Client Update: Milaha Explorer Pte Ltd v Pengrui Leasing (Tianjin) Co Ltd [2023] SGCA 6

Executive Summary

In Milaha Explorer Pte Ltd v Pengrui Leasing (Tianjin) Co Ltd, the Singapore Court of Appeal held that the fact a company was a one-ship company which was ultimately owned by, and financially reliant on, a foreign company was insufficient evidence, on its own, to show that there was a real risk it would dissipate its assets.

The Court also emphasised that the fact a company was planning to deal with its only asset was in and of itself insufficient to show a real risk of dissipation. What is required is for the applicant to show that the dealing was unjustified. In turn, unjustified refers to the lack of a legitimate commercial reason for the dealing.

Introduction

Milaha Explorer Pte Ltd v Pengrui Leasing (Tianjin) Co Ltd [2023] SGCA 6 was an appeal brought by Milaha Explorer Pte Ltd (“Milaha”), a one-ship company incorporated in Singapore. Milaha’s ultimate beneficial owner is Qatari Navigation QPSC (“Qatari Navigation”), a public company listed on the Qatar stock exchange. The Respondent was Pengrui Leasing (Tianjin) Co Ltd (“Pengrui”), a Chinese company engaged in the business of ship-owning and leasing.

The dispute between the parties related to an alleged breach of a memorandum of agreement (“MOA”) under which Milaha agreed to sell its sole asset, a vessel called the “Milaha Explorer”, (“Vessel”) to Pengrui. Pengrui alleged that Milaha breached the MOA because the Vessel did not meet certain requirements. Milaha took the position that Pengrui had wrongly repudiated the MOA and it sent Pengrui a letter cancelling the MOA, in which it also highlighted its contractual right to sell the Vessel to someone else upon Pengrui’s breach of contract. Pengrui then commenced arbitration proceedings in London and, in support of that arbitration, it applied for a Mareva injunction prohibiting Milaha from dissipating its assets. This was granted by the Singapore High Court. Milaha appealed.

The Singapore Court of Appeal (“SGCA”) therefore had to consider the issue of whether there was a real risk Milaha would dissipate its assets on the grounds that it was a one-ship company that relied on Qatari Navigation for financial support, as well as its interest in selling its sole asset, the Vessel.

Factors showing that there is a “real risk of dissipation”

In assessing whether there is a real risk of dissipation, the court will engage in a multifactorial analysis. The overarching principle is whether there are circumstances suggesting that the defendant not only can, but likely will, dissipate its assets to frustrate any judgment made against it (at [24]).

Although the SGCA recognised the fact that a foreign company and / or a company with a foreign ultimate beneficial owner may support the inference that there is a real risk of dissipation (at [24]), it nevertheless emphasised that this is but one factor to consider and cannot in and of itself justify there being a real risk of asset dissipation (at [30]).

Milaha’s corporate structure

Before the Court, Pengrui argued that Milaha’s corporate structure – of it being a one-ship company that was financially dependent on Qatari Navigation – demonstrated that there was a real risk of dissipation.

The SGCA rejected this argument. Instead, it took the view that Milaha’s corporate structure did not support an inference that there was a real risk of dissipation because it was industry practice to put vessels in the ownership of one-ship companies as it enabled the parent company to ringfence its risks and liabilities of owning and operating vessels (at [26]).

Furthermore, the fact that Milaha was only able to stay afloat due to financial support from Qatari Navigation also did not evince a real risk of dissipation because Pengrui knew of Milaha’s structure at the time the MOA was concluded. If Pengrui had issues with this, it could have asked Qatari Navigation to provide a corporate guarantee (at [27]).

No unjustified dealings with assets

The SGCA also emphasised that dealing with assets in and of itself would be insufficient to show a real risk of dissipation. The dealing with assets must be unjustified. As such, if the dealing was for legitimate commercial reasons, then such dealing would not be unjustified and a Mareva injunction would not be granted (at [32]).

The Court found that, up to the date on which the appeal was heard, the Vessel had not been sold and Milaha had not entered into any contract for the sale of the Vessel. The fact that Milaha had highlighted to Pengrui its contractual right to sell the Vessel on the latter’s breach of contract to another party was found to be nothing unusual as contractual parties often bring certain clauses to the attention of the counterparty when a dispute arises (at [33]).

The Court then considered that even if the Vessel was eventually sold, it could have been for legitimate commercial reasons such as the fact that Milaha was planning to replace the Vessel with a newer or bigger ship or that Milaha’s financial situation was so bad that it needed to realise its assets to settle its indebtedness (at [33]).

In any event, the SGCA found that selling the Vessel was the very thing that Milaha had sought to do right from the start – it was the reason it entered into an MOA with Pengrui. Thus, it would or should have been in Pengrui’s reasonable contemplation that if its deal with Milaha fell through, then Milaha would look to sell the Vessel to someone else. This was supported by the fact that the right to re-sell upon the buyer’s breach was contractually enshrined (at [34]).

The mere fact a company only has one asset and is ultimately owned by a foreign company is insufficient evidence for the court to grant a Mareva If anything, the fact that Milaha only had one asset made the effect of any Mareva injunction, if granted, harsh – Milaha would have been essentially prevented from conducting its entire business in its best interests. This clearly weighed on the Court’s mind when it balanced the effects of the Mareva injunction on Milaha against the potential prejudice or loss that would be caused to Pengrui if the Mareva injunction was not granted (at [38]).

This client update is jointly authored by Head of Restructuring & Insolvency Keith Han, Head of Litigation and China Practice Kelly Yap, Head of Shipping Prakaash Silvam and Practice Trainee Toh Ding Jun.

If you have any enquiries or require assistance in any corporate restructuring and insolvency related matters, please do not hesitate to contact Keith Han by email at [email protected] or mobile +65 9436 8330.

If you have any enquiries or require assistance in any shipping and arbitration related matters, please do not hesitate to contact Kelly Yap by email at [email protected] or mobile +65 9621 8312 or Prakaash Silvam by email at [email protected] or mobile +65 9474 2575.

^{The above content is for general information purposes only.  It is not and does not constitute nor is it intended to provide or replace legal advice, a legal opinion or any information intended to address specific matters relevant to you or concerning individual situations. Should you require specific legal advice, please do not hesitate to contact the Partner listed or your regular contact at the firm. Copyright of Oon & Bazul LLP}