisement and sale of a ship pendente lite should not be made except for good reason. “On the assumption that the action will remain contested and proceeded to trial, such trial would, unless expedited, be unlikely to come on for about 1 ½ years. Even if the trial was expedited, I doubt if it would come on in much less than seven months, that is to say some time after the long vacation this year ... It follows that the continuing costs of maintenance have to be considered are costs over a period of at least seven months, during which some costs of maintenance will also have to be incurred if physical deterioration of the ship is to be avoided. I accept that the Court should not make an order for the appraisement and sale of a ship pendente lite except for good reason, and this whether the action is defended or not… I do not accept, however, the contention put forward for the owners, that the circumstance that, unless a sale is ordered and continuing costs of maintaining the arrest will be incurred over a long period, with consequent substantial diminution in the value of the plaintiffs’ security for their claim, cannot, as a matter of law, constitute a good reason for ordering a sale. On the contrary, I am of the opinion that it can and often will do so. It would, in my view, be unreasonable to keep the ship under arrest at great expense for seven months or more, with the result that. if the bank succeeded in their claim, the amount of their recovery would be reduced by the costs incurred.” [emphasis added] [21] The factors to be considered in establishing whether there is good reason for the Court to order a sale pendente lite are as follows and have been repeatedly applied by our Courts. See Winning Loyalty at [13]; The Silver Moon [2017] 8 MLJ 466 at [21]: a) the defendant’s failure to provide alternative security; b) the value of the arrested ship; c) the quantum of the claims faced by the ship as compared with the value of the ship; d) the time lapse before the action comes on for trial; e) any deterioration in the condition of the ship; f) any costs of maintaining and preserving the ship while under arrest; g) that consequentially, whether if the ship remains under arrest while the action is pending, the value of the security represented by the ship would be diminished. [22] It is the judgment of this Court after hearing submissions of counsel that there are good reasons justifying an order that the Vessel be sold pendente lite in this case after taking into consideration the factors set out above. [23] In the first place, the Defendant has failed to provide any alternative security since the Vessel was arrested around 1 year and 2 months ago. This is despite the Plaintiff’s demands for security, including its demand made just prior to commencement of the action in June 2022, and when the Vessel was arrested on 14.9.2022. [24] To my mind, the Defendant’s failure to provide any alternative security constitutes strong ground for the making of the order for appraisement and sale: [See: Winning Loyalty at [17], [18] and [19]]. [25] This is so even where the action is being defended by the Defendant. In The Silver Moon, Azizah Nawawi J held, at [26], [28]-[29] that since the defendant had failed to provide any alternative security for the release of the vessel, it was a proper case with good reasons and fair grounds for an order for sale pendente lite to be granted even where the action was defended. [See: also The Myrto and Malaysian Civil Procedure at 70/20/8] [26] It is also significant that the Defendant has repeatedly admitted that it is financially impecunious, and the fact that it has failed and or is unable to provide any alternative security to date. More specifically: a) in the Defendant’s letter to Court dated 28.7.2023, it admitted that its financial situation does not allow it to bear the burden and costs of maintaining the Vessel under arrest; b) the Defendant has also admitted at [16] of Nur’s Affidavit that it is “going through a period of financial difficulties”. [27] Furthermore, as alluded to above, the Defendant has filed an application to the High Court for a scheme of arrangement to be approved by its creditors and sanction by the High Court. The OS 1079 is in fact a second attempt at a scheme of arrangement. The first was vide an Originating Summons in WA-24NCC-214- 05/2021 (“OS 214”) filed on 21.5.2021. Thus, there is no assurance that the current OS 1079 will be successful at all. [28] In addition, the Defendant has to date failed to pay the costs ordered to be paid to the Plaintiff by this Court in Enclosure 17 on 20.7.2023 and Enclosures 24 and 33 on 2.8.2023, totalling RM 20,000. This is despite multiple demands made by the Plaintiff’s solicitors for payment, including on 26.9.2023, to which no response has been received. It can only be surmised that the Defendant’s failure to pay the costs is due to its admittedly financially impecunious state. [29] Whilst the Defendant has alleged that the claim quantum (and therefore the security amount) is excessive (at [8], [9] and [16] of Nur’s Affidavit), this is not