As noted in our June 2024 Legalseas "What is a "ship?" article, the summary of the "WORLD DREAM" Singapore High Court's judgments is summarised below.
The "WORLD DREAM" was a large cruise ship with a capacity for 5,000 passengers. She had a variety of facilities on board for the entertainment of her passengers, including spas and swimming pools. Her construction and acquisition were financed by a syndicated term loan. Following various events of default under the facility agreement, the mortgagee bank commenced action in the Singapore High Court and arrested the "WORLD DREAM". The "WORLD DREAM" was subsequently sold and the sale proceeds were paid into Court.
The defendant owners sought to assert a claim against part of the sale proceeds on the basis that there was "gaming equipment" on board the "WORLD DREAM", such as slot machines, casino tables and smaller paraphernalia, that had been sold along with the vessel, but which did not form part of the mortgage. In connection with this, the defendant owners applied to the Singapore High Court for a declaration that any "gaming equipment" that was on board the "WORLD DREAM" did not fall within the scope of the ship mortgage granted to the mortgagee bank. If the owners successfully obtained the declaration sought, their next step would have been to pursue a claim against the sale proceeds for the value of the gaming equipment.
In considering the owners' application, the issue that the Singapore High Court had to determine was: having regard to the terms of the finance documents (in particular, the facility agreement, the mortgage and the deed of covenant), did the mortgage created thereunder include or extend to the "gaming equipment" on board the vessel?
At the outset, the Honourable Justice S. Mohan dismissed the application based on the bank's evidential objection: that the reference to "gaming equipment" was too ambiguous – the evidence led by owners was insufficient to identify the subject matter of the "gaming equipment".
Nonetheless, Justice Mohan took the opportunity to consider the legal merits of the application on a generic interpretation of "gaming equipment" as tangible objects permitting passengers to engage in gaming. After considering the parties' submissions, he accepted the position advanced by the mortgagee bank and was satisfied that the reference to "ship" in the mortgage included or was wide enough to cover "gaming equipment".
Edgar Chin and Samantha Ch'ng from Ascendant Legal LLC (in alliance with Norton Rose Fulbright) acted for the successful Plaintiff to enforce the mortgage against the "WORLD DREAM" in Singapore.
Norton Rose Fulbright acted for certain financiers on various financings and the subsequent restructuring and insolvency of the Genting Hong Kong Group. Following the insolvency of the Genting Hong Kong Group, Norton Rose Fulbright assisted its clients with enforcement and arrest proceedings in respect of various cruise ships owned and operated by the Genting Hong Kong Group, including the "WORLD DREAM" enforcement proceedings in Singapore.
The terms of the finance documents and the definition of "ship"
The mortgage was in the standard Bahamian statutory form, recording the owners' agreement to "mortgage to [the bank] all sixty four sixty-forth (64/64th) shares of which we are the Owners in the ship above particularly described and in her boats, guns, ammunition, small arms and appurtenances".
The term "ship" was also defined in the deed of covenant as follows:
Ship means the vessel described in the Schedule and includes any share or interest in it and its engines, machinery, boats, tackle, outfit, equipment, spare gear, fuel, consumable or other stores, belongings and appurtenances whether on board or ashore and whether now owned or later acquired by the Owner and also any and all additions, improvements and replacements made in or to such vessel or any part of it or in or to its equipment and appurtenances.
The vessel was described in the said schedule with various details (name, flag, port of registry, official number and IMO number).
The Singapore High Court's findings
In dismissing the owners' application, the Singapore High Court made the following findings of note in relation to the words "ship", "appurtenances" and "belongings".
Meaning of "ship"
- The world "ship" encompasses any object that is either (a) necessary to the navigation of the ship ("Navigation Articles"), and without which no prudent person would sail, or (b) necessary to the prosecution of the adventure ("Adventure Articles"). This is based on the Court's interpretation of Coltman v Chamberlain (1890) 25 QBD 328. The requirement of "prudence" applies to Navigation Articles and not to Adventure Articles. However, necessity is still the controlling factor for either category of objects.
