Industry Insight: A Review of OW Bunker Related Claims in New York, Singapore, and London

Emily McCulloch, Syndicate Associate, Steamship Mutual

As a consequence of the collapse of OW in early November 2014 there have been far reaching effects on Owners and Charterers who, having stemmed bunkers prior to the collapse, have faced competing claims from OW Bunkers entities, ING (the bank who say OW Bunkers assigned their rights to them) and third-party bunker suppliers (suppliers) who say they are entitled to payment.

This has forced different courts to address a variety of claims, arrests and legal proceedings, and whilst there have been decisions in other jurisdictions perhaps the most notable are summarised below:

New York

In July 2015, some 20+ Owners and Charterers filed an interpleader lawsuit in New York's US Federal Court requesting that a judge decide who should receive payment for outstanding bunker invoices. At that time District Judge Valerie Caproni affirmed the interpleader actions on the basis that claims against the vessel (in rem) and contractual claims (in personum) were competing claims, being founded on the same underlying obligation to pay for bunkers. In addition to confirming jurisdiction, the court exercised statutory authority to prevent the suppliers from instigating proceedings elsewhere and prohibited vessel arrests.

In October it was been reported that US suppliers NuStar Energy Services and US Oil Trading have lodged an appeal and are requesting that the District Judge overturn the orders handed down in July which protect those vessels subject to the interpleader actions. It is understood they are challenging the jurisdiction of the court over vessels that are not in the Southern District of New York and do not routinely trade there.

It is unclear at this stage whether the appeal is likely to succeed, although US law is generally seen to favour bunker supplier in allowing a maritime lien over vessels for unpaid bunkers – even where no contract is signed by the Owner/Charterer. If the order preventing arrests is overturned, there could be an increase in arrests outside the US for those Owners/Charterers subject to interpleader that have hitherto had the protection of the court's prohibition on vessel arrests.

Singapore

Similar to the US, 13 Owners and Charterers filed interpleader actions in Singapore in respect of bunkers stemmed from OW Bunker's subsidiary Dynamic Oil Trading. In contrast, in April 2015, the court determined that the suppliers' in rem claims did not compete with that of ING's contractual and thus in personum claims. The interpleader actions were therefore dismissed on the grounds the claims were of a different nature and did not concern the same debt. By definition an interpleader action can only succeed if by awarding entitlement to funds to one party, the rights of the other party to claim are extinguished.

Although it was held the parties were not entitled to interplead in Singapore, Owners/Charterers can take comfort in the fact that the court confirmed the suppliers had no legal right to payment. The suppliers had relied on a number of grounds to assert they should be entitled to the proceeds of sale of the bunkers, including arguments of fiduciary agent/bailee, conversion, collateral contract, unjust enrichment and maritime lien.

The court held that none of these competing claims asserted by the suppliers gave them any better rights than existed under their contract with OW Bunkers to be paid the price of the bunkers and, more importantly, none were claims directed against the bunker purchasers i.e. the Owners/Charterers. The only exception was the right to exercise a maritime lien in respect of owned vessels, but this is not permitted in Singapore, and there was no evidence before the court that any of the suppliers intended to or had a basis to assert a claim in jurisdictions which recognise a maritime lien for unpaid bunkers.

London

The most significant OW Bunkers case to be addressed by the English courts is that of the "Res Cogitans" (formally (1) PST Energy 7 Shipping LLC and (2) Product Shipping and Trading S.A. v (1) OW Bunker Malta Limited and (2) ING Bank N.V.).

In summary, the vessel Owners were faced with claims from OW Bunkers/ING and suppliers for payment of bunkers stemmed. In London arbitration, Owners challenged the right of OW Bunkers/ING to obtain payment as (1) the supply contract was subject to the English Sale of Goods Act 1979 (SOGA) and (2), title to the bunkers could not have passed under the sale contract because OW Bunkers had themselves not acquired property in the goods from their supplier.

As such, OW Bunkers could not pass property in the bunkers to Owners and, under SOGA, could not maintain a claim for the price of the bunkers. The tribunal dismissed Owners' claim on the grounds that the SOGA did not apply (primarily due to the use of a retention of title clause in the third-party bunker supply contract) and the claim by OW Bunkers/ING should be treated as a simple unpaid debt.

Owners appealed to the English High Court. In July 2015, the court upheld the tribunal's decision and confirmed that the SOGA does not apply to such bunker supply contracts. It was not therefore necessary for property to pass in the bunkers for Owners to be compelled to pay. The court based their decision on not only the retention of title clause, but also the fact the bunkers once purchased would likely be consumed imminently. Essentially, the supplier gave the Owners permission to consume the bunkers which in practice reflects more of a licence to use the bunkers, rather than the sale and purchase of goods.

Owners appealed the court's decision on transfer of title and their obligation to pay OW Bunkers/ING.  On 22 October 2015 the Owners' appeal was dismissed. The Judges upheld the reasoning of the tribunal, and the High Court, and reiterated that the delivery of bunkers with a licence to consume them is a contract that can be described commercially as a contract for the sale of goods - but that does not mean the SOGA applies. Once the bunkers were delivered, the Owners incurred an obligation to pay and were not released from that obligation by the fact that OW Bunkers did not transfer title before they were consumed.

This decision has been met with surprise by many in the shipping industry as it is likely to impact the nature and application of bunker supply contracts going forward. Furthermore, Owners and Charterers (particularly those Charterers owning vessels) may now face increased pressure from OW Bunkers/ING to settle outstanding invoices with threats, if not actual arrests of vessels based on the weight of this decision under English law.

However, it is important to note that no suppliers were involved in these proceedings (although it is understood limited submissions were put forward to the Court of Appeal) and payment by Owners to OW Bunkers/ING will not necessarily preclude such suppliers from seeking to enforce their right to payment in other jurisdictions.

This may not be the end of this issue since it is understood leave to appeal has been sought by Owners.