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Multiple legal issues for shipowners in OW Bunkers bankruptcy

Multiple legal issues for shipowners in OW Bunkers bankruptcy
In the wake of the OW Bunkers bankruptcy, there has been a growing number of cases where physical suppliers have commenced debt recovery actions against shipowners for fuel supplies that had been negotiated by or through OW Bunkers entities.

Shipowners have been resisting this on various grounds including:

a) The order for supplies had been placed by a time charterer with OW Bunkers, thus further distancing the relationship between the physical bunker supplier and the shipowner;

b) That the shipowner or the time charterer had already paid OW Bunkers for the fuel;

c) That the shipowner or the time charterer had already deposited funds in escrow payable to either OW Bunkers or to the physical supplier depending on who was correctly entitled to that money;

d) The shipowner/time charterer had faced competing claims from OW Bunkers as well as their bankers/assignees as well as from the physical supplier for the value of the bunkers.

Things have not been so simple. Meanwhile, among the counter arguments from physical suppliers have been:

a) The fuel had been supplied on credit against representation made to them that the shipowner would be ultimately liable as buyers;

b) That the shipowner had previously represented in response to a demand from physical suppliers that they would pay the correct party and were willing to keep the funds in escrow. The shipowner did not expressly deny the claim of the physical supplier who was not a contractual counterpart;

c) OW Bunkers played their role of a bunker broker, or of an agent or of a ship manager or bunker procurement manager and not as an independent contracting party on its own;

d) OW Bunkers did not have valid title to sell the fuel to the ship owners, not having paid for it themselves. No amount was therefore been payable by the shipowner to OW Bunkers. For the same reasons, no amount will be payable to the assignee bank of OW Bunkers;

e) The physical supplier of the bunkers had assigned his rights to the plaintiff upon getting paid;

f) The fuel was to be supplied on the credit of the vessel - which was a triable issue;

g) The sale confirmation order was to the account of the receiving vessel/defendant vessel;

h) The shipowners communicated their willingness to settle the physical supplier’s invoice provided the vessel got a complete discharge upon such payment, and as such, liability per se was not disputed.

Any clarity yet? Different courts are currently considering this and are likely to provide differing answers depending on the facts and circumstances of each case. For example it has been highlighted how under US laws charter terms prohibiting liens on a vessel are not sufficient to defeat liens on a vessel and how this has emboldened physical suppliers to apply their cases in that jurisdiction.

Meanwhile, Ashwin Shanker from the Chambers of George A Rebello in Mumbai has given an interesting perspective from a recent case in India where he successfully argued on behalf of bunker suppliers to arrest a ship to which unpaid bunkers were supplied, with OW Bunkers acting as the intermediary trader.

Promoting the speed and efficiency of the ship arrest process in India, Shanker noted that the Mumbai Admiralty Judge decided to uphold the validity of the ship arrest, within a few weeks of the arrest of the vessel which included in between, the filing of a motion, about three affidavits each by each party, and a combined hearing along with another related action.

Crisp advice for shipowners? Shanker warned however of the peculiarities in Indian law where shipowners who receive claims for unpaid bunkers from both physical suppliers as well as from contracting counterparts such as OW or their assignees must either remain silent, or alternately clearly deny any claims from a non-contractual counterpart.

If instead, the shipowners do not deny the claim of the physical suppliers, and rather say that they intend to pay to the correct party, in previous cases, the Indian Admiralty Court has viewed that as sufficient to create a liability upon the defendants or receiving shipowner which would obviously prejudice their case.