Case Details
- Citation: [2024] SGHCR 12
- Court: High Court (General Division)
- Case Title: Oghiaanous Khoroushan Shipping Lines Co. of Kish v Owner of the vessel(s) TINA I (IMO No. 9267156)
- Proceedings: Admiralty in Rem No 87 of 2022 (Summons No 2279 of 2024)
- Date of Judgment: 9 October 2024
- Date Judgment Reserved / Subsequent Date: Judgment reserved (as indicated); judgment delivered 1 November 2024
- Judge: AR Navin Anand
- Plaintiff/Applicant: Oghiaanous Khoroushan Shipping Lines Co. of Kish
- Defendant/Respondent: Owner of the vessel “TINA I” (IMO No 9267156)
- Legal Area: Admiralty and Shipping; Practice and procedure of action in rem; Security
- Key Procedural Posture: Application for the court to order the terms of security to avoid arrest in an admiralty in rem action
- Core Substantive Context: Collision liability dispute; security furnished by payment into court
- Amount of Security Agreed (Quantum): S$653,476.16 (inclusive of interest and costs)
- Collision Date: 22 November 2020
- Collision Location (as pleaded): Territorial waters of Indonesia, north-west of Batu Berhanti Beacon
- Vessels Involved: “Shahraz” (registered owner: claimant) and “Tina I” (registered owner: defendant)
- Sanctions Context: Claimant and “Shahraz” are on the US OFAC SDN List; issue concerns US secondary sanctions
- Security Form: Payment into court
- Disputed Term: Inclusion of a “Sanctions Clause” allowing refusal of payment out on sanctions-related grounds
- Judgment Length: 21 pages; 5,686 words
Summary
This High Court decision addresses a practical and increasingly common problem in cross-border shipping disputes: how foreign sanctions risk should affect the provision of security in an admiralty action in rem. The claimant, an Iranian-domiciled shipping company and the registered owner of the vessel “Shahraz”, commenced an admiralty claim in Singapore arising from a collision with the defendant’s vessel “Tina I”. While the parties agreed on the quantum and form of security to avoid arrest—S$653,476.16 by payment into court—they disagreed on whether the security should be subject to a sanctions-related contractual term.
The defendant sought to include a “Sanctions Clause” in the security terms. Under that clause, any disbursement of the security to the claimant could be refused if, in the defendant’s “reasonable opinion”, payment would be prohibited or would expose the defendant or its insurers to penalties or adverse action under US sanctions laws (including secondary sanctions), or if banks in the payment chain could not process the payment. The claimant resisted, arguing that the proposed clause was unsupported and would undermine the court’s role in determining payment out.
The court declined to order the inclusion of the Sanctions Clause. Although the court accepted that sanctions issues are real and complex, it found that the defendant had not supported the clause with sufficient evidence. In particular, the court was not satisfied that the sanctions risk was established at the level required to justify a term that would effectively allow refusal of payment out. The court also found the clause inconsistent with the agreed mechanism of payment into court, because it would permit the defendant to withhold disbursement despite the security being held under the court’s control.
What Were the Facts of This Case?
The dispute arose out of a collision on 22 November 2020 between two vessels: the “Shahraz” and the “Tina I”. At the time of the collision, the claimant (Oghiaanous Khoroushan Shipping Lines Co. of Kish) was the registered owner of the “Shahraz”, and the defendant (AQ Maritime Co. Limited) was the registered owner of the “Tina I”. The collision occurred while the “Tina I” was transiting the Singapore Strait en route to Jakarta, Indonesia, and it collided with the “Shahraz”, which had been grounded off the coast of Indonesia due to a prior collision with another vessel.
Liability for the collision became the subject of an admiralty in rem action commenced in Singapore. On 15 November 2022, the claimant filed HC/ADM 87/2022 against the defendant for damage to the “Shahraz” and for losses resulting from the collision. The claimant alleged negligence on the defendant’s part. Subsequently, the parties entered into a Collision Liability Agreement under which the defendant agreed to bear 100% liability for the collision. The agreement was filed in the Supreme Court Registry on 17 May 2024 and, by operation of the Rules of Court 2021, had the same effect as an order of court.
While liability was effectively settled, the parties continued to negotiate security. The claimant sought pre-judgment security typical of admiralty practice, and the defendant agreed to provide security to avoid arrest. The parties reached consensus on the quantum and the form: security was agreed at S$653,476.16 and was to be furnished by payment into court. This is a common structure in admiralty proceedings because it provides the claimant with assurance that funds will be available if the claim succeeds, while allowing the defendant to avoid the disruption and commercial consequences of arrest.
The impasse concerned the terms attached to that security. The defendant proposed that the security be subject to a sanctions-related clause. The parties accepted that the claimant and the “Shahraz” are on the US Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Persons (SDN) List, meaning they are sanctioned entities under US law. The court also noted that there were no applicable sanctions against the claimant and “Shahraz” in Singapore. The defendant’s position was that, despite the absence of Singapore sanctions, US secondary sanctions could be triggered if the defendant or its insurers made payment to the sanctioned claimant without prior permission from OFAC. The claimant resisted the inclusion of the clause, leading to the present application.
What Were the Key Legal Issues?
The central issue was whether the court should order that the agreed security—furnished by payment into court—be subject to a Sanctions Clause that would allow the defendant to refuse payment out to the claimant on sanctions-related grounds. This required the court to consider the scope of its jurisdiction over the “form” and “terms” of security in an admiralty in rem action, and how that jurisdiction should be exercised when foreign sanctions are invoked.
