News 15 Jul, 2015

OW Bunkers Update - July 2015

Eight months on from OW Bunker A/S’ insolvency on Friday 7 November 2014 (see the Club's OW Bunkers News Article), the claims, arrests and legal proceedings that have arisen following OW Bunkers’ financial collapse show no sign of abating, and our Members continue to face competing demands from physical suppliers and from OW Bunkers/ING. The conflicting claims around the world by physical suppliers and by OW Bunker/ING have highlighted the fact that, notwithstanding international Conventions such as the 1952 Arrest Convention, different jurisdictions have markedly different approaches regarding whether a claimant has title to sue and/or can arrest for his claim and the legal steps that a ship operator can take to defend himself or reduce his liability. Taking detailed legal advice is crucial.

Whilst each case differs according to the size of the claim, the terms of the bunker supply contract in question and the jurisdiction and circumstances of the supply (for example, who ordered the bunkers – owners or time charterers? Did the master/chief engineer sign the bunker delivery note?), some themes that have emerged from the OW Bunker insolvency are as follows:

Initially, it was the physical bunker suppliers who were taking the most proactive stance in arresting ships.
Since April/May 2015, ING/OW Bunker has been taking a more proactive stance, following the “Co-operation Agreement” on 25 November 2014 between i) the trustees of the estate of OW Bunker & Trading A/S and OW Supply & Trading, Denmark (namely, John Sommer Schmidt at Gorrissen Federspiel and Pernille Bigaard at Plesner), ii) receivers of OW Bunker Far East (Singapore) Pte Ltd and Dynamic Oil Trading (Singapore) Pte Ltd (namely PwC in Singapore) and iii) ING who alleges that it has been assigned the assets of many OW Bunker entities.
In this more proactive stance by ING/PwC/OWB, the demand is usually not only for the principal claim but also compound interest and their legal costs.
On 3 February 2015, a Recognition Order was made in respect of the Danish insolvency proceedings by the English Court, under the Cross-Border Insolvency Regulations 2006.
Interpleader actions have been successful in the U.S. where on 10 July 2015 District Judge Valerie Caproni in the New York federal court upheld the interpleader actions that had been commenced there by more than 20 ship owners/operators, seeking - in return for depositing the claimed sums in court - protection from further law suits and arrest. It is not yet clear whether this judgment will be appealed.
In contrast, owners have been less successful in interpleader applications in Singapore.
The first instance judgment in an English High Court “test case” was published on 14 July 2015. This found that the English Sale of Goods Act 1979 did not apply to the bunker supply contract because the contract did not satisfy the Act’s definition of a “contract of sale” in that it was not a contract by which the seller transferred or agreed to transfer the title or property in the bunkers supplied. This was because the bunker supply contract contained a retention of title clause and allowed for a 60 day credit period where, by the end of this 60 day period, it was likely that the bunkers would have been consumed. Once consumed, property in the bunkers ceased to exist so that property could not then pass to the buyer. The Court found that this meant that the aim of the bunker supply contract was not to pass property or title in the bunkers but, rather, to give buyers permission to consume the bunkers. This in turn meant that OW Bunker/ING did not need to satisfy section 49 of the Sale of Goods Act (section 49 provides that the seller can only claim payment where property in the bunkers has passed to the buyer) and that OW Bunkers/ING were able simply to sue for payment of the bunker price in debt, at common law. Whilst the Judge recognised that allowing the contractual supplier, namely OW Bunker/ING to sue the owner/buyer may expose the owner/buyer to duplicate claims by physical suppliers in other jurisdictions (no such duplicate claim should be possible under English law), Males J was content to state that “Exposure to claims with the possibility of arrests is one of the risks which shipowners run”. The full text of the High Court judgment can be found at England & Wales High Court Commercial Decisions. It may be that this judgment will prompt OW Bunker/ING to take a more aggressive stance. In the meantime, leave to appeal this decision to the Court of Appeal has been given.

To assist in avoiding claims and arrests should another bunker supplier (or other counter party) suffer financial collapse, we would draw Members’ attention to the BIMCO non-lien clause for time charter parties which seeks to protect owners by requiring time charterers to inform their counterparty bunker supplier/seller at the outset that the bunkers ordered are being supplied for charterers’ account and that no lien can be placed over the vessel. (A suggested form of words for an accompanying Bunker Pre-order Non-Lien Notice is set out in the BIMCO website.) In addition, the Managers have taken U.S. legal advice about the protective steps that may be available for owners who wish to try to prevent a maritime lien arising under U.S. law when bunkers are stemmed, and Members are welcome to ask their usual claims contact or Nicola Cox for further information in this regard.

Please contact the Managers if you have any questions or would like further information.