a good reason to object to an application for sale pendent lite since: a) as a matter of law, the Plaintiff is entitled to security on the basis of its reasonably best arguable case in lieu of arrest; b) although the Defendant was aware of the Plaintiff’s claims and the quantum of security demanded since 9.6.2022, and was provided with the Plaintiff’s claim and quantum documents, it did not seek a more detailed breakdown of the claims, nor ask the Plaintiff for any further supporting documents. In other words, there were no genuine attempts to provide any security at all as alternative to the arrest; c) the Defendant has also not applied to this Court to reduce the amount of security sought on the basis that it is excessive, if that was indeed their genuine objection. Indeed, I agree with Mr. Jainil Bhandari, learned counsel for the Plaintiff that if the Defendant genuinely believed that the security sought was excessive, and was willing to provide security for a more reasonable sum, it would have done so by now. [30] In this regard, the Defendant’s contention that the Plaintiff has a weak claim is not a factor that is to be considered at this stage. In an application for an order for sale pendente lite, the Court proceeds on the basis of the Plaintiff’s best arguable case. [31] As regards the fact that the Vessel is valued at USD893,000.00, this is the “market value” and not the “forced sale” value of the Vessel. The relevant value for the purpose of a sale pendente lite application is the forced sale value of the Vessel, because if a judicial sale is ordered, the Vessel will be sold by the Sheriff in a public sale and on an “as is where is” basis. Indeed, in Winning Loyalty at [32] it was the forced sale value of the vessel that was taken as the relevant value by the Court when determining if there were good reasons to order a sale pendente lite. [32] In Nur’s Affidavit, the Defendant exhibited and relied on a report of TS Maritime Sdn Bhd dated 16.3.2022 which, notably, was commissioned by the Defendant itself (“TS Maritime’s Report”). The Report states that the forced sale or forced liquidation value of the Vessel was USD 357,000, based on the market conditions and with reference to the physical inspection and analysis of the Vessel conducted by TS Maritime in March 2022 [See: p. 65 of Nur’s Affidavit]. [33] On the same page, the forced sale value is defined as the estimated gross amount “which could be typically realised from a properly advertised and conducted public sale with the seller being compelled to sell with a sense of immediacy on an “as is” and “where equipment is currently located” basis”. [34] Instead of referring to this forced sale value of the Vessel, the Defendant relied on the fair market value at [24] of Nur’s Affidavit, stated as USD 893,000.00. With respect, the fair market value of the Vessel is irrelevant for the purpose of a sale pendente lite application. The Defendant has not provided any alternative views as to the forced sale value of the Vessel. [35] In any case, the Vessel’s current forced sale value is likely to be significantly lower than the USD 357,000 valuation which was obtained in March 2022 prior to the arrest based on the Vessel’s condition at that time. The reasons are as follows: a) the Vessel’s condition is very likely to have deteriorated during her prolonged period of arrest (1 year and 2 months as of date) as she has remained at anchor and has not been operated. The Vessel will only continue to deteriorate (and her value will continue to depreciate) while she remains under arrest and unsold; b) there is no evidence of the Vessel’s current state or condition, whether she is still in Class, or if her usual trading or operational certificates have expired. According to TS Maritime’s Report, the Vessel’s last dry docking was carried out in June 2021 and her next dry docking was due in July 2023. However as the Vessel has been under arrest, the dry docking was not carried out and it is likely that the Vessel is no longer in Class. If so, expenses would have to be incurred to put her back in Class; c) the Defendant has not produced any evidence of the maintenance carried out to the Vessel to preserve her condition whilst under arrest. Given the Defendant’s self-professed impecunious financial state that it said does not allow it to continue bearing the burden and costs of maintaining the Vessel under arrest, it is likely that no, or no proper maintenance has been carried out. There is also no assurance that the Defendant can continue to maintain the Vessel until the trial of this action; d) it is also not known to what extent the Vessel was damaged as a result of the grounding incident in January 2023, what repairs (if any) were conducted by the Defendant for the damage sustained, and how the damage has affected the condition and consequently value of the Vessel. The Defendant’s Counterclaim (dated 24.8.2023) in relation to the grounding includes items for “renewal of starboard anchor complete with fittings” and “renewal of damaged porthole/window”, but the amounts are stated as “to be