THE “CHLOE V” [2025] SGHC 142

Case Details

• Citation: [2025] SGHC 142
• Court: General Division of the High Court of the Republic of Singapore
• Decision Date: 28 July 2025
• Coram: S Mohan J
• Case Number: Admiralty in Rem No 102 of 2021
• Hearing Date(s): 1, 4–8, 11–13 November 2024, 14 February 2025
• Claimants / Plaintiffs: UBS AG (formerly Credit Suisse AG)
• Respondent / Defendant: Owner of the vessel CHLOE V (Chloe Navigation Ltd)
• Intervener: Koch Shipping Pte Ltd
• Counsel for Plaintiff: Song Swee Lian Corina, Liang Junhong Daniel, Thomas Benjamin Lawrence (Allen & Gledhill LLP)
• Counsel for Defendant: Tan Boon Yong Thomas, Lieu Kuok Poh, Shantini d/o Jeyathasan Krishnan (Haridass Ho & Partners)
• Practice Areas: Contract; Contractual discretion; Admiralty; Banking and Finance

Summary

The judgment in The “Chloe V” [2025] SGHC 142 provides a definitive analysis of the limits of contractual discretion and the scope of the "Braganza duty" within the high-stakes environment of international ship finance. The dispute centered on a mortgagee bank’s refusal to issue a Letter of Quiet Enjoyment (LQE) to a prospective charterer, an act which the defendant shipowner claimed led to the collapse of a lucrative charterparty, the subsequent default on a US$145,630,000 facility, and the eventual judicial sale of the vessel. The defendant, Chloe Navigation Ltd, sought S$48,627,828.91 in damages, alleging that the plaintiff bank, UBS AG, breached its contractual duties by failing to exercise its discretion rationally and in good faith.

The High Court was tasked with determining whether a standard "approval" clause in a ship mortgage facility—specifically Clause 21.7.1—obligated the bank to provide an LQE to a third-party charterer. The defendant argued that in the modern shipping market, "approval" of a long-term charter is meaningless without an LQE, as no reputable charterer would proceed without protection against the mortgagee’s power of sale. This argument sought to expand the bank’s duty of "approval" into a mandatory obligation to enter into a new, collateral legal relationship with the charterer. The court’s resolution of this issue required a deep dive into the construction of commercial contracts under English law, which governed the underlying facilities.

S Mohan J dismissed the defendant’s counterclaim in its entirety, holding that the bank’s right to approve a charter did not encompass a duty to issue an LQE. The court further clarified that even if the Braganza duty of rationality applied to the bank’s decision-making process, the bank had acted within the bounds of commercial reasonableness. The judgment emphasizes that a mortgagee is a secured creditor, not a fiduciary or a partner to the borrower, and is generally entitled to prioritize its own security interests, especially when the borrower is already in financial distress or default. This decision reinforces the principle of freedom of contract and protects the sanctity of security interests in the maritime sector.

The doctrinal contribution of this case is significant for its treatment of the "two-limb Wednesbury test" in a private law context. The court meticulously examined the bank’s internal credit deliberations to determine if irrelevant considerations were taken into account or if the decision was so "outrageous" that no reasonable mortgagee could have reached it. By finding in favor of the bank, the court has set a high threshold for borrowers seeking to challenge a lender’s refusal to grant additional concessions or enter into ancillary agreements like LQEs. The case serves as a vital precedent for practitioners drafting and litigating ship financing agreements in Singapore and beyond.

