IMSML Website Article 26/2025: Pemilik Dan/Atau Pencarter Demis Kapal Atau Vesel ‘Edzard Schulte’ v Pemilik Dan/Atau Pencarter Demis Kapal Atau Vesel ‘Setia Budi’ [2023] MLJU 2949 - Judial Sale Pendente Lite

Today’s article is a continuation of the earlier case of THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL ‘EDZARD SCHULTE’ V THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL ‘SETIA BUDI’ [2023] 12 MLJ 53, documented in IMSML WEBSITE ARTICLE 17/2024 which is titled ‘A BATTLE ROYALE BETWEEN THE PERSONIFICATION THEORY VS THE PROCEDURAL THEORY’.

Today’s article is about what came after that battle rotale, in particular, appraisement, sale  pendente lite and subsequent consequential orders with respect to the vessel ’Setia Budi’. The case was heard by Malaysia’s Admiralty Judge, Mr Ong Chee Kwan. The main thrust of the judgment was about factors a judge has to consider when making a sale pendente lite after objections to such a sale were made.

At the relevant point in time, the vessel had been under arrest for one (1) year and two (2) months. The Defendant was not able to provided any alternative security to facilitate release of the ship, see Paragraph [15]. Further the Defendant (in a letter to the Court) admitted that its financial situation does not allow it to bear the burden and costs of maintaining the Vessel under arrest, as it was ‘going through a period of financial difficulties’, see Paragraph [16]. The Plaintiff argued that the Vessel should be sold as its claim could be severely prejudiced as the Vessel was a wasting asset and was deteriorating under arrest, pending final determination of the Plaintiff’s claim, see Paragraph [17].

What is the basis of the Court’s Power to Make an Order for Appraisement and Sale Pendente Lite?

Mr Justice Ong Chee Kwan explained that this is founded on the Court’s inherent jurisdiction, see for example at Paragraph [19]:

[a] Castrique v Imrie (1870) LR4 HL 414;

[b] The Hercules (1885) 11 PD 10;

[c] Hobbs, Savill and Co Ltd v The Vasilia (Owners), Albaran Bay Corp [1972] 1 Lloyd’s Rep.51.

His Lordship also clarified that the power is regulated by the Rules of Court 2012, Order 29, Rule 4(1). In particular, a sale pending litigation could be ordered when the subject-matter of the claim, see Paragraph [19]:

[a]  Is perishable;

[b] Is likely to deteriorate;

[c] Has a good reason for sale;

[d] Retention of the property will cause the P’s security to diminish if for no other reason that the mounting costs of arrest.

If good reasons such as these do not exist, an appraisement and sale of the ship pendent lite should not be made, see Paragraph [20], where his Lordship cited the following cases:

[a] The Myrto [1977] 2 Lloyd’s Rep 243 at p 260;

[b] Winning Loyalty v Shi Pu 1 [2020] 11 MLJ 603 per Atan Mustaffa JC (as His Lordship then was) - His Lordship said that the ship would be under arrest for more than 7 months, ie it would likely that the trial only takes place within 1.5 years. There would be a high cost of maintaining arrest and there would also be substantial diminution in the value of the ship.

What are the factors that a Court should consider when ordering a sale pendente lite?

Mr Justice Ong Chee Kwan, see Paragraph [21], drew inspiration from two cases, namely Winning Loyalty v Shi Pu 1 [2020] 11 MLJ 603 at para [13] and The Silver Moon [2017] 8 MLJ 466 at para [21].

[a] Has the defendant failed to provide alternative security?

[b] What was the value of the arrested ship?

[c] What were the quantum of claims, as compared to the value of the ship?

[d] What was the lead time for the dispute to go to trial?

[e] Was there any deterioration in the condition of the ship?

[f] What was the cost of maintaining and preserving the ship under arrest?

[g] To what extent would the value of the ship diminish / depreciate whilst pending the resolution of the trial?

