In The Posidon  SGHC 138 Singapore High Court has recently held that the order of priorities set out in the High Court (Admiralty Jurisdiction) Act (Cap 123, 2001 Rev Ed) (“HCAJA”) could be varied in exceptional circumstances where: (i) there was knowledge that the mortgagor was insolvent; (ii), the mortgagee had been been fully aware, in advance, of the nature and extent of the expenditure incurred by the competing claimant; (iii) any such expenditure had brought about some benefit to the mortgagee.
The dispute arose as to the order of priorities against proceeds paid into court following the judicial sale of two vessels. The bank claimed as second mortgagee and the bunker supplies claimed as necessariesmen. The bunker suppliers argued that the court should depart from the usual order of priorities in Singapore and give them priority over the bank. Belinda Ang Saw Ean J held that the facts of the case did not justify varying the order of priorities set out in the HCAJA, stating  “Injustice warranting an alteration to the order of priorities is only present when the mortgagee stands by and allows such bunker arrangements to take place despite knowing that the mortgagors were insolvent and that the mortgagee would somehow be benefitting from the supplies at the expense of the bunker supplier.”
The borrowers here had been operating at a loss and accumulating trade debts for some time prior to the bank’s decision to terminate the loan facility agreement and enforce the mortgages. That did not mean that the borrower was insolvent and at the time of the termination of the loan facility arrangement the bank had not considered the borrower to be at risk of becoming insolvent. There was also no evidence that the bank was fully aware in advance of the owners’ bunkering arrangements. Nor did the supply of bunkers to the vessels bring about any benefit to the bank. The bank’s security interest was not protected because the bunkers gave the vessels motive power.