[AA27-01-2008]

1 MALAYSIA
2 IN THE HIGH COURT IN SABAH AND SARAWAK
3 AT SANDAKAN
4

5 AA27-01 of 2008
6 Between
7 Agrifert Malaysia Berhad … Plaintiffs
8 And
9 The Owners or Demise Charterers of And Other
10 Person Interested In The Ship Or Vessel
11 M.V. “Seagreeting” … Defendants
12

13 GROUNDS OF DECISION
14

15 Introduction
16 1. On 28th November 2008, I allowed the Defendant’s application to
17 stay the Plaintiff’s action and further proceedings in this action
18 pursuant to section 10 of the Arbitration Act 2005 and gave a brief
19 judgment. This is my judgment in view that there is a notice of
20 appeal filed.
21

22 2. By Summons in Chamber dated 28 July 2008, the Defendants

23 apply, amongst others, for the following orders:
24

25 a. That the plaintiffs’ action and all further proceedings in this

26 action be stayed pursuant to section 10 of the Arbitration Act
27 2005; and
28

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1 b. The Letter of Undertaking dated 29 May 2008 issued by

2 American Steamship Owners Mutual Protection and Indemnity
3 Association Inc be released by the Plaintiffs to the Defendants.
4

5 Background facts
6 3. The Plaintiffs claimed they are the holders of three bills of lading all
7 dated 7 April 2008 and signed by or on behalf of the Defendants.
8 The Defendants acknowledged receipt on board the Vessel “M.V.
9 Sea Greeting” of a consignment of Pink Muriate of Potash weighing
10 a total of about 29,000 metric tones in good order and condition for
11 carriage from Port of Nikolaev Port, Ikraine, to and delivered at
12 Bintulu, Sarawak and Sandakan, Sabah, Malaysia in the like good
13 order and condition. The Plaintiff alleged that there was short
14 delivery of 377, 389 metric tones. Hence the Plaintiff commenced
15 the present Admiralty in Rem action against the Defendant for loss
16 and damages.
17

18 4. Issues
19 a. Whether a stay of proceedings ought to be granted?
20 b. Should the Letter of Undertaking dated 29 May 2008 be
21 released by the Plaintiffs to the Defendants?
22 c. Who should bear the costs of this application?
23

24 Findings of the Court

25 5. The Plaintiffs challenge the existence of the agreement to arbitrate.
26 It is submitted that exhibit HK-1 relied upon by the Defendants is
27 not a valid document as the contract was never executed by the
28 parties. The Plaintiffs pointed out that there were no signatures in
29 the columns marked “Signature (Owners)” and “Signature

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1 (Charters)” at the bottom on the first page of exhibit HK-1. Likewise

2 at the last page of the terms of the Contract of Affreighment (page
3 8 of HK-1) at the space marked for the execution marked “Owners”
4 and “Charters”, there is no execution at all. At the space marked as
5 “Owners” and “Charters”, there is also no signature signifying
6 execution.
7

8 6. According to learned counsel for the Plaintiffs, on page 8 of HK-1 is

9 a chop mark which states “This is to certify that this is a true
10 signature signed in front of me, “signed” Prof. Thomas Antonius
11 Hazirogiou, Hon Consul, 22.7.08”. This means that the owner
12 signed the document in front of the Hon. Consul on 22 July 2008,
13 but the alleged Contract of Affreightment was supposed to be dated
14 3 December 2007. This has given rise to the suspicion that the
15 document was signed by only one party after the dispute has
16 arisen.
17

18 7. Learned counsel for the Plaintiffs further pointed out that the
19 alleged Contract of Affreightment was not a certified true copy.
20 There was also no affidavit evidence from those parties concerned
21 that there was such a contract or explain why there was no
22 signatures signifying the execution of the contract. It is submitted
23 that there is no valid contract.
24

