Recent Ruling Spells Bad News for Physical Suppliers Caught With OW Bunker "Double Payment" Claims

A U.S. district court's dismissal of the bunker suppliers' lien is said to mark the first such dismissal in a U.S. court in a case arising out of the OW Bunker bankruptcy fallout.

A recent ruling in the U.S. could spell bad news for physical bunker suppliers, and conversely, good news for bunker buyers, who are caught up with so-called "double payment" claims stemming from the fallout of the 2014 collapse of OW Bunker.

Such situations occur when a buyer who bought bunkers through OW Bunker around the time of the bankruptcy is pursued by both OW Bunker's alleged assignee, ING Bank, under a claim of contractual debt, while the physical supplier - who was not paid for those bunkers by OW Bunker due to the bankruptcy - then makes a claim against the buyer for the physical fuel.

So far, in the so-called "Res Cogitans" UK test case, rulings from three lower courts have all gone in favour of OW Bunker / ING, leaving the door open for the double payments.

However in the U.S., an analysis by Jones Walker LLP this week of a recent ruling in the U.S. District Court for the Eastern District of Louisiana, was said to mark the first time that a court has held that a physical supplier did not establish a maritime lien as part of the vast array of OW Bunker proceedings.

Other U.S. courts were said to have denied summary judgments in similar cases filed by both vessel owner interests and fuel suppliers.

"The significance of the decision is that it prevents the shipowners from being subject to potential double payment for the bunkers to its contractual counterparty and the physical supplier," the law firm wrote.

"Additionally, it likely relegates the physical suppliers to pursue claims in the O.W. Bunker bankruptcy litigation instead of circumventing bankruptcy to directly pursue shipowners."

The Case

The case in question stems back to last month, where the U.S. District Court for the Eastern District of Louisiana on February 8 is said to have found that bunker fuel supplier Valero Marketing & Supply Co. (Valero) did not hold a maritime lien against tanker MV Almi Sun in relation to the bankruptcy of O.W. Bunker USA (OW Bunker U.S.) and its foreign related companies.

In the case, Almi Tankers S.A.'s (Almi Tankers') vessel, the MV Almi Sun, is said to have contracted O.W. Bunker Malta (OW Bunker Malta) through OW Bunker U.S. for the supply of bunkers in Corpus Christi, Texas, with Valero subsequently supplying 200 metric tonnes (mt) of bunkers valued at $124,388.24.

OW Bunker never paid Valero, and parties of the MV Almi Sun never paid for the supplied bunkers, ultimately prompting Valero to sue the vessel in rem.

The vessel owner is then said to have filed a motion for summary judgment for the dismissal of Valero's claim, arguing that Valero did not hold a maritime lien against the vessel.

Commercial Instruments and Maritime Liens Act

In response, the court is said to have highlighted the three requirements for a valid maritime lien for necessaries, which is a function of the law rather than that of contract.

The three elements are said to require that:

1. the party provided the necessaries, in this case, the bunkers, as defined by the Commercial Instruments and Maritime Liens Act (CIMLA) and related jurisprudence,
2. the necessaries were provided to a vessel, and that
3. the claimant provided the necessaries on the order of the owner or a person authorised by the owner.

While the court acknowledged that the first two requirements were clearly satisfied in the case and were not in dispute, it noted that the third requirement was at issue - as Jones Walker LLP noted was still the case within the other similar pending cases.

As the vessel owner did not specifically direct OW Bunker to hire Valero, the court found that Valero did not provide bunkers on the order of the owner, nor a person authorised by the owner.

As such, conditions for the maritime lien to apply had not been met.

Valero argued that the shipowner and master knew the bunker fuel would be supplied by a domestic company and had been notified that it would be Valero, representing the shipowners' ratification of the physical supplier selection - an argument the the court also rejected.

The court did however agree with Valero that the CIMLA is generally intended to protect domestic suppliers such as Valero, and that O.W. Bunker Malta - the party who the court says was effectively named by the buyer for the purposes of third requirement of CIMLA - could never have held a maritime lien as it was a foreign company.

Nevertheless, the court said this was not grounds for it to overlook the third requirement of CIMLA, and granted the motion for summary judgment put forth by the vessel owner, dismissing Valero's claims with prejudice.

It is noted that the appellate period has not yet run on the court's judgment, and Valero is expected to appeal.

Earlier this month, Ship & Bunker reported that the UK's Supreme Court granted an expedited hearing in the so-called "Res Cogitans" UK "test case" on potential double payments by bunker buyers, which will be heard next week on March 22.