Vol 13 (2016) - Issue 2

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Insolvency and Anticipatory Breach of Bunker Supply Contracts: The 'STX Mumbai'

Introduction
Fuel (known as 'bunkers') is commonly supplied to ships on credit, and with a retention of title clause. If the price for the bunkers is not paid on time by the shipowner, the supplier may be entitled to arrest the vessel and obtain security for his claim. Where the shipowner is part of a group of companies which appear to have become insolvent, but the time for payment has not yet arrived, can the supplier nevertheless terminate the supply contract for 'anticipatory' breach and arrest the ship? That was the question considered by the Singapore Court of Appeal in the recent case of The 'STX Mumbai' [2015] SGCA 35. The Assistant Registrar and the Judge held that the claim of the bunker suppliers was premature and legally unsustainable and the arrest wrongful. The Court of Appeal reversed that decision.

The facts
On 15 May 2013, Transocean received an order from STX Corporation for the supply of bunkers to the vessel 'STX Mumbai'. For the purposes of the issue before the court, it was assumed by agreement that STX Corporation had contracted as the owner of the vessel, though it was not the registered owner. Otherwise the vessel could not have been arrested under Singapore law, which requires the shipowner to be the person liable for the claim in order for an arrest to be permissible.
Transocean had also dealt with STX Corporation for the supply of bunkers to four other vessels. Transocean’s case was that all these vessels were ‘part of a conglomerate of related companies’ such that defaults in payment by any of them would cause it to fear that there would be a default in payment in respect of the 'STX Mumbai'. It was common ground that STX Pan Ocean, STX Corporation, and the shipowners were part of the same group of companies.
The bunkers were supplied on terms which required payment to be made within 30 days, namely by Sunday 16 June 2013. On 10 June 2013 payment fell due for the supply of bunkers to one of the other vessels. Then, on 12 June 2013, there was a news report that one of STX Pan Ocean’s chartered vessels had been arrested for unpaid bunkers in excess of US$1m. The same source also reported that STX Pan Ocean had filed for bankruptcy in South Korea. In fact, STX Pan Ocean had obtained the bankruptcy order some days earlier.
As a result of these developments, on 13 June 2013 Transocean sent an email to STX Corporation, demanding payment by close of the same business day of the sum of nearly US$3 million, an aggregation of the contract prices for all the five vessels in respect of which STX Corporation had placed orders for bunkers. Payment was in fact only overdue for one vessel. The email concluded by stating that if payment was not received as demanded, Transocean would treat the various bunker supply contracts as having been repudiated on the ground of the respective owners’ 'anticipatory breaches'. No payment was received pursuant to the letter of demand and so Transocean proceeded to commence in rem proceedings and arrested the vessel the next day, Friday 14 June 2013. The shipowner eventually put up security on 22 July 2013 and the vessel was released.
As already noted, the Assistant Registrar and the High Court Judge struck out the claim as unsustainable in law, even assuming the facts to be as alleged. There were two grounds for this decision. First, not only is insolvency not a repudiatory breach, but the insolvency relied on was that of STX Pan Ocean and not STX Corporation, a separate corporate entity. Second, that the doctrine of anticipatory breach did not apply to 'executed' contracts.

Anticipatory breach: insolvency
The Singapore Court of Appeal confirmed that insolvency cannot, in and of itself, amount to an anticipatory breach. Indeed, in the absence of an express term to that effect, insolvency is not even a breach, let alone a repudiatory breach. It is not a renunciation of the contract, nor does it follow in every case that the defendant will be unable to perform.