IMSML Website Article 19/2024: PBJV Group Sdn Bhd v Asian Kaliber Sdn Bhd & Ors (Synergy Marine (M) Sdn Bhd & Anor, Third Parties) [2023] MLJU 2493 - Admissibility of Investigation and Interim Report Without Procuring the Authors of the Reports

This case was heard in the High Court of Kuala Lumpur before Ong Chee Kwan J. The matter arose in the context of a project for Hook-Up, Commissioning and Topside Major Maintenance Services from 2013 to 2018 (hereinafter referred to as the ‘The Project’. Petrofac was the ‘Project Owner’. PBJV was the Main Contractor for ‘The Project’. The dispute between PBJV and Petrofac has been stayed pending arbitration.

The trial at the High Court before Ong Chee Kwan J involved PBJV and other parties to the dispute. These other parties include:

[1] Asian Kaliber (AK), PBJV’s sub-contractor;

[2] Bumi Armada, Owner of the Armada Firman (AF), an accommodation work boat;

[3] AK chartered the AF from Bumi Armada (BA);

[4] AK then chartered the AF to PBJV via a Charterparty Agreement (CPA);

[5] Executive Offshore (EO), was the owner of the handling tug, the Executive Pride (EP);

[6] EP was assisting AF in the mooring operations on 6 November 2014.

The Incident

The incident in dispute occurred during mooring operations for AF, the accommodation work boat. AF’s anchor was dropped to the seabed close to the pipeline belonging to Petrofac, thus damaging the pipeline. Petrofac invoked arbitration against PBJV for USD1,190,676.82 for reparation works. Although PBJV and Petrofac’s dispute has been stayed pending arbitration, PBJV proceeded in court against AK and BA for an indemnity in the event there is an adverse finding in Petrofac’s arbitral claim against PBJV. Note that PBJV allege that AK and BA are jointly and/or severally liable for damage arising from the incident, see Para [9] to [14].

PBJV’s claim against AK and BA, is founded two clauses in the CPA, ie Clause 44(a) and Clause 50, which were inserted into the CPA by mutual agreement between the parties, see Para [17]:

[1] Clause 44(a) is an owner’s liability indemnity clause. If due to the act or omission of the Owners or its servants (eg master, officers, crew, employees) results in damage to the property of a third party and the Charterer’s become liable for it, the Owners will indemnify the Charterer. The indemnity covers costs, expenses, fees, fines, penalties or damages paid by the Charterer as a result of such damage.

[2] Clause 50 resolution clause for terms that conflict. Special clauses in the CPA are given primacy over standard charterparty terms.

The Basis of PBJV’s Claim Against AK and/or BA

On Chee Kwan J summarised that PBJV would have to prove the following against AK and BA:

[1] The act/omission of AK and/or BA caused the incident;

[2] There was damage to the property of a Third Party;

[3] PBJV has become liable for the damage caused;

[4] PBJV has had to pay for the damage.

PBJV’s case against both AK and BA were based on two essential documents:

[1] An investigation report by PBJV and Petrofac;

[2] An interim report by Petrofac;

During the trial, the attendance of the authors of the report were not procured. Person who were directly involved in the mooring operation were not called to testify at the trial by PBJV. Both AK and BA did not accept the findings documented in these two reports. During the trial, PBJV only called its Project Manager as a witness.

Persons involved in the Incident but not called as witnesses included the following:

[1] Captain Sergey Letunov (Captain of the AF);

[2] Captain Ronald Eryzon (Captain of the EP);

[3] Maniam C. Periasamy (Second Officer of the EP);

[4] Hari S. Ellappan (Second Officer of the EP).

Persons who had provided materials for the Close Out Report, but not called as witnesses during the trial include:

[1] Ali Malabar (Head Officer of Bumi Armada);

[2] Kumar Wijayapala (Head Engineer of Bumi Armada);

[3] Soaaid bin Mohd Arshad (Technical Enforcement Officer of AK).