25 8. It is further submitted that in the Bill of Lading i.e. Exhibit HK-2

26 under “Conditions of Carriage” at clause 1, which states, “All terms
27 and condition, liberties and exceptions of the Charter Party, dated
28 as overleaf, including the Law and Arbitration clauses, are herewith
29 incorporated.” It is submitted that the Defendant has adduced

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1 neither the chartered Party dated 7th April 2008 nor the “Charter
2 Party dated as overleaf”.
3

4 9. It is submitted that to determine whether or not there was

5 incorporation of the arbitration clause as intended by the parties,
6 the court would have to determine, to borrow the words of Gopal
7 Sri Ram JCA in Bauer (M) Sdn. Bhd. v Daewoo Corp [1999] 4
8 MLJ 545), “at the end of the day, whether an incorporation by
9 reference was intended by the parties in a particular case is a
10 question that must be resolved according to the peculiar facts of
11 the individual case”
12

13 10. It is further submitted that on the facts of the case, there was no
14 such intention to incorporate the arbitration clause because if there
15 was such an intention, then the “Charter Party, as dated overleaf”
16 would have been enclosed with the Bill of Lading but there was
17 none. The Bill of Lading did not enclose any Charter Party nor the
18 terms and conditions of the arbitration clause. As such, there is no
19 valid and legal incorporation of the arbitration clause.
20

21 11. It is my considered view that it is not open to the Plaintiffs to

22 challenge the existence of the agreement to arbitrate or its
23 authenticity. This is because in the Plaintiff’s Affidavit in Opposition
24 affirmed on 6 August 2008 (“Plaintiff’s AIO”), the Plaintiffs had not
25 denied the existence of such an agreement nor raised any doubt
26 about the authenticity of the Defendants’ documents. In paragraph
27 15 of the Plaintiff’s AIO, they merely averred that “they have no
28 knowledge of the facts alleged at paragraphs 5, 6, 7 and 8 of the
29 Defendant’s Affidavit in Support affirmed on 22 July 2008.”

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2 12. Further, the Plaintiffs are third party to the agreement. As such,
3 they are in no position to question the legitimacy of the agreement
4 where the parties to the charter party contract themselves are
5 satisfied that the charter imposed contractual obligations, and both
6 charterer and ship owner proceed to perform those obligations.
7

8 13. As regard what is the “as date overleaf”, it will be useful to look at
9 the dates on all the Bills of Lading i.e. exhibit A-6, A-7 and A-8
10 annexed to the Plaintiff’s Affidavit in Opposition. On their respective
11 page 1 it is stated, “All terms and conditions, liberties and
12 exceptions of the Charter Party, dated as overleaf, including the
13 Law and Arbitration Clause, are herewith incorporated.”
14

15 14. It is to be noted that the dates of the Charter Party on all the three
16 Bills of Lading are stated in the box near the middle of the page
17 overleaf (page 2) as: “CHARTER PARTY dated 13/3/08”, which is
18 the exact same date as the Defendant’s Booking Note # 10
19 exhibited at HK-1 of the Defendants’ Affidavit in Support affirmed
20 on 22 July 2008.
21

22 15. At this juncture, it is helpful to set out the contractual links between
23 various parties. The vessel MV Seagreeting is owned by Newton
24 Services SA. It was managed by Domina Shipmanagement Ltd.
25 Domina then entered into a time charterparty with Industrial
26 Carriers Inc. Subsequently, Industrial Carriers Inc sub-chartered
27 the vessel to DH Dhekelia Shipmanagement Ltd via a Contract of
28 Affreightment (CO) dated 3 December 2007. This COA was later
29 reviewed via a booking Note No. 10 dated 13 March 2008. DH-

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1 Dhekelia then sub-sub chartered the vessel to Agrifert SA who then

2 shipped the goods to the Plaintiff.
3

4 16. Clause 50 of the COA states:

5 “Clause 50-LMAA Law & Arbitration Clause
6 This Charter is governed by and construed in accordance to
7 English Law. Any dispute arising under the Charter to be referred
8 to Arbitration in London…..”
9

10 17. Clause 1 on the reverse of the bill of lading provides:

