POINTERS: Common Areas of Dispute in the Palm Oil Trade

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Questions & Answers (2) :

Mohammad Jaaffar Ahmad

10 years ago

Dear Sir, at the recent PORAM Contracts & Arbitration Workshop, a question was posed by one Malaysian company. This company sold RBD Palm Olein, bulk, FOB basis to a buyer, under PORAM contract. The buyer is the charterer (i.e. fixed vessel with shipping company, using English Law to govern the shipping terms). The cargo reaches destination. The vessel releases cargo to buyer/notified party/its agent, without original Bill of Lading (B/L). The buyer subsequently declares bankrupt. This company retrieve the shipping doents including B/L, and seek recourse from the shipping company. In order to do so, the company have to prove that they are the owner of the cargo. Under the current Malaysia Law, as the cargo is liquid and hence not identifiable, this company failed to satisfy the law/condition. Hence, this company cannot establish that they are the owner of the cargo despite the fact that they hold the original B/L. Therefore, this company lost the case, money/cargo. The questions put forward to you are i) Is the Law been interpreted correctly? ii)If not, does this company have a recourse, and if yes, under which particular law/section of the law? iii) In the future, can any wordings be inserted as a Special Clause into PORAM contract, to provide recourse for similar case without going against/contravening the existing Malaysian Law? iv) We understand that this is not a problem under Singapore Law (Carriage of Goods By Sea - Hague-Visby Rules ?), but what about palm oil shipped from Indonesia under PORAM contract terms. Are they suffering from the same fate/peril like in Malaysia? TQ

Murali Pany:
I assume that in this case: a) payment was by way of LC; b) the BL was in the banking chain when retrieved by the Seller; and c) the Seller did not instruct the carrier to release the cargo or provide an LOI. If so, under Singapore and English law, the release of the cargo without the original BL is wrongful and the carrier would be liable to the Seller (as Shipper) for the loss suffered. Proving ownership of the cargo at the time of the breach is not necessary if the claim is made under the BL. It is only necessary if the claim is made in tort. The fact that the cargo is liquid is also not material because the BL will state the quantity of cargo and this will be the measure of the claim. If the contract of carriage is subject to Singapore/English law, the position would be the same for palm oil shipped from Indonesia. To the best of my knowledge, this is also the position under Malaysian law though I am not able to say so conclusively as I am not a Malaysian qualified lawyer. I am also not able to comment on the judgment without knowing the full facts or the basis of the judgment. However, as a general rule, there should be a right of appeal against the decision of the Court. As the Poram contract is made between the Buyer and Seller, it cannot bind the carrier. However, a solution may be to retain ownership of cargo until payment is received by way of an appropriate clause in the contract.
10 years ago

Mohammad Jaaffar Ahmad

10 years ago

3. There have been cases that " ships/vessel have been arrested" at discharge ports, as a result of contractual dispute. Some of the issue may be related to the "common areas of dispute" that you have presented. Since I am not a legal expert , my question is " What is the definition of a "vessel or ship being arrested, who has the legal avenue to undertake the arrest of the ship and how does the legal frame work determine the arrest of the ship and what recourse does one have to remove the arrest of the vessel or ship".

Murali Pany:
The purpose of arresting a ship is to obtain pre-judgment security for a claim. To arrest a ship, a claimant must first file an in-rem writ against the ship in Court and obtain a warrant of arrest. The service of the writ and warrant of arrest on the ship effects the arrest. To file an in-rem writ and obtain a warrant of arrest, the claimant must essentially satisfy the following requirements: a) The claim must arise in connection with a ship; b) The claim must be a maritime claim i.e. one that falls within the High Court (Admiralty Jurisdiction) Act; and c) The person liable for the claim must be the Owner of demise charterer of the ship both at the time the claim arose and the time of the arrest. Put simply, an arrest is available to a maritime claimant against the Owner or demise charterer of a ship. An example would be if cargo is damaged on-route due to the carrier’s fault. The shipper or consignee would have a maritime claim against the ship and the right to seek an arrest (subject to the fulfillment of other conditions). There are 3 main responses to an arrest: 1. Provide security for the claim. Once acceptable security is provided (cash, bank guarantee or P&I Club LOU), the arrest will lifted and the ship released. 2. Settle the claim. Upon payment, the arrest will lifted and the ship released. 3. Challenge the arrest e.g. on the basis that the claimant did not satisfy the legal requirements. However, unless security is provided, the ship will remain under arrest while the challenge is taking place.
10 years ago