OW Bunker Bankruptcy Should Bring Clarity on U.S. Maritime Lien Laws

John Kissane, Partner at Watson Farley & Williams, says U.S law should soon become clearer on whether it is the bunker broker or the physical supplier who has the maritime lien.

Legal disputes resulting from the fallout from last year's OW Bunker bankruptcy could help clarify U.S. law as to whether it is the bunker broker or the physical supplier who has the maritime lien, writes John Kissane, Partner at Watson Farley & Williams LLP (WFW).

Kissane explains that should a bunker broker become insolvent, as occurred with OW Bunker, under U.S. legal jurisdiction, both bunker broker's bankruptcy trustee and the local supplier of bunkers may assert that they have a maritime lien for the same fuel delivery.

"The law is somewhat unsettled in this area but seems to favor the broker who actually contracted with the charterer or owner," writes Kissane, but warned that "there is enough uncertainty that an unpaid physical supplier could arrest a vessel in the US without fear.

Under U.S. law, only arrests accomplished with "bad faith, malice or gross negligence" are considered wrongful, he noted.

In a situation such as the OW Bunker bankruptcy, where a local supplier would usually seek payment from OW Bunker, they would instead look to payment from the vessel and its owner.

Here, both OW Bunker's trustees and the physical supplier could seek to arrest the vessel to secure the same claim, leaving the owner with two different parties demanding payment for the same debt.

"Although there can only be a single lien arising from the fuel delivery, if the wrong creditor is paid the vessel remains subject to arrest by the other creditor," Kissane warned.

Kissane suggests that owners threatened with arrest of their vessel by both the fuel broker and the fuel supplier may wish to institute an interpleader action in U.S. federal court, which is used when more than one claimant seeks the same property or fund.

The plaintiff will then be required to post the disputed payment or an equivalent bond with the court, and the court may issue an injunction against all claimants requiring them to refrain from any collection actions except for seeking payment in the interpleader action, explains Kissane.

"The owners are then free of the possibility that the fuel broker will arrest the vessel in one jurisdiction, the vessel will be delayed while appropriate security is arranged, and, after the vessel is released, it is again arrested by the fuel supplier in a second jurisdiction. 

"The owner generally takes little role in the interpleader action after it is instituted. The two claimants incur the majority of fees in determining who has priority to the funds," adds Kissane.

On Friday, it was reported that a group of 27 Danish investors have sued OW Bunker for DKK800 million ($120 million), saying the now defunct bunker supplier was misrepresented in its initial public offering (IPO) prospectus.