Taking a Last Shot in Determining the Governing Document in a Bunkering Arrangement that May have an Arbitration Agreement that Mandated a Stay of Proceedings in Cessnet Sdn Bhd v Sapura Offshore Sdn Bhd [2022] MLJU 489 (High Court, Kuala Lumpur) per Azlan Sulaiman JC

When there is a dispute as to which document is the applicable contractual document, this is an important fundamental issue to sort out before moving into the detailed grievances. Different documents may have different terms, conditions and dispute resolution mechanisms. Hence, determining the governing document will determine what are the terms and conditions the parties have agreed to, and in the event of a dispute, what is the dispute resolution mechanism that is to be used to resolve that contractual dispute. In the Cessnet case, there was more than one alleged contractual document which bound the parties to the 'bunkering' of a ship.

As the term 'bunker' can be used in many differing contexts, it is useful to look at Azlan Sulaiman JC's explanation as to what was covered by that term. His Lordship started by explaining that 'bunkering' described the process of supplying fuel for use by ships. He also added that 'bunker' also referred to the place where coal was stored, in the days when ships were powered by coal and steam. The process of 'bunkering', according to his Lordship was the logistics of loading and distributing fuel among the shipboard tanks.

The Defendant had three vessels which required bunkering, ie the SMS Vincent, SMS Endeavour, and SMS Tanjung Sari. The Defendant issued two purchase orders (POs) on 15 December 2020, and a third PO on 29 December 2020 for each vessel. In response to each PO, the Plaintiff issued a Bunker Confirmation (BC). The Plaintiff delivered the bunkers to each vessels under a Delivery Orders (DO).

The Plaintiff's claim against the Defendant was for RM844,260.00 for amounts unpaid for invoiced bunker, plus late payment interest. The Defendant argued that court proceedings should be stayed in favour of arbitration. First, arbitration was required by Clause 45 and 46 of the Terms and Conditions for Sales for Marine Bunkers. Second, the PO themselves contain an arbitration agreement (ie acceptance of the PO is an agreement to the Sapura Offshore Sdn Bhd Standard Terms and Conditions which contains a reference to arbitration at the Asian International Arbitration Centre, AIAC in Clause 26). Third, the Plaintiff's own BC had all along indicated an intention to arbitrate any disputes arising from the bunkering arrangements, with a 'Law and Arbitration' heading.

The Plaintiff's reply is rather interesting. First, even though the Defendant's terms and condition were contained in the PO, this was superseded by the Plaintiff's terms and conditions which were contained in the BC. The Plaintiff argued that the bunkering contract was only completed when the Defendant's Senior Project Manager accepted the BC. Thus the contract could not have come into existence at an earlier point in time based on the Defendant's terms and conditions under the PO. The Defendant based this conclusion on the 'last shot rule'. The Plaintiff cited Dan-Bunkering (Singapore) Pte Ltd v The Owners of the Ship or Vessel 'PDZ Mewah' [2020] 1 LNS 1966 where Atan Mustaffa Yussof JC held that the last shot exchanged in the bunkering negotiation and/or operations was the relevant applicable terms and conditions. Second, a heading of a contractual clause with the word 'Arbitration' in it cannot amount to an arbitration agreement. The content of the clause should contain the substantive intention to refer the matter to arbitration, see Hitti Aluminium Sdn Bhd v TKH Construction Sdn Bhd [2020] MLJU 337 per Lim Chong Fong J. The heading is for reference only and is a mere guide as to the content of the provision, see Catajaya Sdn Bhd v Shoppoint Sdn Bhd & Ors [2021] 2 MLJ 374 (FC) per Her Ladyship Hasnah Hashim FCJ. Third, in the absence of a binding arbitration agreement, the Plaintiff was free to commence an action against the Defendant in Court.

His Lordship Azlan Sulaiman JC scrutinised arguments put forward by both the Plaintiff and Defendant, and came to the conclusion that there were several flaws in the submissions put forward by the Plaintiff. First, the BC was a multiparty agreement and not strictly just between the Plaintiff and the Defendant. The BC clearly stipulated that it was a contract between the 'seller', 'buyers' as well as jointly and severally between the vessel / her Master, Owner, Managers, Operators, Disponent Oqwners, Bareboat Charterers and Charterers. The Plaintiff also acknowledged that it has issued a BC to each of these parties.