confirmed”. What is clear is that any unrepaired damage would adversely affect the Vessel’s value when sold on an “as is” basis. [36] Accordingly, the contention by the Defendant that the Vessel’s market value of USD893,000.00 means that there is no good reason to order a sale pendente lite is flawed and is rejected. [37] Quite apart from the aforesaid, there is still some time before the trial of this action is commenced and concluded. [38] The Plaintiffs’ claims are disputed by the Defendant. This action is still at a relatively early stage, with parties having just recently exchanged their third round of pleadings, which was brought about by the Defendant’s applications to Court to file and serve a Rejoinder and Reply to Defence to Counterclaim. [39] No date for trial has been fixed, and taking into account the time required for completion of disclosure and preparation of witness statements and expert reports, it is likely that the trial can only be held at the earliest, in the second-half of 2024, assuming no lengthy interlocutory proceedings in the meantime. [40] Even if the Plaintiff obtains a judgment by the end of 2024. there may be an appeal brought which may take another one year or so to be concluded. The Vessel was built and delivered in 2008, which means that in 2024, it will be 16 years old. [41] Further, if the Plaintiff is successful in their claims, given that the Defendant is unable to furnish alternative security and is financially impecunious, the Plaintiff will then have to apply to have the Vessel sold to satisfy their claims. Rather than selling the Vessel at a later date in deteriorating circumstances, it is certainly better for the Vessel to be sold now to fetch a better price for all parties. [42] The Vessel’s condition would have deteriorated during her prolonged period of arrest (1 year 2 months as of date) as she has remained at anchor at sea and has not been operated. The Vessel presently lies stationary and is exposed to the elements including any unfavorable sea and weather conditions, such as rough seas and high swells. These conditions are unsafe for the Vessel and puts her under unnecessary risk, especially during the active monsoon season. It also creates environmental risks and potential safety risks to other vessels in the vicinity. [43] In Winning Loyalty at para [30], the Court found that it was a relevant consideration in deciding whether to order the sale pendente lite that the vessel there was “[lying] stationary in open sea waters and exposed to the elements, coming under great risk during active monsoon season with risk to environmental safety in the busy Malacca harbour”. [44] In the Defendant’s letter to Court dated 28.7.2023, it stated at [4] - [5] that previously during the monsoon season from November 2022 until March 2023, the Vessel was swept off and grounded at Cherating Beach. The monsoon season is upon us, and it is imperative that the Vessel is sold as soon as possible. [45] The Vessel is understood to presently be at Asian Divers Jetty after the Defendant had shifted her there. However, on 11.10.2023, the Defendant’s solicitors wrote to Court asking for permission to reposition the Vessel from Asian Divers Jetty to Geliga Slipway Jetty citing, among others, safety reasons as the Vessel had been involved in some near miss incidents, and other issues experienced at Asian Divers Jetty including poor visibility at night. The Sheriff subsequently requested that the Defendant provide evidence that the Jabatan Laut Malaysia approved of the repositioning and of the proposed new location. The Defendant’s solicitors have not provided the requested confirmation and evidence, and to the Plaintiff’s understanding the Vessel has to date not been repositioned to the proposed location. [46] Further, Jabatan Laut Malaysia had earlier expressed its concerns about the safety of the Vessel. Given these concerns, the prolonged continuation of the arrest pending the determination of the Plaintiff’s claims would expose the Vessel to the elements and put her at risk particularly in the monsoon season. [47] Furthermore, whilst the present forced sale value may be sufficient to meet the Plaintiff’s claims together with legal costs, it is not certain that this will continue to be the case at the conclusion of the trial. [48] The Plaintiff’s principal claims are for repair costs, dry-docking and general services, Class survey, superintendent, agency and surveyor fees, which stand at USD 219,433.70. [49] The legal costs if the matter proceeds to trial are likely to be substantial given the disputed allegations on liability for the Allision, and for the Defendant’s alleged counterclaim arising from the grounding of the Vessel. The issues on liability for both the Plaintiff’s claim and the Defendant’s counterclaim will require witness evidence from the crew and expert technical evidence relating to the management and navigation of the Vessel for determination. The Plaintiff estimates its legal costs and disbursements (including experts’ fees) till the completion of trial and any appeal therefrom to be as follows:

