Bunker Suppliers Might Not Have a Lien, But That Doesn't Necessarily Mean They're Not Entitled to be Paid

Friday October 28, 2016

In a first-of-its-kind decision made last Friday concerning five separate OW Bunker related cases, Judge Forrest in the Southern District of New York ruled that ING Bank, as assignee of the defunct bunker company, was not entitled to a maritime lien because OW Bunker had no maritime lien under US law.

She also raised the prospect that no-one in the supply chain was entitled to a lien.

Six previous decisions this year in similar cases all found that the physical supplier in each case was not entitled to a maritime lien, and in an apparent contradiction to Forrest, one case found that ING was entitled to a lien and should be paid the full outstanding bunker bill.

While these decisions could have obvious consequences for the way bunker business is conducted in the US, lawyers at global law firm Reed Smith LLP told Ship & Bunker that a lack of entitlement to a lien should not be taken to mean bunker companies are not entitled to be paid on validly asserted contract claims.

"There's this belief out there that liens must exist and someone must have it, and that just isn't the case. A maritime lien under the CIMLA is an extraordinary remedy intended to mitigate equally extraordinary risk taken by suppliers, and it isn't always available," said Reed Smith Partner Andrea Pincus.

"But this does not change a supplier's contractual right to be paid under a valid and enforceable agreement.  In circumstances where a contract supplier has subcontracted for fuel bunkering and fails to pay the sub-tier supplier or assume some other non-economic risk in the transaction, the decision changes the supplier's ability simply to arrest vessels as leverage to obtain security and payments which may be due under a contract. 

"Taken with the recent OW Bunker-related decisions consistently finding that sub-tier physical suppliers in the chain could not sustain a maritime lien claim, the use of vessel arrest in the US as leverage for obtaining relief for supplies of necessaries is seriously in question."

Pincus, along with Counsel Jane Sarma, represent the owner of m/v Ocean Harmony in one of the five cases before Forrest last Friday.

While the Maritime Lien is an important tool for suppliers seeking to recover monies from delinquent buyers, Pincus notes liens are not the only course of action available to them.

Perhaps more importantly, she says, there has been no suggestion that any of the buyers involved in pending disputes are trying to avoid payment of the OW Bunker fuel bunker invoices.

The issue, of course, is that with both ING and physical suppliers seeking payment of the full invoice total, in some cases together with competing claims from certain OW Bunker entities, innocent bunker buyers could be left paying twice or three times for the same fuel because of the OW Bunker collapse and failure to pay its suppliers.

"I don't think any buyer is objecting to paying for the fuel. What they're objecting to is paying for it more than once and having multiple exposures and threats of multiple proceedings," Pincus told Ship & Bunker.

"That said, in some of the cases there is a real question over whether it's the shipowner's obligation to make payment at all, or if it's, in fact, the charterer's obligation to make payment; a number of pending cases brought by OW Bunker or ING make no such distinction, apparently instead relying erroneously on a theory of US maritime liens in support of their claims."

Lawyers acting on behalf of ING have told Ship & Bunker that the bank is considering its options, and indeed Sarma notes that: "It's still early days, and there's a possibility that this decision may be appealed."

But should Forrest's decision stand and neither the physical supplier, nor OW Bunker,  nor ING are entitled to a lien, the next question becomes which party should be paid?

This, Sarma highlights, is where another twist comes into play.

"Unlike the 30-plus pending interpleader cases in the Southern District of New York and other courts across the US, all of these arrest actions have been about entitlement to a lien. There have been no contract claims. From our perspective, if a result is reached that ING is not entitled to a lien then ultimately the cases should be dismissed. We don't see a viable claim left," she said.