The First Issue in the PBJV case - Were the Contents of the Two Reports Inadmissible as Documentary Hearsay?

After the Close Out Report was prepared, Petrofac prepared the Interim Report. These Reports document the failure by AF’s Master to be vigilant when positioning the vessels when dropping anchor. The Master had allegedly failed to monitor the position of the Vessels (both AF and EP) during the anchor handling procedure. The Barge Management System (BMS) which was on the AS enabled the master to monitor the position of the pipelines. The EP’s Tug Management System (TMS) could not do so.

The Master was allegedly unaware that the Vessel had drifted above the pipeline during the anchor handling procedure, and failed to stop the procedure, see Para [26]. The Operations Procedure issued by Bumi Armada prohibits such manoeuvres over pipelines, see Para [26]. There was an attempt by AF to retrieve the dropped anchor (as documented in the Bridge Note Book), but was unsuccessful, see Para [27] to [29]. The anchor had landed between two pipeline, tensioned and dragged the flukes under a pipeline, see Para [30] to [31].

Ong Chee Kwan J held that the contents of the Reports are documentary hearsay and therefore inadmissible to establish that AK and BA are liable for the damage to the pipelines. The findings are not evidence as to what actually transpired, but rather what the authors of the report thought had happened that day, see Para [35]. His Lordship agreed with counsel for BA that the case of Borcos Takdir [2012] 1 LNS 1116 was relevant in this case. Nallini J (as she then was) had held that the contents of incident reports were hearsay unless the primary witnesses who had participated in these reports were present in court to testify about the event, see Para [36] to [37]. Her Ladyship stressed that ‘… it is trite that any such evidence cannot comprise admissible evidence to be utilised for the purposes of ascertaining the truth of the events which occurred’, see Para [38].

In the PBJV case, Ong Chee Kwan J pointed out that the only witness called by PBJV, was a project manager that had no personal knowledge of the contents of the report and was not a party to the incident as it occurred, see Para [39]. Ong Chee Kwan J made it clear that the Reports are not direct first hand accounts of the incident in question, see Para [41]. His Lordship also dismissed suggestions because AK and BA failed to challenge the contents of the report by conducting its own investigation and provide an alternative narrative of the facts, both AK and BA had accepted the Reports, see Para [44] to [45]. His Lordship held that failure by AK and BA to challenge the contents of the reports cannot be equated to an acceptance of the truth of the contents therein, see Para [46].

Ong Chee Kwan J also pointed out that even though the Reports purported to address the ‘root cause of the incident’, the author of the report had left open the question whether the anchor was transferred before or after the vessels drifted over the pipelines, see Para [47]. His Lordship concluded that PBJV’s assertion that the Reports established AK and BA’s liability, also ironically contradicted its own case, see Para [48]. On this basis, his Lordship held that PBJV’s claim against AK and BA was simply unsustainable and had to be dismissed, see Para [50].

The Second Issue in the PBJV case - Was BA Entitled to Rely on the Himalayas Clauses under the CPA?

Even though BA was not a party to the CPA, BA argued that it could claim all the rights and defences under the CPA by virtue of the Himalayas Clause found at the CPA, Clause 14(e)(ii). This clause is contractual devise that grants benefits of the main contract to a third party, who is not privy to the main contract. Himalayas clause have long been recognised in the Maritime Law sphere (see for example in The Eurymedon [1975] AC 154 (PC) and The New York Star [1981] 1 WLR 138 (HL) ), and most recently in The Starsin [2003] 1 Lloyd’s Rep.571 (HL). Hence, BA was indeed entitled to rely the main clauses of the CPA, see Para [53] to [58].

Two groups were recognised under this clause. First, the ‘Owners Group’, and second, the ‘Charterers Group’. Ong Chee Kwan J held that ‘Owners’ Group’ would include Asian Kaliber, Bumi Armada, the Master and the crew of the AF and ‘Charterers’ Group’ would include PBJV and crucially, Petrofac. This is because Petrofac is PBJV’s customer, in the sense it contracted with PBJV under the Main Contract and thus “having a contractual relationship with the Charterers, always in respect to the job or project on which the Vessel is employed”, see Para [57].

