Update: Singapore Bunker Supplier Loses $21.7 million, 7 Year Bunker Dispute

by Ship & Bunker News Team
Tuesday July 28, 2015
  • Update 1: Noted that based on additional information from AET Tankers that Mr Nyi Nyi Zaw Min is not a former employee

Singapore's High Court has ruled against Singaporean bunker supplier Equatorial Marine Fuel Management Services Pte Ltd. (EMF) and in favour of Malaysian shipping line MISC Berhad (MISC) in a $21.7 million bunker dispute originating in 2008.

The case was brought by EMF in relation to two fixed price bunker supply contracts placed through bunker brokers Compass Marine Fuels Ltd (Compass Marine) and one spot contract placed through broker OceanConnect UK Ltd (OceanConnect), all in 2008.

In a 64-page judgment, Justice Judith Prakash explained that MISC had argued that a third party, Market Asia Link Sdn Bhd (MAL), which EMF had signed the disputed contracts with, was the party from which payment should be sought.

Prakash agreed, and dismissed EMFs claim on the basis that the supplier had failed to establish a link between MAL and MISC such that MISC was liable for the bunkers in question.

Special Relationship

MAL was registered with MISC from 2000 only as a ship spares supplier, but following a request from MAL and subsequent agreement by MISC, on March 24, 2005 became authorised to sell bunkers.

"We act as principals in all transactions, not as a broker, taking all responsibilities for the sale of bunkers and lubricants in the way of quantity, quality and effective delivery procedure," MAL said in its original letter of request to MISC.

"We are able to offer to supply your vessels at very competitive prices with reliable and prompt service based on 30 days credit from the date of delivery. We would welcome any inquiries from you in the future."

MISC was said to have regarded MAL as no more than its broker, with EMF alleging that there was a special relationship and course of dealing between MISC and MAL.

Specifically, MISC awarded bunker contracts to MAL in order for MAL to generate bunker invoices so it could obtain financing from Affin Bank Bhd (Affin Bank).

In order to secure the bunker contracts, MAL had to bid at the lowest prices, at a loss to itself, and had to use MISC's name in order to purchase bunkers from the market on credit as it was not an established bunker trader.

MISC was said to have been aware that its name was being used, but in return would then benefit from the low bunker prices.

Invoices

In 2008, following the agreement of the contracts in question, in e-mail exchanges between the brokers Compass Marine and OceanConnect with EMF, EMF was named as the seller and MISC as the buyer.

After each delivery, EMF issued an invoice to MISC, care of the appropriate broker, who then forwarded it to MAL for payment.

While MAL initially paid the invoices, following a payment of $1,999,981 to EMF on November 7, 2008, there was said to be a total of $21,703,059 outstanding owed to EMF for 22 deliveries under the disputed contracts.

MISC maintained that it had only signed bunker contracts with MAL, and indeed it was noted that for all but one of the disputed deliveries there was a corresponding transaction under a bunker contract between MISC and MAL.

The one exception was a delivery to MISC subsidiary AET Tankers Pte Ltd (AET), however AET's Mr Nyi Nyi Zaw Min, testified that AET had purchased bunkers for the Feng Huang Zhou on a spot basis from MAL and not MISC.

Prakash also noted that while there were historical instances when invoices from physical suppliers were sent directly to MISC instead of MAL, payment was ultimately always made by MAL and not MISC.

Highly Incompetent Bunker Trader

A key issue in the case was whether MISC had granted actual authority to MAL to act as its agent in respect of the disputed contracts, something EMF argued was indeed the case.

However whether or not MAL was a competent bunker trader was also brought into question, with EMF arguing that MAL was not a competent authority and ordinarily would never have been chosen to act alone in the buying of bunkers. 

Firstly, it was noted that no one in MAL had experience in the trading of bunkers at the time of its application to be a registered vendor.

"Second, MAL did not have the capital or credit standing to procure the supply of bunkers on a credit basis nor did it have the financial savvy to deal with the large volume, high value trades which it was expected to do as a registered vendor," wrote Prakash.

In fact EMF highlighted that the bunker contracts were particularly unprofitable for MAL, on which it sustained a loss of approximately $845,000 as a result.

"At the least, MAL was a highly incompetent bunker trader. Pointing to significant cash advances that the directors of MAL had managed to extract through banking facilities, EMF submits that MAL's bunker trading operations were not a genuine commercial business but one designed to allow it to raise finance," wrote Prakash.

However MISC argued there was nothing untoward about the number of contracts that were awarded to MAL given that it was the lowest bidder on most occasions, and where it was not, the contract was awarded to the other bidding party.

"That these contracts were unprofitable to MAL merely reinforces the possibility that they were a bargain from MISC's point of view," wrote Prakash.

"Even if MISC had a tendency to favour MAL, in my view the grant of the bunker supply contracts has little bearing on whether there had been a grant of authority."

EMP made several additional arguments to support its claim that MISC and MAL had a special relationship in which MAL had authority to act on behalf of MISC, including the fact that when MISC was made aware of MAL's financial struggles, MISC "went out of its way to help MAL resolve its financial difficulties" by continuing to award it substantial bunker contracts between 6 and 14 November 2014, and even accepted a bid from MAL that was higher than the market price.

MISC was also said to have offered to make payment and issue corporate guarantees to the physical suppliers on behalf of MAL despite having no obligation to do so.

However Prakash ultimately found that EMF failed to establish liability on the part of MISC for the bunkers in question, and EMFs claim was dismissed with costs.

In 2012 the Singapore Court of Appeal overturned a ruling that had prevented EMF from pursuing the case, which was originally stuck out on the grounds that the action was "plainly unsustainable."

Update 1: A previous version of this article stated that Mr Nyi Nyi Zaw Min was a former employee of AET Tankers. While this was stated as a fact of the case in the judgement by Justice Judith Prakash, AET Tankers has since contacted Ship & Bunker to note that Zaw Min is a current employee of the company.