Timeline of Events

1. 26 November 2010: Commencement of the historical financing relationship involving the vessel's group.
2. 23 November 2011: Execution of further financial agreements related to the fleet's debt structure.
3. 30 September 2014: Significant milestone in the long-term financing and restructuring of the vessel's debt.
4. 26 May 2016: Execution of a Supplemental Agreement addressing payment defaults and modifying facility terms.
5. 2 June 2016: Finalization of related financial transactions under the 2016 restructuring.
6. 27 June 2016: Completion of documentation for the 2016 supplemental terms.
7. 12 July 2017: Intermediate date in the performance history of the loan facility.
8. 7 August 2018: Date relevant to the operational status of the vessel CHLOE V.
9. 12 August 2018: Further date relevant to the vessel's financial standing.
10. 26 November 2018: Issuance of notices or amendments regarding the existing facility.
11. 28 January 2019: Date relevant to the lead-up to the 2019 Facilities Agreement.
12. 26 June 2019: Execution of the primary Facilities Agreement (governed by English law) for US$145,630,000.
13. 30 August 2019: Execution of the Fee Letter and related financial documentation.
14. 23 January 2020: Date relevant to the defendant's financial performance under the new facility.
15. 30 September 2020: Financial reporting milestone; the defendant faces increasing liquidity pressure.
16. 17 November 2020: Correspondence between the bank and the owner regarding the vessel's status.
17. 19 November 2020: Further communication regarding potential defaults and operational issues.
18. 14 May 2021: The defendant formally requests the bank's approval for a charter to Koch Shipping Pte Ltd and the issuance of an LQE.
19. 19 May 2021: The bank responds to the request, initiating internal credit reviews.
20. 20 May 2021: Internal bank deliberations regarding the risks of issuing an LQE while the borrower is in default.
21. 21 May 2021: The bank formally refuses to issue the LQE, citing security concerns.
22. 25 May 2021: Follow-up correspondence from the defendant warning of the charter's imminent collapse.
23. 26 May 2021: Final attempts by the defendant to persuade the bank to reconsider the LQE refusal.
24. 27 May 2021: The bank maintains its refusal; Koch Shipping indicates it will withdraw.
25. 28 May 2021: The Koch Shipping charter is lost due to the absence of the LQE.
26. 26 June 2021: The defendant fails to meet subsequent payment obligations; the loan is accelerated.
27. 16 July 2021: The bank commences legal action and issues formal notices of default.
28. 30 July 2021: Commencement of Admiralty in Rem No 102 of 2021 and arrest of the vessel.
29. 30 August 2021: Procedural developments regarding the judicial sale of the vessel.
30. 15 September 2021: Filing of initial pleadings in the Admiralty action.
31. 15 October 2021: Filing of the defendant's Defence and Counterclaim.
32. 18 November 2021: Further evidence and affidavits filed in the ongoing litigation.
33. 31 January 2022: Valuation of the vessel for the purpose of the judicial sale.
34. 3 March 2022: Procedural update in the High Court regarding the sale process.
35. 21 March 2022: Court directions issued for the substantive trial of the counterclaim.
36. 19 April 2022: Significant date in the lead-up to the evidentiary hearings.
37. 26 April 2022: Related procedural milestone in the management of the counterclaim.
38. 30 August 2023: Pre-trial conference to finalize the scope of expert evidence.
39. 5 December 2023: Finalization of trial dates and exchange of AEICs.
40. 25 January 2024: Filing of final AEICs by the parties.
41. 31 May 2024: Exchange of pre-trial submissions and bundles.
42. 16 September 2024: Exchange of Opening Statements.
43. 1, 4–8, 11–13 November 2024: Substantive hearing before S Mohan J.
44. 17 January 2025: Filing of post-hearing submissions.
45. 14 February 2025: Final oral arguments and clarifications.
46. 28 July 2025: Delivery of the judgment dismissing the counterclaim.

What Were the Facts of This Case?

The case revolves around the CHLOE V, a 2011-built Very Large Crude Carrier (VLCC) owned by Chloe Navigation Ltd, a British Virgin Islands entity part of the Ghandour family’s shipping group. The vessel was a significant asset within a larger fleet financing arrangement. The plaintiff, UBS AG (having succeeded Credit Suisse AG), was the mortgagee bank. The relationship was governed by a Facilities Agreement dated 26 June 2019, which provided a facility of US$145,630,000. This agreement was the culmination of several years of restructuring, including a 2016 Supplemental Agreement necessitated by the defendant's prior financial difficulties. The 2019 agreement was secured by, among other things, a first priority mortgage over the CHLOE V and was governed by English law.