Costs for trial: RM 80,000 – 100,000

Costs for appeal: RM 50,000

Experts’ fees and other disbursements: RM 50,000 – 75,000 Total: RM 180,000 – 225,000 (USD 39,000 – 48,000) [50] Further, interest would have accrued on the Plaintiff’s claims and will continue to accrue until judgment and the determination of an appeal. Interest from the date of writ (11.7.2022) till date of judgment and determination of appeal (estimated end of 2025) is around USD 31,000 at the rate of 4% per annum. [51] The Plaintiff’s claims plus costs and interest (as above) is estimated at around USD 290,000 – 300,000, which will be close to or even higher than the Vessel’s current forced sale value which is very likely to be substantially less than USD 357,000 for the reasons submitted above. As such, there is a real likelihood that the Plaintiff will be left under-secured for its claims plus costs and interest if the Vessel continues to remain under arrest pending the final determination of this action. [52] Whilst it is true that the Defendant is currently bearing the costs of maintaining the Vessel under arrest, it is not in dispute that there are significant accruing costs and expenses of maintaining and preserving the Vessel while under arrest, including but not limited to crew wages for the minimum safe manning of the Vessel, bunkers and supplies, port dues and insurances and statutory certificates. a) Crew wages: Jabatan Laut Malaysia mandated at least 4 crew members to remain on board the Vessel at all times (specifically, of Master, Deck, Chief Engineer and Engine Ratings). As such, the wages of the crew members would continue to be incurred during this period when the Vessel is arrested. b) Bunkers and supplies: the Defendant, as the owner of the Vessel, has been bunkering and supplying the Vessel during the period of arrest. Besides wages, the crew’s needs and welfare including food and drinks, fresh water, fuel supply, spare parts etc. have to be ensured, per Maritime Labour Convention (MLC) requirements as reiterated in Port Circular No. 07/2023 issued by Jabatan Laut Malaysia. c) Port dues: port dues are payable from the time of the Vessel’s arrest on 14.9.2022. In that regard, and the longer the Vessel remains unsold, port dues will further reduce the amount of sale proceeds available for distribution. d) Insurances and statutory certificates: costs would also have to be incurred to ensure that the Vessel has the valid statutory Certificates and the relevant insurances in place to meet the requirements of Port Circular No. 07/2023 issued by Jabatan Laut Malaysia which the Defendant is required to comply with. [53] In fact, and importantly, at [28] of Nur’s Affidavit, the Defendant has admitted that the continuing costs of maintaining the Vessel under arrest is “heavy”. [54] As such, there is a very real and obvious risk that the Defendant may stop maintaining and preserving the Vessel, in which case the Plaintiff will be compelled to incur, in the Defendant’s own words, the “heavy” costs of maintenance and preservation and claim the same as the Sheriff’s expenses, which will in turn diminish the value of and what residual equity remains in the Vessel. [55] In Winning Loyalty at [24(d)], although the defendant shipowner there had previously been paying for maintenance and preservation costs while the vessel was under arrest, the Court found that the defendant’s impecunious financial state meant that it was “incapable of discharging its responsibilities as shipowner to maintain and preserve the vessel, having nothing else to meet any judgment sum”. [56] The Defendant alleged at [25] of Nur’s Affidavit that the Vessel is one of its “significant assets” and generates income to the Defendant, and that it would therefore be prejudicial to it if the Vessel is ordered to be sold pendente lite. A similar allegation was raised by the defendant shipowner in Winning Loyalty, where it alleged that the ship was its main source of income and an order for sale would cause it not to be able to return to its original position once the vessel is sold. [57] This was rejected by Atan Mustaffa JC, who held at [34] that “there is no principle in law that prejudice to the vessel owner if an order for sale is granted is something for the court to consider.” Pertinently, His Lordship added that “it can be equally said that prejudice may be suffered by the plaintiff if the order for sale is not granted as the security provided by the vessel may not meet the plaintiff’s claim and other costs if judgment is granted after trial.” [58] The Defendant’s allegation of prejudice is likewise not a relevant consideration at all. In any case, if the Vessel is one of the “significant assets” of the Defendant as alleged, it ought then to provide alternative security immediately so that the Vessel may be released and generate income for the Defendant. The Defendant is however unwilling and or unable to provide security. Conclusion [59] In light of the above, it is clear that the Vessel has become a wasting asset and has diminished in value. Any undue delay in having the Vessel sold will only result in the progressive accrual of costs and further deterioration of the Vessel and diminution in its value. The Plaintiff consequently will be prejudiced as its security will be severely diminished: Winning Loyalty at [27]. It will be in the interest of the general body of claimants, including the Plaintiff, that the Vessel is sold as soon as possible, and the proceeds of sale paid into Court, pending determination of the Plaintiff’s claims. [60] In the premises, the Court grants an order in terms of its Application. Dated the 14th day of December 2023 ONG CHEE KWAN Judge of the High Court of Malaya High Court of Kuala Lumpur, NCC2 Counsel:

Mr. Jainil Bhandari and Ms. Ashley Tay for Plaintiff

Mr. Ravindranath Woodhull together with Mr. Yong Chee Kong for Defendant

The Myrto [1977] 2 Lloyd’s Rep 243 2. Winning Loyalty v Shi Pu 1 [2020] 11 MLJ 603 3.

Section 366 of the Companies Act 2016 2. Order 29 rule 4(1) and Order 70 rule 20 of the Rules of Court 2012