The Third Issue in the PBJV case - Was BA Entitled to Rely on the Knock-for-Knock Clause in the CPA?

If the due to some unexpected means that the problem with the documentary hearsay of the documents could be overcome, both AK and BA relied on the ‘knock-for-knock’ clause as a defence which became available to the Himalaya clause, see Para [58]. Ong Chee Kwan J elegantly explained that under the ‘knock-for-knock’ provisions, each group, namely the Owners’ Group and the Charterer’s Group, agrees to take responsibility for and to indemnify the other group against injury and loss to its own property and personnel, see Para [60]. 

His Lordship concluded that since Petrofac is a member of the ‘Charterers’ Group’ and the property damaged, namely, the Flowline, is the property of Petrofac, such property is to be treated as a property of a member of Charterers’ Group, see Para [61]. Accordingly, since the relevant exclusion or exemption states that the ‘Owners’ shall not be responsible for loss of, damage to ... the property of any member of the ‘Charterers’ Group’, Ong Chee Kwan J held that this must mean that Bumi Armada is exempted from all liability for loss or damage to the Flowline, see Para [62].

Another clause that was brought to the attention of Ong Chee Kwan J was Clause 7(d) which provided that the navigation and control of the Vessel always remained with the Owners. This clause also provided that where the Charterer has a request, this would always be subject to the exclusive right of the Owners whether this could safely be carried out. Clause 7(b) also declared that the Owners were independent contractors, and that the Charterers were to be only concerned about the results of the service performed, see Para [63].

In the light of the details of Clause 7(d), Ong Chee Kwan J agreed that it would ‘bite’ between PBJV and AK, because AK was expressed to be the owners, see Para [64]. However, his Lordship made it abundantly clear that Clause 7(d) does not apply vis a vis BA for the following reasons, see Para [65]:

[1] When one examines the CPA, it is clear that BA is not a signatory to the CPA;

[2] BA is an independent contractor liable directly only to AK, not PBJV;

[3] Whilst BA is afforded the rights, liberties and exemptions under the CPA, BA is itself not liable for the liabilities that arise under the CPA.

Ong Chee Kwan J was also faced with a contention that Clause 14 was to be restricted in its scope and application, and thus could not extend to an interpretation of Clause 44(a) of the CPA. Counsel for PBJV pointed to the phrase ‘For the purpose of this clause …’ in support of this point of view. Ong Chee Kwan J rejected this contention by pointing out that there was another phrase in the CPA which contradicted a restrictive approach to Clause 14. His Lordship held that the opening words ‘Notwithstanding anything else contained in this Charter Party excepting Clauses ...” runs contrary to the contention of learned counsel for PBJV. Clause 44(a) is not included in the clauses which are expressly excepted from the application of Clause 14, see Para [65] and [66].

In fact, explained On Chee Kwan J, once Clause 14 is read together with Clause 44 of the CPA, one is compelled to conclude that Clause 44(a) is wholly irrelevant to this dispute vis-a vis Bumi Armada for the reason stated above, namely, that there is no damage to a property of ‘a third party’ in this case since Petrofac is deemed as a member of the Charterers Group, see Para [70]. In doing so, his Lordship held that there was no conflict between Clause 14 and Clause 44 of the CPA, that would authorise the usage of Clause 50 on the primacy of ‘special clauses’, which would prevail over standard clauses of the CPA, see Para [67] and [68].

Thank you for reading IMSML Website Article 19/2024

Stay tuned for the next IMSML Website Article 20/2024: Desert Oasis Petrochemical Trading LLC v Pemilik Dan/Atau Pencarter Demis Kapal Atau Vesel Alpine Mathilde Dari Pelabuhan Hong Kong [2023] MLJU 2494

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Head of the Centre for Advocacy and Dispute Resolution

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

Tuesday,  5 March 2024

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my