- Whether an object is necessary for the prosecution of the adventure – i.e., a necessary Adventure Article – is an intensely fact-sensitive inquiry. This in turn requires the consideration of what was the object of the vessel's adventure.
- Justice Mohan found, on the evidence, that the "gaming
equipment" was necessary to the prosecution of the
"WORLD DREAM"'s adventure, which was to
provide its passengers with a multi-faceted entertainment and
leisure experience during the voyage.
- Transportation of passengers per se was not the primary purpose that the cruise vessel was intended to serve. Common sense and experience suggest that passengers register for cruises of the sort offered by the "WORLD DREAM" in the expectation of being entertained by the myriad amenities and programmes available on board. It was for all intents and purposes a floating resort.
- Insofar as "gaming equipment" was made available to the vessel's passengers, it could only have been for the purpose of entertaining passengers who wished to gamble during the cruise.
- The proper question to ask is whether the article was necessary for some discrete form of entertainment and leisure that the vessel was intended to provide, the sum of which is the multi-faceted experience the passengers were intended to have.
Meaning of "appurtenances"
- The authorities do not lay down a precise test for determining if an object qualifies as an "appurtenance" of a vessel.
- While Justice Mohan noted that it was not necessary for him to lay down such a test for the purposes of determining the application, he noted that the authorities indicate that an object may be properly regarded as an "appurtenance" of a ship if it (a) "appertains" or "belongs" to the ship; and (b) it is carried "for the object of the voyage and adventure on which she is engaged".
- Since he already found that the "gaming equipment" was necessary for the accomplishment of the vessel's adventure, and further as he was satisfied that the "gaming equipment" appertained or belonged to the vessel, Justice Mohan also found that the "gaming equipment" qualified as "appurtenances" of the vessel subject to the bank's mortgage.
Meaning of "belongings"
- As a matter of plain English, "objects belonging to the ship" and "the ship's belongings" refer in substance to the same thing.
- Based on the analysis undertaken by Justice Mohan, in considering whether an article would be included in the term "belongings", one would need to consider whether an article qualified as a Navigation Article or an Adventure Article.
- There must also be a sufficient connection between the article and the ship to justify describing the article as "belonging to" the latter. Although there was no precise guidance on what amounted to a sufficient connection for that purpose, Justice Mohan noted that the Court in Armstrong and Company v D. M'Gregor and Company (1875) 2 R (4th series) 339 specifically rejected the argument that "nothing can be said to belong to a ship unless it is specifically appropriated or devoted to that ship" and accepted that the connection between a chronometer and a ship was sufficient notwithstanding that the chronometer had been intermittently removed from the vessel.
- Justice Mohan then commented that if it were necessary for his decision, he would also hold that "gaming equipment" came within the reference to "belongings" in the deed of covenant.
In the circumstances, the Court found that the Plaintiff's mortgage over the "WORLD DREAM" extended to the "gaming equipment" on board. Owners' application for declaratory relief was consequently dismissed.
Concluding words
In considering the Singapore High Court's findings, it is useful to consider the following observation by the learned authors of Chitty on Contracts (Hugh G. Beale gen ed) (Sweet & Maxwell, 34th Ed, 2022) at [15-065] (as cited by Justice Mohan in The "WORLD DREAM" at [100]): "Where the same words of contractual provisions have for many years received a judicial construction, the court will suppose that the parties have contracted upon the belief that their words will be understood in the accepted legal sense". Commercial parties are assumed to have ordered their commercial dealings around long-standing interpretations.
Equally from a drafting perspective, the Singapore High Court's observations and clarification on the issue of "what is a ship" provide practical guidance, allowing parties to a ship finance deal to better appreciate the precise extent of a mortgage over a ship. If parties – whether the borrower and/or lender – have specific intentions for the scope of their mortgage or specific articles on board, this should be made abundantly clear.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.