Wade Maritime: We Advise Using a Bunker Contract Clause Stating Traders are Paid Only After the Physical Suppliers Are Paid

Captain Rohit Bhatia, Managing Director, Wade Maritime

In an effort to avoid paying for the same bunkers twice, maritime risk consultants Wade Maritime has been advising its shipowner clients to put a clause into their bunker supply contracts with traders that specifies the intermediary will not get paid until the physical supplier has been paid first, Managing Director Captain Rohit Bhatia has told Ship & Bunker.

The advice comes in response to the well publicized "Res Cogitans" ruling earlier this year by the UK Supreme Court, the circumstances for which came about following the collapse of OW Bunker.

In cases where neither intermediary OW Bunker or the physical supplier had been paid at the point of bankruptcy, shipowners were unsure of which party to pay - the physical supplier for the bunkers, or ING Bank as the assignee of OW Bunker's receivables.

The UK Supreme Court ruled that ING Bank was entitled to be paid 100 percent of the bunker bill under a contractual debt, but this also left the door open for physical suppliers to make a separate claim for the cost of the actual bunkers, which if successful would effectively mean buyers paying twice for the same fuel.

Bhatia says that to avoid getting into such a situation of double payment, buyers should make it clear to traders that as a condition of sale they must pay their physical supplier counter-party before they themselves can expect payment.

"By putting a clause into the contract that specifics the physical supplier must be paid first, buyers are protecting themselves in the event that the intermediary goes bankrupt before the physical supplier is paid," Bhatia told Ship & Bunker.

"With physical suppliers it hard to change the supply terms, but with the traders - especially buyers with larger accounts - they can, and have been more flexible when it comes to these types of requests."

Presumably such wording in the contract will be welcomed by physical suppliers, particularly those in the US where a series of OW Bunker related rulings this year have all found that only ING Bank as the intermediary is entitled to a maritime lien, and the physical suppliers effectively have no way to recover the cost of their unpaid bunkers.