By late 2020 and early 2021, the defendant was in a precarious financial position. It had failed to make certain mandatory prepayments and was in breach of financial covenants, including the Loan-to-Value (LTV) ratio, which required the value of the mortgaged vessels to be at least 130% of the outstanding loan. The bank had issued several reservation of rights letters but had not yet accelerated the loan. In this context, the defendant sought to secure a long-term charter for the CHLOE V to generate cash flow and stabilize its debt service. In May 2021, the defendant negotiated a charterparty with Koch Shipping Pte Ltd (the Intervener). The proposed charter was for a period exceeding 12 months, which triggered Clause 21.7.1 of the Facilities Agreement.

Clause 21.7.1 stipulated that the borrower must obtain the bank's prior written approval for any charter commitment lasting more than 12 months. Crucially, Koch Shipping made it a condition of the charter that the bank issue a Letter of Quiet Enjoyment (LQE). An LQE is a tripartite agreement (or a letter from the bank to the charterer) where the mortgagee bank promises not to interfere with the charterer's use of the vessel in the event of the owner's default, provided the charterer continues to pay hire. From the bank's perspective, an LQE is a significant concession because it effectively subordinates the bank's power of sale; the bank cannot sell the vessel "free and clear" of the charter, which often reduces the vessel's market value and liquidity in a forced sale scenario.

On 14 May 2021, the defendant formally requested the bank's approval for the Koch charter and the issuance of the LQE. The bank’s internal credit committee reviewed the request. The bank was concerned that the defendant was already in default and that granting an LQE would further impair its security interest. The bank also noted that the defendant had not provided a clear plan to remedy the existing LTV breaches. On 21 May 2021, the bank informed the defendant that while it might approve the charterparty itself, it refused to issue the LQE. The defendant argued that the charter could not proceed without the LQE and that the bank's refusal was a breach of its duty to act rationally and in good faith.

The negotiations with Koch Shipping collapsed on 28 May 2021 because the LQE was not forthcoming. This failure led to a total breakdown of the financing arrangement. The bank accelerated the loan and arrested the vessel in Singapore on 30 July 2021. The vessel was subsequently sold judicially for S$57.8 million (approx. US$42.5 million). The defendant filed a counterclaim for S$48,627,828.91, representing the loss of the Koch charter and the alleged undervalue of the vessel at the judicial sale. The defendant’s core contention was that the bank’s refusal to issue the LQE was "Wednesbury unreasonable" and motivated by an improper desire to force a sale of the vessel rather than allowing the defendant to trade its way out of debt.

What Were the Key Legal Issues?

The dispute raised several complex legal issues regarding the intersection of contractual interpretation and the implied duties of a mortgagee. The court had to address the following questions:

• Construction of Clause 21.7.1: Did the requirement for the bank to "approve" a charter commitment, on a proper construction of the Facilities Agreement, include an obligation to issue an LQE? The defendant argued that "approval" was a composite concept that included all documents necessary to make the charter effective in the market.
• Existence and Applicability of the Braganza Duty: Did the bank’s decision-making process under Clause 21.7.1 constitute a "contractual discretion" that attracted the implied duty of rationality and good faith established in Braganza v BP Shipping Ltd? The bank argued that its right to refuse an LQE was an absolute proprietary right, not a discretion subject to judicial review.
• The Scope of the Braganza Duty: If the duty applied, what were its requirements? Specifically, did the bank have to consider the defendant's financial interests, and was the bank’s refusal to issue the LQE "Wednesbury unreasonable"? This involved applying the two limbs of the Wednesbury test: (i) whether the bank failed to take into account relevant considerations or took into account irrelevant ones, and (ii) whether the decision was so outrageous that no reasonable decision-maker could have reached it.
• The Nature of a Mortgagee’s Interest: To what extent is a mortgagee entitled to prioritize its own security over the borrower's business interests? The court had to determine if the bank’s concern for its "power of sale" was a legitimate basis for refusing the LQE.
• Causation and Loss: Even if the bank had breached a duty, was that breach the effective cause of the loss? The court had to consider whether the Koch charter would have failed anyway due to the defendant's pre-existing financial distress and the volatile tanker market.