11 “All terms and conditions, liberties and exception of the Charter
12 Party, dated as overleaf, including the Law and Arbitration Clause,
13 are herewith incorporated.”
14

15 18. Must charterparty be signed? Can unsigned charterparty legally

16 bind its contracting parties? Is there a need for a parterparty to be
17 signed in order for it to be legally binding on the contracting
18 parties?
19

20 19. In Shipbroking and Chartering Practice by Lars Gorton,

21 Patrick Hillenius, Rolf Ihre and Arne Sandevarn, 6th Edition,
22 2004, learned author described the shipping practice in the
23 following words, at page 175:
24 “The reason why commercial contract are frequently in writing
25 is the need for evidence as between the parties and also the
26 administrative need for documentation in a large organization.
27 Since there is no legal requirement that a charter agreement
28 has to be made in writing, an agreement will be binding when
29 the parties are in agreement. So it depends on what the

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1 parties have agreed, whether a binding charter comes into

2 force only when the charter party has been signed or whether
3 the charter party will be seen only as confirmation of a charter
4 already agreed upon… Legally, the agreement may very well
5 be binding at an earlier stage, unless the agreement states
6 that it shall be binding upon its signing only, which is
7 occasionally expressly stated or commonly understood.
8 Charter negotiations are normally carried out by telex,
9 telephone, e-mail and telefax, and the document may thus
10 legally be binding when the telex and telephone negotiations
11 have ended.”
12

13 20. In Time Charters (4th Ed, 1995) by Michael Wilford, Terence

14 Coghlin & Johd D. Kimball, it is written:
15 “No special form is needed for a charter contract. The
16 ordinary rules of the law of contract determine whether the
17 parties have or have not made a binding charter.
18 Accordingly, a charter may be binding although it is not
19 signed by the parties, and though the agreement has not
20 been drawn up on a printed form. Even an oral agreement to
21 charter a ship, if proved, is binding,….”
22

23 21. It can be seen from the above passages on the charter practice
24 that a charterparty need not be signed in order for the terms to be
25 binding on the charterer and shipowner. In other words, the
26 relevant test is not whether the documents are signed, but rather
27 whether the parties were ad idem and thus had become bound by
28 the terms of the charterparty.
29

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1 22. In the present case, the best evidence that the charter and the
2 shipowner were ad idem is that the contractual obligations under
3 the charterparty were indeed performed and the validity of the
4 charterparty was never questioned as between the charterer and
5 the shipowner.
6

7 23. A perusal of clause 1 of the Bills of Lading amply show that that it is
8 importing into the bills of lading the terms, conditions and clauses
9 of the charterparty. The incorporation clause has specifically
10 identified the clauses such as a dispute resolution clause.
11
12 24. As clause 1 has effectively incorporated the arbitration clause into
13 the bill of lading, which means that the shipowner (Defendant) and
14 the holder of the bill of lading (Plaintiff) are parties to an arbitration
15 agreement. Any party to this arbitration agreement is therefore
16 entitled to invoke the arbitration clause in order to settle the bill of
17 lading dispute via arbitration proceedings in London. As such, the
18 defendants are entitlted to invoke the arbitratin clause in order to
19 settle.
20

21 25. I shall now proceed to consider the Plaintiffs’ next contention that
22 the stay of proceeding ought not be granted because the
23 Defendants have failed to adduce any evidence that at the time
24 when the proceedings were commenced up to the time when the
25 exercise of the court’s discretion is sought for the grant of a stay,
26 the defendants are ready and willing to do all things necessary to
27 the proper conduct of the arbitration.
28

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1 26. Learned counsel for the Plaintiffs submits that the courts in
2 Malaysia favour arbitraton unelss there are some exceptional
3 reasons that exist to disallow it, citing Seloga Jaya Sdn. Bhd v
4 Pembenaan Keng Ting (Sabah) Sdn Bhd [1994] 2 MLJ 97 (SC)
5 and Tan Kok Cheng & Sons Realty Co Sdn Bhd v Lim Ah Pat
6 (t/a Juta Bena) [1995] 3 MLJ 273 (FC).
7 It is next submitted that the court still maintains a discretion
8 whether or not to grant a stay citing (Pte) Ltd [1976] 1 LNS 31).
9