There is evidence that the factors identified in [a] to [g] above, exist in the facts of this case. First, Mr Justice Ong Chee Kwan noted that the Defendant failed to provide any alternative security since the vessel was arrested 1 year and 2 months ago, see Paragraph [23], despite the Plaintiff’s demands for such security prior to the commencement of the action in court (ie June 2022) and later when the vessel was arrested (ie 14 September 2022), see Paragraph [23]. Following well established precedent such as the Winning Loyalty case at para [17], [18] and [19], the Defendant’s failure to provide any alternative security constitutes strong ground for make the order of appraisement and sale pendente lite, see Paragraph [24]. This is the case even where the claim is being defended, see The Silver Moon per Azizah Nawawi J at para [26], [28]-[29], and The Myrto, see Paragraph [25].

Second, Mr Justice Ong Chee Kwan also found that it was significant that the Defendant has repeatedly admitted that it was financially impecunious, eg via a letter to the Court (ie dated 28 June 2023, which contained an admission that it could not bear the financial burden and cost of maintaining the vessel under arrest. Further, there was an affidavit where it was admitted that ie is ‘going through a period of financial difficulties’, see Paragraph [26].

Third, His Lordship also took note of the Defendant’s application to the High Court for a scheme of arrangement to be approved by its creditors. To make things worse for the Defendant, this was a second attempt as a scheme of arrangement, see Paragraph [27].

Fourth, the Defendant failed to pay costs order to be paid to the Plaintiff totalling RM20,000, despite multiple demands by the Plaintiff’s solicitors. The Defendant has failed to even respond to the demand for payment of costs, see Paragraph [28].

Fifth, the Defendant had tried to argue that the quantum claimed, and there the accompanying security sought by the Plaintiff, was excessive. Mr Justice Ong Chee Kwan rejected this submission as this was NOT a good reasons to object to an application for a sale pendente lite. His Lordship held that the Plaintiff was entitled to security on the basis of its reasonably best arguable case in lieu of arrest. His Lordship also found that even though the Defendant was aware of the Plaintiff’s claim and quantum via the documents, at no time whatsoever, did the Defendant seek a more detailed breakdown of the claims in order to effectively challenge. The Defendant also did not ask the Plaintiff for further supporting documents relating to the claims, see Paragraph [29]. Therefore, it was clear that the Defendant did not have a genuine intention to challenge the quantum of the Plaintiff’s claim. If they had such an intention, they would have provided alternative security for a reasonable sum, see Paragraph [30].

Sixth, as a sale pendente lite proceeded on the Plaintiff’s best arguable case. The Defendant’s contention that the Plaintiff has a weak case was not a factor to be considered at this stage, see Paragraph [30].

As a guide, should the Court take the ‘market value’ of the ship, or ‘forced sale’ value?

The relevant value for a sale pendente lite is the ‘forced value’ of the vessel. When a judicial sale such as this is ordered, the Vessel will be sold by the Sheriff in a public auction on an ‘as is where is’ basis, see the Winning Loyalty case at para [32], see Paragraph [31]. Mr Justice Ong Chee Kwan rejected the Defendant’s reliance on ‘fair market value’ as it was irrelevant for a sale pendente lite, noting that the Defendant had not provided any alternative views as to the force sale value of the Vessel, see Paragraph [34].

Mr Justice Ong Chee Kwan provided four (4) reasons why a forced sale value of the ship is likely to be significant lower, see Paragraph [35]:

[a] The Vessel would have most likely deteriorated whilst she was at anchor for more than a year and remained non-operational;

[b] There was no information as to whether the Vessel was still in Class, and whether her trading or operational certificates had expired. The Vessel had not been dry docked since her arrest and would probably incur expenses to put her back in Class;

[c] The Defendant had not furnished evidence that maintenance was carried out on the Vessel whilst she was under arrest to preserve her condition. This process was unlikely as the Defendant was in a dire financial position;

[d] It was unclear as to the extent of damage the Vessel had suffered due to the earlier grounding. There consequently, it was also unclear how this affected condition and value of the Vessel. Any unrepaired damage would affect the vessel’s value when it is sold on an ‘as is’ basis.

How would a subsequent full trial affect the Vessel?

If a sale pendente lite is not granted, the Vessel could potentially remain under arrest for a long time and as a result, deteriorate considerably. Mr Justice Ong Chee Kwan pointed out that a potential trial was still about a year plus away. Assuming there was an appeal, that would add another year to the proceedings. By the time judicial processes are at an end, the Vessel could be 16 years old. Selling the Vessel now via a sale pendente lite would bring a much better price for the Vessel, see Paragraph [37]-[41].

