OW Bunkers (OW) was a respected Danish company with subsidiaries in 29 countries when it collapsed into bankruptcy in November 2014. Two years later issues arising from its collapse continue to reverberate in shipping
OW was an intermediary in the sale of bunkers. An owner/charterer would contract with an OW entity to buy[ds_preview] bunkers. OW then sub-contracted the supply to a physical supplier. Each contract in the chain gave time to pay and specified that title would not pass until payment. For practical reasons, the buyer would be entitled to use the bunkers before paying. ING (OW’s bank) have an assignment of all amounts payable by the owner to OW.
The essential problem arose from OW’s insolvency and owner’s concerns about exposure to double payments, once to ING, and again to the physical supplier of the bunkers, claiming rights as owner of the bunkers or a maritime lien as an unpaid supplier. Courts around the world have been asked to determine who is entitled to payment for the bunkers. Different jurisdictions have taken varying approaches to similar issues.
The test case in England was Res Cogitans. The owner ordered bunkers from a subsidiary of OW on OW’s standard term contract. Through a series of sub-contracts, an unconnected physical supplier supplied the bunkers to the ship. Owners commenced arbitration against OW and ING in 2014 seeking an order that the owner should not have to pay OW/ING. The dispute focused on a technical argument on S49(2) of the Sale of Goods Act 1979 and whether this was a contract for the sale of goods where the owner could only be liable to OW if they had transferred title of bunkers or would do so on payment.
In May 2016 the Supreme Court found in favour of OW, concluding that it was not a contract falling under the Sale of Goods Act. Rather, it was a hybrid contract allowing for the consumption of bunkers prior to payment and title passing for any unconsumed bunkers when payment was due. Some writers have summarised the decision as meaning that the OW bunker contract is not a ‘contract for the sale of goods’ suggesting this is surprising and problematic. The Supreme Court looked at it differently. If OW contracted to provide bunkers to be used without ever acquiring title to them, it would be surprising if the owner could then avoid payment because OW was not in a position to transfer title. In reality, no-one was in a position to transfer title as the bunkers were long gone. If the ability to transfer title was a requirement of a sale of goods then clearly the contract between owner and OW must be a different kind of contract. The ruling allows OW/ING to claim payment of the bunkers from the owner.
As the physical supplier and intermediary were not involved in the case, the court reached no conclusion on their claims against owner or ship. The English test case did not give the claimants or the bunker industry the certainty they were hoping for, as to whether the physical supplier can also make a claim against the owner or arrest the ship to recover amounts due to them.
Other jurisdictions
There have been a number of ship arrests in the US for OW claims with both ING and physical suppliers asserting maritime liens. However, the US legal system is complex. Different systems apply in different states and outcomes vary. Whether a claimant has a lien depends partly upon which law applies to the underlying claims, and so may not be a question of US law, even if determined by a US court. Where US law applies, a claimant must satisfy the Commercial Instruments and Maritime Lien Act (CIML) and confirm: (1) that they provided the bunkers, (2) to the ship and (3) on the order of the owner or an authorised person of the owner.
The first six US cases concluded that the physical supplier did not have a maritime lien as the bunkers were ordered by OW or an intermediary, not owners. One case also confirmed that ING did have a maritime lien over the ship. Many thought that a precedent had been set and that the 50 plus similar active cases would follow suit. However, a decision in October 2016 turned this upside down. ING requested a summary judgement in New York relating to maritime liens on five ships. The judge ruled that ING did not have a maritime lien as they had not physically provided the bunkers. The outcome raises the possibility that neither ING nor the suppliers can claim a maritime lien for the payment of the bunkers as neither can satisfy the CIML test (presumably leaving ING with a claim against owners who placed the order, but not a lien on the ship).
The primary dilemma for owners is not whether they are liable to pay, but which person they are liable to pay; OW/ING or the physical supplier? ‘Interpleader’ applications are a form of court proceeding which can assist with this problem. An owner asks a court to decide between the potential claimants in a single proceeding rather than having to bring separate claims with potentially different results. Success depends on a number of factors, including whether the court has jurisdiction over both claims.
In New York in July 2015 various owners filed an interpleader application requesting that the court determine who should receive payment for conflicting bunkers claims. Owners lodged the amount of the claim and the court prevented suppliers from starting conflicting proceedings or making ship arrests. The cases are not yet finalised, as further proceedings will be required to determine who is entitled to the funds.
Canadian courts allowed an interpleader action and determined the outcome in Canpotex Shipping Services Limited v Marine Petrobulk Ltd. The charterer, Canpotex, paid amounts owing for bunkers into court. The supplier and ING both claimed the funds. The court held that OW’s terms and conditions had been modified to include the supplier’s terms. The court ordered charterers to pay the physical supplier the amount due to them together with interest. It also held that ING were only entitled to the amount of OW’s commission on the bunkers supplied.
Interpleader proceedings in Singapore failed as the Singapore courts considered that competing claims were not the same.
Greek courts have concluded that the owners were not liable to pay the physical supplier, as they had not contracted with them directly. UAE courts have passed similar judgements.
Which winner will take it all?
The answer as to whom owners should pay for the bunkers supplied continues to evolve. However, there will not be a universal precedent. Each case will be determined on its facts and the outcome will vary based on both the law of the court involved and the law applicable to the claims. Most cases so far seem to support the view that payment is due to OW/ING and not the physical supplier, due to the terms of supply having permitted the owner to use the bunkers before they were paid for and bunkers have been consumed before the case is brought.
Author: Richard Henderson
Partner, Ehlermann Rindfleisch Gadow Rechtsanwälte Partnerschaft mbB
Henderson@erg-legal.com
Richard Henderson