10 27. Section 10 of the Arbitration Act 2005 clearly provides:

11 “10. Arbitration agreement and substantive claim before court.
12 (1) A court before which proceedings are brought in respect of a
13 matter which is the subject of an arbitration agreement shall,
14 where a party makes an application before taking any other steps
15 in the proceedings, stay those proceedings and refer the parties to
16 arbitration unless it finds—
17 (a) that the agreement is null and void, inoperative or
18 incapable of being performed; or
19 (b) that there is in fact no dispute between the parties with
20 regard to the matters to be referred.
21

22 (2) The court, in granting a stay of proceedings pursuant to

23 subsection (1), may impose any conditions as it deems fit.
24

25 (3) Where the proceedings referred to in subsection (1) have been

26 brought, arbitral proceedings may be commenced or continued,
27 and an award may be made, while the issue is pending before the
28 court.

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1 28. Does section 10 of the Arbitration Act 2005 exclude the general
2 jurisdiction to the court in granting a stay of proceedings on
3 whatever justifiable grounds?
4

5 29. In Innotec Asia Pacific Sdn Bhd v Innotec GMBH [2007] 8 CLJ
6 304, his Lordship Ramly Ali J held:
7 “The court has a general jurisdiction to grant a stay of proceedings
8 on whatever justifiable grounds. The question must then be
9 whether s. 10 of the Arbitration Act 2005 excludes this general
10 jurisdiction. This was not the case. For there to be an exclusion of
11 jurisdiction, express legislative provision to that effect must be
12 enacted. An exclusion of jurisdiction necessarily compromises the
13 right of acess to justice and as such must be categorically provided
14 for (Danaharta Urus Sdn Bhd v Kekatong Sdn Bhd). The language
15 of S. 10 of the Arbitration Act 2005 does not exclude jurisdiction of
16 the court to stay proceedings for the purpose of referring the matter
17 to arbitration based on their agreement. Instead, the requirement
18 to stay is generally mandatory.”
19

20 30. However, in Standard Chartered Bank Malaysia Bhd v City

21 Properties Sdn Bhd & Anor [2008] 1 MLJ 233, Vincent Ng J
22 stated:
23 “Yet, s 10 of the 2005 Act, has now — with the use of the word
24 ‘shall’ — made it mandatory for the court to stay the proceedings in
25 respect of any matter before which any proceedings are brought
26 and refer the parties to arbitration ‘unless it finds — (a) that the
27 agreement is null and void, inoperative or incapable of being
28 performed; or (b) that there is in fact no dispute between the
29 parties with regard to the matters to be referred.’ Though the

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1 provision of this new Act provides that the application must be

2 made before any other steps are taken in the proceedings is
3 common with the old Act, it is pertinent to note that the court’s
4 discretion to impose any direction as it deems fit when making an
5 order for stay is unencumbered under the new Act.”
6

7 31. It is my considered view that the use of the word “shall” in section
8 10 of the Arbitration Act 205 has made it mandatory – unless it falls
9 within the two exceptions - for the court to grant a stay to the party
10 seeking such application when it is established that the dispute
11 concerned is to be resolved via an arbitration pursuant to an
12 arbitration agreement.
13

14 32. As the plaintiffs have not shown the case falls within the two
15 exceptions under section 10 of the Arbitration Act 2005, the court
16 has no discretion to exercise the general jurisdiction in granting a
17 stay of proceding which it used to have before the coming into force
18 the Arbitration Act 2005.
19

