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Client Update | Litigation & Dispute Resolution | Shipping June 2016
The saga began when Equatorial Marine Fuel Management Services Pte Ltd (the “Plaintiff”) commenced an in rem action against the Bunga Melati 5 which was a ship belonging to MISC Berhad (the “Defendant”). The Defendant responded by applying to strike out the writ of summons. The application first came before an Assistant Registrar who agreed with the Defendant and struck out the writ of summons on the basis that (i) the court lacked admiralty jurisdiction and (ii) that the Plaintiff’s claims were plainly and obviously unsustainable. The Plaintiff appealed to a judge in chambers who, however, agreed that the Plaintiff’s claims were plainly and obviously unsustainable and therefore dismissed the Plaintiff’s appeal. The Plaintiff appealed further to the Court of Appeal which decided that the Plaintiff’s main argument (i.e. that the Defendant was the party liable to the Plaintiff under the doctrine of agency by estoppel) was not so factually or legally unsustainable that it ought to have been summarily struck out by the court below. The Plaintiff was, therefore, allowed to take its action to trial.
Unfortunately for the Plaintiff, after a full trial at which all the evidence was presented and tested, the judge ruled that agency by estoppel did not arise on the facts. The Plaintiff appealed to the Court of Appeal which, again unfortunately for the Plaintiff, upheld the judge’s ruling and dismissed the appeal. The Plaintiff therefore ultimately lost.
The Issue in Question
By the time the dispute reached the Court of Appeal, the Plaintiff sought a determination on only one point viz. was the judge right to find that the Defendant was not estopped from denying that Market Asia Link Sdn Bhd (“MAL”) was its agent. At the heart of the dispute was the role MAL played in relation to the supply of bunkers by the Plaintiff to the Defendant’s ships. At the risk of over-simplification, the contractual nexuses were between Plaintiff and MAL on the one hand and MAL and the Defendant, on the other. The Plaintiff, however, argued that MAL was in reality the Defendant’s agent and was therefore contracting with the Plaintiff on behalf of the Defendant thus making the Defendant (and its ships) contractually liable to the Plaintiff for the price of the bunkers. According to the Plaintiff, this was because the Defendant knew that MAL was conducting all its transactions with its bunker suppliers, such as the Plaintiff, on the basis that it was the Defendant’s agent; yet the Defendant stood idly by and did not correct the Plaintiff’s mistaken belief that the Defendant was the true contracting party to the contracts it entered into with MAL. The Plaintiff further argued that the Defendant went so far as to encourage and assist MAL in its misrepresentations to the Plaintiff that it was the Defendant’s agent. On this basis, the Plaintiff argued, MAL was the Defendant’s agent pursuant to the doctrine of agency by estoppel.
The Court of Appeal explained that the inquiry was to be undertaken within the traditional framework of estoppel that requires three elements to be satisfied, namely, (i) a representation by the party against which the estoppel is sought to be raised; (ii) reliance on such representation by the party seeking to raise the estoppel; and (iii) detriment incurred by the party seeking to raise the estoppel.
The Plaintiff’s case in regard to the first element was not that there was an actual representation by the Defendant but that the Defendant knew that the Plaintiff believed MAL was acting as the Defendant’s agent and, in spite of that knowledge, failed to correct the Plaintiff’s belief. It is a well-established rule that silence or inaction will count as a representation where there is a legal or equitable duty owed by the silent party to the party seeking to raise the estoppel to make disclosure to correct the latter’s belief. Therefore, the inquiry began (and ended) with the question of whether the Defendant knew that MAL had been contracting with the Plaintiff on the basis that it was the Defendant’s agent. How was the Plaintiff going to prove the state of mind of the Defendant? The Plaintiff’s counsel accepted that there was no direct evidence and invited the Court of Appeal to infer that the Defendant had such knowledge from the following three facts:
i. The allegedly suspicious circumstances surrounding MAL’s appointment as the Defendant’s registered vendor of bunkers;
ii. The early bunker confirmations sent by MAL to the Defendant which had described MAL as a “broker” and five occasions when bunker suppliers sent invoices directly to the Defendant; and
iii. The Defendant’s response (or lack of response) when MAL was unable to service the payments to its suppliers and it became evident that large sums of money were being claimed by bunker suppliers directly against the Defendant.
The Court of Appeal agreed with the judge below and dismissed these three facts as being equivocal at best. The conclusion of the Court of Appeal is worth setting out in full:
“As we have noted above, the predicate to Mr Lee’s [counsel for the Plaintiff] case is the inference of knowledge being drawn in the terms set out at  above; but it is well established that an inference may only be drawn if it is the sole inference that flows from the facts proved. The more serious the nature of the inference, the more careful the court must be to ensure that this is so. In our judgment, the various sets of facts that were advanced, whether taken individually or collectively, do not provide a sufficient basis to draw the inference that was urged upon us.”
It appears that the court could as well have concluded on the evidence that the Plaintiff had failed to prove that MAL had been consistently contracting with all its bunker suppliers as the Defendant’s agent. This would then have made the question whether the Defendant knew that MAL was consistently contracting with all its bunker suppliers as the Defendant’s agent moot.
A Recurring Issue
The scenario presented in the Bunga Melati 5 saga is all too familiar in the bunker industry. Similar issues have arisen in the numerous cases that have followed the collapse of OW Bunkers. The question essentially is, can a bunker supplier circumvent the contractual chain and claim payment directly from the ship owner in cases where the intermediary – with whom the bunker supplier contracted – is unable to pay the bunker supplier? In the Singapore case of Precious Shipping  4 SLR 1229, a number of causes of action were suggested as bases for direct claims by the bunker suppliers against the ship owners:
i. The ship owners were the fiduciary agents of the bunker suppliers;
ii. The ship owners were the bailees of the bunkers for the bunker suppliers;
iii. The ship owners had committed the tort of conversion for which tort they were liable to the bunker suppliers;
iv. There was a separate collateral contract whereby the ship owners agreed to pay the bunker suppliers directly in the event of the intermediary’s insolvency;
v. The ship owners were unjustly enriched at the expense of the bunker suppliers; and
vi. The bunker suppliers had a maritime lien over the ships of the ship owners.
It is clear from the approach in Precious Shipping that it was accepted that the OW entities were contracting with the bunker suppliers on the one hand and the ship owners on the other, all on their own account. Therefore, the bunker suppliers required creative means outside of the contractual nexuses to try to impose liability directly on the ship owners. However, the court in Precious Shipping found on the facts that none of these alternative claims disclosed even a prima facie case for relief. Consequently, perhaps the Plaintiff in the Bunga Melati 5 was right to focus on agency principles in order to attempt to impose contractual liability on the Defendant even though the evidence was weak. The Plaintiff nearly failed in limine as the court initially found that the claim was plainly and obviously unsustainable and therefore not worth the time and effort of a trial. The Court of Appeal saved them from the ignominy of having their claim summarily struck out but ultimately found on the evidence that the claim was unsustainable.
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This article is written by Probin Dass from Shook Lin & Bok LLP.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.