Equatorial Marine Fuel Management Services v MISC Bhd - The Bunga Melati 5
Equatorial Marine Fuel Management Services Pte Ltd v MISC Berhad, the “BUNGA MELATI 5”
Singapore High Court; Prakash J;  SGHC 190, 22 July 2015
Rajah & Tann Singapore LLP for Equatorial Marine Fuel Management Services Pte Ltd, Plaintiff (“Supplier”)
Allen & Gledhill LLP for MISC Berhad, Defendant (“MISC”)
BUNKER BROKERS: AGENCY: ACTUAL AUTHORITY, APPARENT AUTHORITY, AND ESTOPPEL: NO GENERAL ‘DUTY TO SPEAK’
The Supplier’s claims against MISC for unpaid bunker stems failed as the Supplier could not show that the party it contracted with (MAL) was acting as MISC’s agent. The Supplier’s arguments based on actual authority, apparent authority, and estoppel were each rejected on the evidence. The argument that one has a general ‘duty to speak’ to dispel (mis)representations by a purported agent as to its authority was rejected, absent a pre-existing relationship or dealings.
This note has been contributed by Justin Gan Boon Eng, LLB (Hons) NUS, Advocate & Solicitor, Singapore (non-practising); Solicitor, Hong Kong
From 2006-2008, the Supplier stemmed a substantial quantity of bunkers to MISC’s vessels (about US$21 million worth). The Supplier was not paid.
The bunker supply contracts were made via bunker brokers. The Supplier alleged that it contracted with MISC for those bunker stems, via an agent of MISC known as MAL (Market Asia Link Sdn Bhd). MISC argued that MAL purchased the bunkers as principal and MISC in turn purchased bunkers from MAL – and so the Supplier could look only to MAL for payment.
MISC was successful and the Supplier’s claim dismissed.
The Supplier argued:
(1) MAL had actual authority to act for MISC;
(2) MAL had apparent authority to act for MISC;
(3) MISC was estopped from denying that MAL was MISC’s agent
1. Actual authority
The Supplier adduced no direct evidence of actual authority, but sought to draw an inference from alleged:
(a) irregularities in MISC’s registration of MAL as a bunker vendor to MISC;
(b) irregularities in award of bunker contracts by MISC to MAL thereafter;
(c) 7 instances where the MAL-MISC bunker confirmations referred to MAL as "Broker” and MISC as “Buyer”;
(d) instances where MAL acted as a conduit to MISC, like a broker would, and
(e) exceptional treatment of MAL by MISC.
The Judge noted that it was possible to prove actual authority by inference. Further, the evidence showed that MAL and MISC had “a relationship that went beyond purely commercial interests”, from which inferences could have been drawn in respect of “lack of good corporate governance in MISC” or “behaviour aimed at financial gain”.
However, that evidence did not create the inference that MISC authorised MAL to act as MISC’s agent. Importance was placed on invoicing and payments – generally MAL was invoiced by, and paid, the physical supplier, and MAL in turn invoiced MISC and was paid by MISC.
The Judge was not swayed by (c), the 7 MAL-MISC bunker confirmations referring to MAL as “Broker” and MISC as “Buyer”, as:
(i) MISC’s evidence that its staff did not understand the legal implications of the word “Broker” was accepted;
(ii) those references were corrected in subsequent bunker confirmations which described MAL as a “trader”, and
(iii) in any event, MAL’s bunker confirmations were unilateral, from MAL to MISC, to which MISC did not consent. The corresponding documents created by MISC and sent to MAL (e.g. Purchase Orders) indicated MISC as buyer and MAL as seller, with no reference to the physical supplier – and so were consistent with the existence of independent MAL-MISC transactions.
2. Apparent authority
Citing Freeman (fn.1), the Judge set out the elements forming apparent authority:
(a) representation by the principal that the agent had its authority to contract,
(b) made by a person with actual authority,
(c) which the third party (reasonably) relied on in contracting,
(d) provided that the principal’s constitutional documents did not deprive it of the ability to enter such a contract or to delegate such authority.
The Judge added that if the third party was put on inquiry as to the purported agent’s authority, but did not make the necessary inquiries, it would not be reasonable to rely on the representation of authority.
Here, one of the intermediate bunker brokers was found to have passed off information from MAL as having been received from MISC. As the Judge noted, if a small broking firm such as that intermediate bunker broker represented itself to be acting for a large owner like MISC, it would enjoy much more credibility with suppliers than if it had stated it was acting for a newcomer like MAL.
That intermediate bunker broker’s evidence that he had received a representation from MISC staff (as to MAL’s authority) was rejected – and the apparent authority claim failed at the first stage.
The Judge noted the two subsets of agency by estoppel (fn.2), being:
(a) Where the principal makes no manifestation of authority but intentionally or carelessly acts in a manner causing the belief that the agent is authorized.
The Judge did not comment on this.
(b) Where the principal had notice of third parties’ belief in the purported agent’s authority, and that third parties might be thereby induced to change their position, but did not take reasonable steps to notify those third parties.
Here the Judge rejected a general ‘duty to speak’, absent a pre-existing relationship or dealings between the purported agent and the person claiming under the contract, as to find otherwise would require parties to correct all misrepresentations by those claiming to be their agents whether or not they actually played any role in the alleged transactions.
The Supplier showed that MISC was aware that certain physical suppliers were operating under the impression that MISC was the buying party.
However, the Judge found that MISC owed the Supplier no ‘duty to speak’.
Further, the Supplier’s purported reliance on MAL representing itself to be MISC’s agent was unreasonable. The evidence showed that a buyer of bunkers (and not its broker) was expected to be the party effecting payments. However, both the Supplier and the Supplier’s broker were aware that MAL, and not MISC, was the party making payments to the bunker suppliers – and so the Supplier should have questioned MAL’s purported authority to act for MISC.
The Bunga Melati 5 again(fn.3) illustrates the importance of ascertaining the identity of your counter-party, and of carefully reviewing the information provided by intermediaries.
When in doubt (and before allowing large credit balances to accrue), perhaps the best course of action would be to check direct with the supposed principal counter-party – a simple call may not only illuminate the situation, but also save the cost of extensive factual evidence and discovery common in cases where an agency relationship is alleged and a number of intermediaries are in the picture.
Fn.1 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd,  2 QB 480.
Fn.2 Set out in Bowstead & Reynolds on Agency (20th) at 2-101.
Fn.3 Following the recent example of Navig8 v South Vigour Shipping Inc & Ors,  EWHC 32 (Comm), where on an extensive factual analysis, a contractual relationship was found not to exist with the more substantial defendant (which the claimant had hoped to contract with). Again, the role played and nature of information disseminated by intermediaries was key in creating the state of affairs leading up to the dispute.