At present, the ship was deteriorating due to prolonged arrest. It was exposed to the elements, eg unfavourable weather conditions, rough seas and high swells. This puts the vessel at unnecessary risk especially during the monsoon season. It is not only an environmental risk but also a safety hazard to other vessels, see Paragraph [42]. These were factors that justified a sale pendente lite in cases such as the Winning Loyalty at para [30], where the ship was at risk in the busy Straits of Malacca, see Paragraph [43]. On the facts of the case before Mr Justice Ong Chee Kwan, during the previous monsoon season from November 2022 to March 2023, the vessel was swept off and grounded at Cherating Beach. It was therefore imperative that the ship be sold as soon as possible, see Paragraph [44].

Could the Vessel be repositioned for reasons of safety?

After the grounding, the Defendant had shifted the vessel to its present location at Asian Divers Jetty. The Defendant’s solicitors then asked for permission to relocate the vessel to Geliga Slipway Jetty, on the grounds of safety as there were some near miss incidents and poor visibility. The Sheriff did ask for evidence that Jabatan Laut Malaysia approved of the repositioning. However, the Defendant’s solicitors had not provided any evidence of approval of the repositioning to the proposed new location, see Paragraph [45].

What are the significant accruing costs for the vessel being kept under arrest?

First, there are crew wages. Four crew members (eg Master, Deck Engineer, Chief Engineer and Engine Ratings) remained on board at all times, see Paragraph [52a]. Second, bunkers and supplies. The Defendant’s solicitors owner has been bunkering and supplying the vessel whilst she was under arrest. Also provided were food, drinks, fresh water, and spare parts, see Paragraph [52b]. Third, port dues. These sums were payable from the time of the Vessel’s arrest, until now. As these port dues accumulated, this will decrease the sum available when the vessel is sold to satisfy the various claims, see Paragraph [52c]. Fourth, insurances and statutory certificates. Having such valid documents are required by Jabatan Laut’s  Port Circular No.7/2023, see Paragraph [52d].

Was a sale pendente lite prejudicial to the Defendant as it exacerbated the Defendant’s impecunious financial state?

The Defendant had argued that if the Vessel was sold, it would be put in a position where it was impossible to discharge its responsibilities as a shipowner, ie having no means to earn freight to meet the judgment sum, see Paragraph [55]. This was a similar argument that was made in the Winning Loyalty case, ie that the ship would not be able to return to its original position once the Vessel was sold, see Paragraph [56]. Atan Mustafa JC in the Winning Loyalty rejected this argument on the basis that there is no principle in law that prejudice to the shipowner is an order of sale is granted, is something for the court to consider, see Paragraph [57]. Atan Mustafa J explained that prejudice may be suffered by the Plaintiff if an order for sale is not granted, as the ship may have deteriorated to the extent that any subsequent sale will not be enough to meet the Plaintiff’s claim, see Paragraph [57]. These views were endorsed by Mr Justice Ong Chee Kwan, who added that if the Vessel is one of the ‘significant assets’ as the Defendant alleged, it ought then to provide alternative security immediately so that the vessel may be released and generate income for the Defendant, see Paragraph [58].

What are Mr Justice Ong Chee Kwan concluding thoughts on the matter?

The Vessel ought to be sold as soon as possible and the proceeds paid into Court pending the determination of the Plaintiff’s claims. At Paragraph [59, His Lordship summarized the reasons for a sale pendent lite:

[a] The Vessel had become a wasting asset and had diminished in value;

[b] Undue delay is selling the Vessel would result in progressive accrual of costs, further deterioration of the Vessel and diminution of its value;

[c] The Plaintiff would be prejudiced by a diminishing security.

Thank you for reading IMSML Website Article 26/2025

Stay tuned for the next MSML Website Article 27/2025: The ‘Sea Coral’; Societe Generale, Singapore Branch v The Owners and/or the Demise Charterers of the Ship or Vessel Sea Coral of the Port of Coo Islands (An Zhong Shipping Pte Ltd, Intervener) [2023] MLJU 3303 - Extent of the Right to Intervene in an Admiralty Action In Rem, Setting Aside a Judgment in Default and Allegations of Fraudulent Bills of Lading

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

Tuesday,  1 July 2025

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my