A related issue was evidential and legal: whether the defendant had provided sufficient evidence to justify the Sanctions Clause. The defendant relied on US legal advice and asserted a “significant sanctions risk” of secondary sanctions. The claimant challenged the weight and admissibility of the US legal advice, arguing that it did not meet the requirements for expert evidence and was irrelevant to the court’s determination of payment out under Singapore procedure.
Finally, the court had to assess whether the proposed clause was consistent with the function of security in admiralty practice. Security by payment into court is designed to put the claimant in a position of practical protection. A term that permits refusal of disbursement could, depending on its drafting and operation, undermine that protective function and potentially shift the decision on payment out away from the court and onto the defendant’s unilateral “reasonable opinion”.
How Did the Court Analyse the Issues?
The court began by situating the dispute within the distinctive procedural advantages of admiralty actions in rem. A claimant can obtain pre-judgment security through arrest of the defendant’s vessel or through the provision of security to avoid arrest. The court emphasised that it has jurisdiction not only over the quantum of security but also over the form and terms on which security is to be provided. In support of that proposition, the court referred to established admiralty authority, including The “Piya Bhum”, where the court recognised that owners may secure release or restraint of arrest by furnishing a bail bond, and that the court can determine the terms of such security.
Against that background, the court examined the parties’ agreement and the nature of the proposed Sanctions Clause. The parties had already agreed on the amount and the mechanism: payment into court. The defendant’s application sought to add a further condition: that any disbursement to the claimant would be subject to the Sanctions Clause. The clause, as drafted, would allow refusal of payment out in two scenarios: (a) where payment would, in the defendant’s “reasonable opinion”, be prohibited or expose the defendant and its insurers to sanctions penalties or adverse action by the US (or other competent authorities), and (b) where a bank in the payment chain could not process the payment. The defendant would then use “reasonable endeavours” to obtain permissions or approvals to effect payment.
In analysing whether to order the clause, the court focused on two connected concerns: (1) the evidential foundation for the claimed sanctions risk, and (2) the compatibility of the clause with the court-supervised security regime. On the first, the defendant relied on US legal advice that it and its insurers might face secondary sanctions if they engaged in a “significant transaction” with or for the benefit of SDN-listed entities. The court considered the claimant’s objections to the weight of that advice, including the argument that it did not satisfy the requirements for expert evidence. While the court did not treat sanctions risk as irrelevant, it required a sufficient evidential basis to justify a term that would materially affect the claimant’s entitlement to disbursement.
On the second concern, the court found that the Sanctions Clause was inconsistent with the agreed payment-into-court structure. Payment into court is intended to place the security under the court’s control and to ensure that, subject to the outcome of the proceedings, the claimant can receive the security without the defendant being able to unilaterally block disbursement. The Sanctions Clause would effectively allow the defendant to refuse payment out based on its own assessment of sanctions risk, even though the security had already been paid into court. The court therefore treated the clause as going beyond what was necessary to address sanctions compliance concerns and as shifting the practical control of disbursement away from the court’s adjudicative function.
The court’s reasoning also addressed the internal logic of the clause. The clause purported to protect the defendant and its insurers from sanctions exposure, but it did so by creating a broad discretion to refuse payment out. The court was not persuaded that this discretion was justified on the evidence before it. In particular, the court noted that the clause was not supported by the evidence in a way that would warrant overriding the normal expectation that security paid into court should be disbursed in accordance with the court’s orders. The court therefore declined to order the inclusion of the clause as a term of the security.
What Was the Outcome?
The court dismissed the defendant’s application to include the Sanctions Clause as a term of the security. The practical effect is that, while the defendant remains required to provide the agreed security by payment into court (S$653,476.16), disbursement to the claimant would not be made conditional on the Sanctions Clause’s sanctions-based refusal mechanism.
Accordingly, the claimant’s security position is strengthened: the claimant can expect that, once the court determines entitlement, the security held in court will be disbursed without being subject to a contractual sanctions veto. The decision also signals that parties cannot assume that foreign sanctions concerns will automatically justify special terms that dilute the protective purpose of admiralty security.
Why Does This Case Matter?
This case matters because it addresses a real-world friction point in international shipping litigation: sanctions compliance is not confined to the merits of a claim, but can affect procedural mechanisms such as security and payment. The decision provides guidance on how Singapore courts may approach requests to incorporate sanctions clauses into security arrangements. While the court acknowledged the complexity of sanctions and the industry’s “between a rock and a hard place” dilemma, it required a robust evidential basis before allowing sanctions risk to alter the court-supervised security regime.
For practitioners, the decision highlights that the court’s jurisdiction over security terms is not merely formal. The court will scrutinise whether proposed terms are necessary, evidence-based, and consistent with the function of security. Parties seeking sanctions-related carve-outs should expect to provide clear, admissible evidence and to demonstrate why narrower or more court-compatible mechanisms would not suffice.
From a precedent perspective, the judgment is likely to be cited in future admiralty and commercial disputes where defendants attempt to condition security or payment on sanctions compliance. It reinforces that Singapore courts will not lightly permit contractual provisions that effectively allow a defendant to withhold disbursement based on unilateral assessments, especially where the security is already paid into court and is meant to secure the claimant’s recovery.
Legislation Referenced
- Rules of Court 2021 (ROC 2021), in particular O 33 r 34 (effect of filing collision liability agreement as having the same effect as an order of court)
Cases Cited
- Kuo Fen Ching and another v Dauphin Offshore Engineering & Trading Pte Ltd [1999] 2 SLR(R) 793
- The “Piya Bhum” [1993] 3 SLR(R) 905
- Steven Chong JCA, “Sanctions: Between a Rock and a Hard Place”, keynote address at the Singapore Shipping Law Forum 2024 (17 October 2024) (cited for general background on sanctions risk and secondary sanctions)
Source Documents
This article analyses [2024] SGHCR 12 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.