How Did the Court Analyse the Issues?

The court’s analysis began with the construction of Clause 21.7.1. S Mohan J applied the principles of English law, emphasizing that the starting point is the natural and ordinary meaning of the words used in the context of the agreement as a whole. The court noted that Clause 21.7.1 required the bank’s "approval" of a "charter commitment." The court held that an LQE is a separate and distinct legal instrument from a charterparty. While a charterparty is a contract between the owner and the charterer, an LQE is a contract (or a unilateral undertaking) between the mortgagee bank and the charterer. The court observed at [49]:

"I agree with the plaintiff that the “approval” of a charter commitment under Clause 21.7.1 does not, on its proper construction, include the approval of a request to issue an LQE."

The court reasoned that if the parties had intended to obligate the bank to enter into new legal relationships with third parties, they would have said so explicitly. The absence of any mention of LQEs in the Facilities Agreement was significant, especially given that the parties were sophisticated commercial entities. The court rejected the defendant's argument that "approval" must be "effective approval." A bank can approve the terms of a charterparty (e.g., the hire rate, the duration, the identity of the charterer) without being forced to grant the charterer additional rights that would impair the bank's own security. The court found that an LQE is a concession by the bank, not a standard part of the "approval" process.

The court then addressed the "Braganza duty." This duty, derived from Braganza v BP Shipping Ltd, implies that where a contract gives one party a discretion to make a decision that affects the rights of both parties, that discretion must be exercised rationally. The court considered whether the bank's "approval" right was such a discretion. The bank argued that its right to refuse an LQE was an "absolute right" because it involved the bank's proprietary interest in its security. The court noted the distinction in English law between a "contractual discretion" (subject to Braganza) and an "absolute right" (not subject to Braganza). Referring to Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd [2008] EWCA Civ 116, the court noted that the scope of the duty depends on the nature of the contract.

In analyzing the "two-limb Wednesbury test," the court examined the bank's internal credit deliberations. The first limb asks whether the decision-maker took into account irrelevant considerations or failed to take into account relevant ones. The defendant argued that the bank failed to consider the "life-saving" nature of the Koch charter for the defendant's business. The court found, however, that the bank was entitled to prioritize its own security. The bank’s primary "relevant consideration" was the fact that the defendant was already in default and that the LTV ratio was breached. The court held that a mortgagee is not required to sacrifice its own interests to save the borrower. The bank's concern that an LQE would make the vessel harder to sell in a foreclosure was a perfectly rational and relevant consideration.

The second limb of the Wednesbury test asks whether the decision was so "outrageous" that no reasonable decision-maker could have reached it. The court found that the bank's decision was well within the range of reasonable commercial responses. The defendant's history of defaults and the lack of a credible restructuring plan meant that the bank was justified in refusing to grant further concessions. The court noted that the bank had actually offered to consider the LQE if the defendant provided additional security or a partial repayment, which the defendant failed to do. This demonstrated that the bank was not acting arbitrarily or with "subjective bad faith."

The court also addressed the defendant's allegation of "improper purpose"—that the bank refused the LQE specifically to force a judicial sale. The court found no evidence for this. The bank’s internal emails showed a genuine concern for the LTV breach and the overall credit risk. The court held that even if the bank's decision led to the sale of the vessel, that was a legitimate exercise of its rights as a mortgagee following the borrower's default. The court cited How Weng Fan and others v Sengkang Town Council and other appeals [2023] 2 SLR 235 to emphasize that the burden of proving irrationality or improper purpose is high and was not met by the defendant.