20 33. It is the further contention of the plaintiffs that the vessel was
21 released upon the Defendants furnishing the security in the form of
22 the Letter of Undertaking from the Protection and Indemnity Club
23 (“P&I Club”). In doing so the defendants had submitted to the
24 jurisdiction of this honourable Court by virtue of section 12 of the
25 Merchant Shipping Ordinance 1960 (The Merchant Shipping
26 (Implementation of Conventions Relating to Carriage of Goods by
27 Sea And To Liability of Shipowners and Others) (“Sabah Merchant
28 Shipping Ordinance”).
29

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1 34. Suffice it to say that the Defendants are not challenging the
2 jurisdiction of the Malaysian Court, they are applying under section
3 10 of the Arbitration Act 2005 to stay the in rem proceedings in
4 favour of the arbitration clause. The Sabah Merchant Shipping
5 Ordinance is therefore not applicable to the facts of the case.
6

7 35. It is further contended by the Plaintiffs that there is another forum

8 to whose jurisdiction the Plaintiffs are amenable in which justice
9 can be done between the parties at substantially less
10 inconvenience or expense and the stay if granted would deprive the
11 Plaintiffs of a legitimate personal or juridical advantage which would
12 be available to them.
13

14 36. It is submitted that the cause of action in the present case arose in
15 Sabah; the surveyors for both the Plaintiff and the Defendants who
16 inspected the vessel and cargo are from Sabah and the Plaintiffs
17 as well as the witnesses are from Sabah. If the matter is arbitrated
18 in London, it will cause plaintiffs’ substantial expenses to bring all
19 the witnesses from Sabah to London. Moreover, the witnesses are
20 not compellable to attend to the arbitration in London. For the
21 application of the law, since the matter and the cause of action
22 accrued in Sabah, the Sabah Shipping Ordinance applies. But that
23 does not bar the application of English Admiralty law in Malaysian
24 courts, thus the Defendants would not be prejudiced.
25

26 37. It is further submitted that the defendants are not genuinely

27 desirous to have trials in the foreign country, but are only seeking
28 procedural advantage. This is because the Defendants know very
29 well the difficulties to be encountered by the Plaintiffs in bringing

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1 their case to London especially in bringing the witnesses and the

2 expenses to be incurred.
3

4 38. Reliance is placed on the case of Innotec Asia Pacific Sdn. Bhd.
5 v Innotec GMBH, supra, and Inter Maritime Managemetn Sdn.
6 Bhd. v Kai Tai Timber Company Ltd Hong Kong [1995] 4 CLJ
7 164.
8

9 39. I have held earlier on that the word “shall” in section 10 of the
10 Arbitration Act 2005 is mandatory in effect, thus the Court has no
11 option - unless the case falls within the two exceptions- but to give
12 the mandatory stay in order to give effect to section 10 of the
13 Arbitration Act 2005. (See: Standard Chartered Bank Malaysia
14 Bhd v City Properties S/B & Anor, supra). For this reason, the
15 factors which the Court would take into account in an application for
16 stay of proceeding on ground of forum non conveniens are
17 irrelevant in the present case where the application is for stay in
18 favour of arbitration pursuant to section 10 of the Arbitration Act
19 2005.
20

21 40. For all the reasons aforesaid, I hold that the proceeding before this
22 Court should be stayed.
23

24 Issue: Whether The Security In The Form Of Letter Of Undertaking

25 Should Be Allowed If The Court Grants The Stay.
26 41. Learned counsel for the Defendants submits that as a matter of
27 Malaysian law the Malaysian High Court’s jurisdiction cannot be
28 invoked to arrest a ship in an action in rem for the purpose of
29 providing security for an arbitration award, citing Tamina

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1 Navigation Ltd v The Owner of the Cargo laden on Board

2 the Ship or Vessel MT “SWALLOW” (Newick Shipping
3 Limited – Interveners) [2003] 8 CLJ 762 at page 791 as
4 support.
5

