OW Bunker: Court Delivers Fresh Blow for Physical Bunker Suppliers, Boost for ING

Wednesday June 13, 2018

Physical bunker suppliers today were dealt a fresh blow by a US court in the ongoing legal battle following the 2014 collapse of OW Bunker, who at the same time bolstered the position of Dutch bank ING in their efforts to recover some $700 million it had provided the now defunct bunker supplier.

Today's opinion came after ING appealed a 2016 decision by Judge Forrest of the Southern District of New York, who decided that in the case in question neither the physical bunker supplier or OW Bunker were entitled to a maritime lien.

The appeal sought to reconsider which parties are entitled to a maritime lien.

Circuit Judge Barrington D. Parker today partially overturned Forrest's decision, finding that OW Bunker - and by extension, ING - are entitled to a maritime lien, but agreed that the physical supplier was acting as a subcontractor and does not.

J. Stephen Simms of Simms Showers LLP, who represented physical bunker supplier CEPSA in the case, said the opinion was "fundamentally wrong."

Temara

The case in question revolves around the M/V Temara. The vessel's time-charterer Copenship Bulkers A/S (Copenship) contracted with O.W. Denmark for the delivery of 400 metric tonnes (mt) of bunkers to the Vessel in Balboa, Panama.

O.W. Denmark then subcontracted with its subsidiary, O.W. USA, for the purchase of the bunkers, who then subcontracted with the physical supplier, CEPSA, for the actual delivery of the bunkers.

In determining who has a valid maritime lien, the U.S. Commercial Instruments and Maritime Lien Act (CIMLA) has three requirements that must all be met:

  1. the party provided the necessaries, in this case, the bunkers, as defined by 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.

Forrest concluded O.W. Bunker failed this test at the first hurdle because it had subcontracted the provision of the bunkers, but the Appeal Court today said it disagreed with that assessment.

"To assert a maritime lien, all a bunker contractor must establish is that it contracted with a statutorily-authorized person for the delivery of bunkers and that the bunkers were delivered pursuant to that contractual arrangement. Here, there is no question that the Vessel's charterer and O.W. Denmark entered into a contract to deliver bunkers to the Vessel. And, there is no question that those bunkers were delivered pursuant to that arrangement. Thus, O.W. Denmark is entitled to assert a maritime lien under CIMLA," the judge wrote.

As for CEPSA's claim to a lien, the Appeal Court agreed with the District Court that CEPSA, as a subcontractor, is not entitled to a maritime lien as it did not provide the bunkers "on the order of the owner or a person authorised by the owner" as required by CIMLA.

"[CEPSA] provided the bunkers at the direction of O.W. USA rather than at the direction of the owner or the charterer of the Vessel, or any other statutorily-authorized person," the Appeal Court noted.

The decision was welcomed by Seward & Kissel LLP, representing ING Bank in the case, who told Ship & Bunker at the time of Judge Forrest's decision she had reached the wrong decision.

"The result further clarifies the circumstances that a person is only entitled to claim a maritime lien under the Commercial Instruments & Maritime Lien Act, 46 U.S.C. § 31342 ("CIMLA") when it acts upon the order of the owner or a person authorized by the owner as enumerated in the statute, which subcontractors do not," the firm said today.

"Although there remain additional pending appeals on this question in the Second, Fifth and Ninth Circuit Courts of Appeal, today's decision is notably in accord with Eleventh Circuit's decision issued last fall in Barcliff LLC v. M/V Deep Blue, 876 F.3d 1063, 1068 (11th Cir. 2017)."

Fundamentally Wrong

But J. Stephen Simms, Simms Showers LLP, counsel to physical supplier CEPSA and range of other physical suppliers to OW, said the opinion is "fundamentally wrong" as it failed to take into account O.W. Bunker's own terms, and in particular Clause L.4(a).

As noted by the Appeal Court, this clause made OW's own terms "fluid" by providing that:

"These Terms and Conditions are subject to variation in circumstances where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions. In such circumstances, these Terms and Conditions shall be varied accordingly, and the Buyer shall be deemed to have read and accepted the terms and conditions imposed by the said third party."

Commenting on today's outcome, Simms said: "CEPSA's Terms were mandatory, and so varied OW's 'accordingly.'  CEPSA's Terms state that CEPSA has a maritime lien and so a right to arrest the vessel.  The opinion misses this.  This miss is even more notable because the opinion later quotes OW's Claus Mortensen testifying that CEPSA was a 'sub-subcontractor of  [O.W. Denmark] for the delivery of bunkers to [the Vessel]'.

"The opinion's fundamentally wrong, and that of other opinions like it, in that it takes money from CEPSA (and other suppliers) and gives it to ING.  ING paid nothing for the supply; OW (and ING) at most could receive a small commission.  This supply and most others happened long after ING had shut down its line of credit to OW.  OW's own terms, properly applied, don't allow for OW, or ING, to get something it never paid for.

"The Court's rules provide for rehearing and this presently is being considered."