Finally, on the issue of causation, the court held that even if the bank had breached a duty, the defendant had not proved that this breach caused the loss. The evidence suggested that the Koch charter was conditional on several factors, and the defendant's overall financial collapse was likely inevitable given its massive debt and the market conditions. The court concluded that the bank's refusal to issue the LQE was a rational exercise of its commercial judgment and did not constitute a breach of contract.

What Was the Outcome?

The High Court dismissed the defendant’s counterclaim in its entirety. S Mohan J found that the plaintiff bank had no contractual obligation under Clause 21.7.1 or any other provision of the Facilities Agreement to issue a Letter of Quiet Enjoyment to Koch Shipping. The court further held that the bank’s refusal to do so was not a breach of any implied duty of rationality or good faith, as the bank had acted within its rights as a mortgagee to protect its security interest in the face of the defendant's existing defaults.

The operative paragraph of the judgment states:

"The defendant’s counterclaim is accordingly dismissed in its entirety." (at [178])

As a result of this dismissal, the defendant’s claim for damages totaling S$48,627,828.91 (representing the alleged loss of the charter and the undervalue of the vessel) was rejected. The court found that the judicial sale of the CHLOE V for S$57.8 million was conducted properly and that the bank was not liable for any alleged shortfall in the sale price. The bank was entitled to the proceeds of the sale to satisfy the outstanding debt under the US$145,630,000 facility.

Regarding costs, the court’s decision followed the general principle that costs follow the event. Having succeeded in dismissing the counterclaim, the plaintiff bank was entitled to its costs. The court did not find any reason to depart from the standard costs regime, although the specific quantum of costs was to be determined subsequently if not agreed upon by the parties. The intervention of Koch Shipping Pte Ltd did not alter the primary outcome between the plaintiff and the defendant.

The judgment also effectively terminated the defendant's attempts to challenge the bank's acceleration of the loan. By confirming that the bank's refusal of the LQE was lawful, the court validated the bank's subsequent actions in calling the default and arresting the vessel. The decision provided a final resolution to the Admiralty in Rem No 102 of 2021, allowing the bank to finalize the recovery of its secured funds.

Why Does This Case Matter?

The “Chloe V” is a landmark decision for the Singapore maritime and finance legal landscape, particularly for its rigorous application of English law principles to the "Braganza duty" in a commercial lending context. The case matters because it clarifies the boundaries of "contractual discretion." Practitioners often struggle with whether a bank’s right to "approve" or "consent" is an absolute right or a discretion subject to judicial review. S Mohan J’s judgment provides a clear framework: while some "approval" rights may attract a duty of rationality, that duty does not require a bank to enter into new, collateral contracts (like LQEs) that were not contemplated in the original agreement.

The case reinforces the "sanctity of security" for mortgagee banks. In the volatile shipping industry, borrowers frequently face financial distress and seek concessions from their lenders. This judgment confirms that a bank is not legally "unreasonable" simply because it refuses to grant a concession that would impair its power of sale. The court’s refusal to expand the bank’s "approval" duty into a mandatory LQE obligation protects the predictability of ship finance. If the court had ruled otherwise, it would have created a significant new burden for lenders, potentially forcing them to subordinate their security interests whenever a borrower finds a "good" charterer.

Furthermore, the judgment provides a masterclass in the application of the "two-limb Wednesbury test" to private law. By examining the bank’s internal credit committee minutes and emails, the court showed that "rationality" in a commercial context is measured by the lender’s own legitimate interests. The court’s finding that the bank’s concern for its LTV ratio and power of sale were "relevant considerations" provides a safe harbor for banks making tough credit decisions. It signals to borrowers that the Braganza duty is not a tool to rewrite the commercial balance of a loan agreement or to force a lender to act as a "white knight."

For the Singapore legal hub, this case demonstrates the High Court’s expertise in handling complex, multi-million dollar international disputes governed by foreign law. The court’s detailed analysis of English authorities like Socimer and Braganza, alongside Singaporean precedents like How Weng Fan, showcases a sophisticated and commercially-aware judiciary. This reinforces Singapore's position as a preferred venue for maritime and finance litigation, where parties can expect a rigorous and predictable application of the law.