Second, the PO, BC, DO and the Invoice all had to be looked at collectively to the exclusion of none. The Plaintiff's claim was based on bunkering transactions that were made up of all these documents. In its pleadings, the Plaintiff did not specifically plead that the contract was concluded only when the BC was accepted, and/or that the Defendant's terms and conditions had been superseded.

Third, the PO which was given by the Defendant to the Plaintiff very clearly stipulated that if the Plaintiff accepted it, then the Plaintiff agrees to be bound by the Defendant's terms and conditions. The argument that the Plaintiff’s terms and conditions superseded the Defendant’s terms, did not appear in the Plaintiff’s Statement of Claim, thus materialising out of nowhere.

Fourth, the Defendant’s terms and conditions were not general in nature, but rather, It was specific. Each of the Defendant’s terms and conditions bore the same corresponding number of a PO. Thus both were closely connected to one another. By contrast, the Plaintiff’s terms and conditions were generic and only available on a website.

Fifth, there was tacit acceptance by the Plaintiff of the Defendant’s terms and conditions. The terms could not have been superseded if it were not accepted in the first place. But there was no evidence that it was superseded. So the Plaintiff could not have unilaterally discarded or replaced the Defendant’s terms and conditions without mutual agreement or consent. In particular, there was no notice by the Plaintiff to the defendant that the Defendant’s terms and conditions were being superseded. The Defendant would have the option of either continuing with the transaction, or withdrawing upon receiving such a notice from the Plaintiff.

Sixth, Azlan Sulaiman JC was reluctant to apply the ‘last shot rule’. Several document were exchanged during the bunkering operations, and the process itself involved more than one transaction, ie there was bunkering for three ships. Interestingly, His Lordship observed that ‘surely the Court cannot be expected to accept that the terms for the mode of dispute resolution kept changing and switching back and forth with each successive document or activity’.

Seventh, the Dan-Bunkering case (see Dan-Bunkering (Singapore) Pte Ltd v The Owners of The Ship or Vessel ‘PDZ Mewah’ of Port Klang & Anor [2021] 11 MLJ 541, High Court, KL) which the Plaintiff relied on could be distinguished. In Dan-Bunkering, unlike in the present case, the Defendant-Buyer never disputed the term for late-payment interest which were in Dan-Bunkering’s General Terms and Conditions for Business. Hence the Defendant-Buyer was estopped from later disputing liability for this. The Dan-Bunkering General Terms and Condition was the last shot fired by the Plaintiff-Bunker Supplier. By contrast, on the facts of the Cessnet case, the documents were congenially issued and exchanged between the parties. Hence there was no battle of forms between the parties in the Cessnet case.

Eight, even though headings only serve as a brief guide as to the contents of a clause (see both Hitti Aluminium Sdn Bhd v TKH Construction Sdn Bhd [2020] MLJU 337 and Catajaya Sdn Bhd v Shoppoint Sdn Bhd & Ors [2021] 2 MLJ 374), the inclusion of the word ‘arbitration’ in the Law, Jurisdiction and Dispute Resolution clause was consistent with the Defendant’s submission that by using the word ‘Arbitration’ in the header, that the Plaintiff intended to resolve disputes by way of arbitration. This conclusion held greater sway than the Plaintiff’s view that the word ‘Arbitration’ should be ignored altogether.

Ninth, by contesting the Defendant’s application to stay the court proceedings on the basis that there is an agreement for arbitration, the Plaintiff is acknowledging that an arbitration agreement between the parties exist. Only when this fact is established, can the second stage of the inquiry proceed, ie whether there are ground for granting a stay of the court proceedings, or refusing the application for stay of the court proceedings.

In conclusion, both the Plaintiff and the Defendant’s terms and conditions can largely be read harmoniously with one another. Both share common ground, and their terms neither negate, nor contradict one another. Azlan Sulaiman JC preferred the Defendant’s approach to interpretation of the contractual relationship. Thus there was an arbitration agreement in the Defendant’s terms and conditions of the contract. His Lordship therefore granted a stay of the Plaintiff’s court proceedings. Both Plaintiff and Defendant had to resolved their dispute relating to the bunkering claims by way of arbitration.

Thank you for reading IMSML Website Article 20/2022

Stay tuned for the next IMSML Website Article 21/2022:

Tales from Singapore on Respect for the Arbitration Clause in a Bill of Lading in The “Navios Koyo” [2021] SGCA 99; [2022] 1 SLR 413

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.); 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

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

1 November 2022

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