These proceedings involved a claim brought by the plaintiff, PT Cakra Manunggal Semesta, against the defendant, ENRA SPM Labuan Ltd, the registered owner of several vessels, including the Ratu Enra, and the MT Bratasena.

The plaintiff claimed damages from the defendant for an alleged breach of a charterparty. The Ratu Enra was arrested on 27 May 2022. The defendant took immediate steps to seek its release, offering alternative security. The plaintiff was prepared to accept alternative security in the sum of USD 5,544,323.12 in the form of 'either a first class bank guarantee or a letter of undertaking [LOU] from a P&I Club, who is a member of the International Group of P&I Clubs ...'. On 2 June 2022, the defendant responded, counter-proposing that the alternative security for the plaintiff's claim be in the form of a LOU issued by the defendant's holding company, ENRA Group Bhd. The plaintiff rejected this, stating its genuine interest to continue negotiating with the defendant on alternative security, and reiterating its request for, and willingness to accept, either a first-class bank guarantee or a LOU from a P&I Club as security for the Ratu Enra's release.

On 8 June 2022, the defendant filed an application for an order that the ship be released from arrest on provision of the ENRA Group LOU.

Held: Application dismissed.

Even though The Moschanthy [1971] 1 Lloyd's Rep 37, The Polo II [1977] 2 Lloyd's Rep 115, and the cases that followed them speak of 'sufficient security' in the context of the amount of security to be provided for the release of a vessel under arrest, those words should also be applied to the adequacy of the security. In other words, the security that the plaintiff gives the vessel up for must be adequate and enforceable.

When a plaintiff has arrested a vessel, it has the vessel at its disposal, and exercises a certain measure and control over the process of realising it to cover its reasonably best arguable case, ie the amount of the claim, interest, and costs. When a plaintiff relinquishes that power and control for an alternative security, like a bail bond, or a bank guarantee, or a P&I Club LOU, it is simply exchanging the vessel with a form of security that is more or less guaranteed. The bail bond can be executed without having to obtain judgment against the surety, and reputable institutions issuing bank guarantees or LOUs are not likely to want to risk their reputation by refusing to pay out on a valid demand made on them.

Furthermore, by law, banks and financial institutions can only resist such a demand on fraud or unconscionability being shown. (See Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 CLJ 283, [1995] 1 MLJ 149; China Airlines Ltd v Maltran Air Corp Sdn Bhd [1996] 3 CLJ 163, [1996] 2 MLJ 517; and Sumatec Engineering & Construction Sdn Bhd v Malaysian Refining Co Sdn Bhd [2012] 3 CLJ 401, [2012] 4 MLJ 1). Neither fraud nor unconscionability is likely to exist in a situation where the beneficiary bases the demand on a judgment or arbitration award.

But a corporate letter of undertaking like the ENRA Group LOU offered in this case is another thing altogether. If ENRA Group Bhd subsequently refuses to pay out immediately on the plaintiff's demand on it, or decides that its own interests dictate that it should delay payment to the plaintiff for any reason whatsoever (including for reasons of inconvenience or because of its other pressing financial commitments at the time the demand is made), there is nothing to stop it from doing so. Moreover, the ENRA Group LOU also intimated that its assets would have to be liquidated to settle the plaintiff's claim, and there is no certainty of that. It is also uncertain whether these assets will still be available when that time comes.

The plaintiff will then have no choice but to file an action based on the ENRA Group LOU and to get its judgment first, before being in a position to execute it against ENRA Group Bhd. Even if the plaintiff alternatively decides to file winding-up proceedings against ENRA Group Bhd or the defendant, it may ultimately find itself standing in line with other creditors.

Thus, from the point of view of enforceability and efficacy, the ENRA Group LOU is not on a similar footing to the common forms of security, as payment need not necessarily be prompt or immediate. By ordering the plaintiff to accept the ENRA Group LOU over the bank guarantee it wants, the plaintiff would in effect be forced to relinquish the power and control it would ordinarily have over the bank guarantee. This is not an order the Court can, or should make.

Furthermore, the plaintiff’s insistence for a bank guarantee over the ENRA Group LOU can hardly be called either unreasonable or oppressive. As for the alleged hardship, adversity, or inconvenience that ENRA Group Bhd may have in procuring a bank guarantee, that is not a consideration.

In Global Marine Drilling Co v Triton Holdings Ltd [2001] 1 Lloyd's Rep 60, the defendant applied for the release of a drilling rig on the strength of a guarantee from Schlumberger Ltd. The defendant and its parent company were members of Schlumberger Ltd's offshore drilling division. The defendant proposed the guarantee because the bank guarantee that the plaintiff wanted would cost it USD 1m per year. Lord Macfadyen allowed the defendant's application on the basis that, on the evidence, Schlumberger Ltd was of reliable financial standing, and a guarantee by Schlumberger Ltd would be adequate security.

That decision was made on its facts, and not all of the factors to be considered, particularly the reasonableness or otherwise of the plaintiff's conduct, and the irrelevance of the difficulties the defendant would face in procuring the bank guarantee the plaintiff sought, appear to have been considered there. In simple terms too, ENRA Group Bhd is no Schlumberger Ltd. The ENRA Group LOU is not adequate security, or even on par with the bank guarantee the plaintiff seeks.