Finally, the case serves as a cautionary tale for shipowners. It highlights the importance of negotiating explicit LQE obligations at the outset of a financing arrangement if such documents are expected to be necessary for future charters. Relying on an implied duty or a general "approval" clause is a high-risk strategy that, as this case proves, is unlikely to succeed in the face of a borrower’s default. The S$48.55 million counterclaim serves as a stark reminder of the financial stakes involved when these contractual interpretations fail.

Practice Pointers

• Draft LQE Obligations Explicitly: Borrowers should ensure that the facility agreement contains an express obligation for the bank to issue a Letter of Quiet Enjoyment (LQE) on standard market terms if a charter is approved. Relying on a general "approval" clause is insufficient to compel a bank to sign an LQE.
• Document Credit Decisions: For lenders, the case highlights the importance of maintaining clear internal records (minutes, emails, credit memos) that document the "rationality" of a refusal. These records were crucial in proving that the bank took into account relevant considerations (like LTV breaches) and did not act for an improper purpose.
• Distinguish Consent from Contract: Practitioners must distinguish between a bank’s "consent" to a borrower’s action and a bank’s "agreement" to enter into a new contract with a third party. The former may be subject to a duty of rationality; the latter is generally a matter of absolute commercial freedom.
• Monitor LTV and Covenants: A borrower in default has very little leverage to argue that a bank’s refusal of a concession is "unreasonable." Maintaining covenant compliance is the best defense against a bank’s exercise of its proprietary rights.
• Understand the Wednesbury Threshold: The threshold for proving "irrationality" in a commercial context is extremely high. It is not enough to show that the bank’s decision was harsh or that another bank might have acted differently; the decision must be "outrageous."
• Address LQE Terms Early: When negotiating long-term charters, owners should involve the mortgagee bank as early as possible. If the bank indicates it will not provide an LQE, the owner should seek to provide alternative security or partial repayment to "buy" the bank’s cooperation.

Subsequent Treatment

As of the date of this analysis, The “Chloe V” [2025] SGHC 142 is a very recent decision. No subsequent treatment by higher courts or other jurisdictions has been recorded in the extracted metadata. However, given its deep dive into the Braganza duty and the construction of ship finance "approval" clauses, it is expected to be frequently cited in future disputes involving mortgagee rights and contractual discretion in Singapore.

Legislation Referenced

[None recorded in extracted metadata]

Cases Cited

• Applied / Followed:
  • Braganza v BP Shipping Ltd [2015] 1 WLR 1661 (referenced for the duty of rationality in contractual discretion)
  • Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd [2008] EWCA Civ 116 (referenced for the scope of the Braganza duty)
  • How Weng Fan and others v Sengkang Town Council and other appeals [2023] 2 SLR 235 (referenced for the high threshold of proving irrationality)
• Considered / Referred to:
  • CIMB Bank Bhd v Dresdner Kleinwort Ltd [2008] 4 SLR(R) 543
  • Lim Hwee Meng v Citadel Investment Pte Ltd [1998] 3 SLR(R) 101
  • Bonsel Development Pte Ltd v Tan Kong Kar and another [2000] 2 SLR(R) 967
  • AL Shams Global Ltd v BNP Paribas [2019] 3 SLR 1189
  • City Hardware Pte Ltd v Kenrich Electronics Pte Ltd [2005] 1 SLR(R) 733
  • Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200
  • Cantor Fitzgerald International v Horkulak [2004] EWCA Civ 1287
  • Shurbanova v Forex Capital Markets Ltd [2017] EWHC 2133
  • Adrian Faieta v ICAP Management Services Ltd [2017] EWHC 2995
  • SNCB Holding v UBS AG [2012] EWHC 2044
  • Wild Duck Ltd v Smith [2017] EWHC 1252
  • Taylor v Rive Droite Music [2005] EWCA Civ 1300

Source Documents

• Original judgment PDF: Download (PDF, hosted on Legal Wires CDN)
• Official eLitigation record: View on elitigation.sg