6 42. Therefore, submits learned counsel for the defendants, the

7 Plaintiffs must have arrested the vessel as security for their
8 claim in the in rem proceedings.
9

10 43. It is next submitted that as it is now established that the

11 substantive issue in dispute between the parties ought to be
12 resolved by arbitration in London and not through the in rem
13 action, this means that the American P&I Club Letter of
14 Undertaking (LOU) dated 29-05-2008 i.e. Exhibit L-5, the
15 Plaintiffs obtained for the in rem proceedings cannot be retained
16 once proceedings are stayed. This is because the Plaintiff is
17 unlikely to obtain a judgment or compromise in the in rem
18 proceedings once it is stayed. So, the whole purpose of holding
19 on to the security for the in rem action is lost.
20

21 44. The case of Tamina, supra, is distinguishable. In that case the

22 Plaintiff therein had already commenced arbitration in London.
23 Thereafter they arrested the cargo on the ship. The Court held
24 that the real purpose of the arrest of the cargo on board the
25 vessel was not to obtain security for the satisfaction of any
26 judgment action in rem but is actually to obtain security for the
27 Plaintiff’s claim currently being pursue in London arbitration and
28 also for an indemnity claim for any amount it may be obliged to
29 pay the Defendant in the Sri Lanka proceeding.

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2 45. In the present case the arbitration in London has yet to

3 commenced, so the question of holding on to the LOU for the
4 purpose of providing security for the arbitration award is
5 premature.
6

7 46. Further, if the stay of the action should subsequently be lifted

8 after failure by the Defendant to satisfy an award in the
9 arbitration. Rena K’s case [1979] 1 AER 397.
10

11 47. There is nothing in s.10 Arbitration Act which obliged the Court,
12 whenever it grants a stay of action in rem in which security had
13 been obtained, to make an order for unconditional release of
14 that security.
15

16 48. O.70 of the Rules of High Court 1980 and under International
17 Convention or Arrest of ship (Geneva March 1999) Article 2(2)
18 the Plaintiff has right to arrest vessel in a maritime claim.
19

20 49. My view is that the stay of action, not being final, could later be
21 removed for good cause, in which case the Plaintiff action still
22 proceeds to judgment or settlement. This is especially so in
23 view of the fact that the Plaintiff has not yet commenced the
24 arbitration proceeding in London.
25

26 50. The stay of proceeding might also not be final as there might be
27 a judgment in the action to be satisfied in particular, if an award
28 was made against the Defendant and they are unable to satisfy
29 it.

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2 51. For the reasons stated above, I was minded to order in terms of
3 prayer (A). and to dismiss prayer (B). Learned counsel for the
4 defendant then applied to vary prayer (B) on the terms that the
5 Letter of Undertaking shall be released by the Plaintiff to the
6 Defendant if the Plaintiff fails to initiate arbitration proceedings in
7 London within six months from the date of this sealed Order
8 without prejudice to the Plaintiff’s right to apply for stay or to
9 appeal.
10 5.2 The Court could see the point in the application. However,
11 learned counsel for the Defendant informed that he would need
12 to take instruction from his client. The Court then adjourned the
13 case to 2nd December 2008 and subsequently to 9th December
14 2009.
15 5.1 On 9th December 2009, both parties agreed that prayer (B) be
16 varied in the following terms:
17 The Letter of Undertaking shall be released to by the Plaintiff
18 to the Defendant if the Plaintiff fails to initiate arbitration
19 proceedings in London within six moths from the date of this
20 Order without prejudice to the Plaintiff’s right to apply for stay
21 or to appeal.
22 5.2 Prayer (B) is accordingly varied in the terms as agreed.
23 5.3 Costs be in the cause.
24

25

26

27 JUSTICE YEW JEN KIE

28 JUDICIAL COMMISSIONER
29 Dated: 4th March 2009.
30

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1 Date of delivery of Judgment: 9th December 2008.

2

3 For the Plaintiff: Mr Francis Wong

4 Of Messrs William Liaw, Chan & Co
5 Sandakan.
6
7
8 For the Defendant: Mr Chen Kok On
9 Of Messrs Peter Lo & Co
10 Sandakan.
11

12

17