Two separate judgments by the Singapore High Court in relation to a claim by a Russian businessman over an oil tanker have held that the ‘wrongdoer’ exception to the reflective loss principle, articulated in Giles v Rhind [2003] 2 WLR 237, was not good law in Singapore. This follows recent English authorities to similar effect. One of the judgments also contained extensive analysis of the intersection between trust law and corporate property.
Paul Tan acted for the successful party in both cases, instructed by Drew & Napier.
Brief facts
The dispute concerns a claim by a Russian businessman, Aleksandr Viktorovich Prosetskii, to an oil tanker called the MT Vikram. Mr Prosetskii alleges he had an oral agreement with two other businessmen, including one Mr Viktor Sergeevich Baransky, to co-purchase the vessel. The vessel was then held, first under a company called Seasreno Marine Ltd (SML) and subsequently, another called Infinite Tide Corp (ITC). Mr Prosetskii further claims that he possesses a beneficial interest in half of the shares in both SML and ITC, held on trust for him by one Mr Igor Smirnov.
SML and ITC owed the original owner of the Vessel, a company called Ikasto Ventures Inc (IVI) the purchase price of the vessel. That claim was assigned to Courtwell Asia (Courtwell). When SML and ITC were unable to satisfy demands for the claim, an LMAA arbitration was commenced, pursuant to which an award was rendered for the transfer of the vessel to Courtwell.
Mr Prosetskii disputes the legitimacy of the assignment of the claim, the LMAA arbitration and the eventual transfer of the vessel to Courtwell. He claims an ‘indirect’ interest through his shareholding; and on that basis commenced a claim for the vessel to be reconveyed to ITC along with profits earned in the meantime. That claim had to be served out jurisdiction. In furtherance of that claim, he initially obtained an ex parte injunction to restrain the further transfer of the vessel and a receivership order over it.
Courtwell brought applications to set aside the injunction and receivership order; and challenged the permission granted for service out. Both applications dealt with the question whether Mr Prosetskii had legal basis for his claim.
Holdings
In separate judgments, the courts hearing the applications found that Mr Prosetskii did not have an arguable claim. This was fundamentally because his interest as an alleged shareholder of SML and ITC did not give him standing to pursue claims on their behalf.
While Mr Prosetskii argued he was not seeking a diminution in the value of his shares, he nevertheless argued that he could avail himself of the ‘wrongdoer’ exception articulated in Giles to pursue the claims for the company.
Both courts held that the exception was not good law in Singapore. While the issue was technically left open by the Singapore Court of Appeal in a prior decision, Miao Weiguo v Tendcare Medical Group Holdings Pte Ltd [2021] SGCA 16 (“Miao Weiguo”), both courts observed that this was only because the issue did not arise directly for decision but that the Court of Appeal had plainly expressed scepticism of the validity of the exception. In particular, the courts reasoned that in Miao Weiguo the rationale for the reflective loss principle was put on the basis that a shareholder simply took the fortunes (and misfortunes) of the company, rather than on the basis that it was to avoid double recovery. That rationale was not consistent with the Giles exception.
The Singapore judgments follow a similar direction of travel as recent English authority, particularly after Marex Financial Ltd v Sevilleja [2021] AC 39, and the more recent decision in Breeze and another v Chief Constable of Norfolk Constabulary [2022] EWHC 942 (QB).
In addition to this issue, one of the judgments embarked on an extensive analysis of the nature of a trust, arguing that it was defined by the obligations imposed on the trustee, rather than the rights given to a beneficiary. On this analysis, Mr Prosetskii’s various claims in dishonest assistance and conspiracy were not viable in law as he had no direct rights in the shares held on trust for him, and could not claim for damage done to them. His claims, if any, were against Mr Smirnov.
The judgment setting aside service out of jurisdiction may be found here.
The judgment setting aside the injunction may be found here.