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OW Bunkers bankruptcy - Who has the Maritime Lien?

OW Bunkers bankruptcy - Who has the Maritime Lien?
Bunker claims arising from the purchase of fuel by charterers of vessels have been a persistent problem for shipowners. In the United States the bunker supplier is given a maritime lien on the vessel for unpaid fuel bills.

If the charterer becomes insolvent and fails to pay for the bunkers, it is the ship owner whose vessel is arrested and must ultimately pay. These claims can be significant, as bunkers constitute a large part of the operational expenses of a vessel.

Under standard time charters, the charterer pays for bunkers. The standard charter also includes a “no liens” clause prohibiting the charterer from incurring liens on the vessel. Despite language of the charter to the contrary, under United States law bunker suppliers have a lien on the vessel, even though the ship owner never ordered the bunkers.

The recent bankruptcy filings of OW Bunkers A/S and its US subsidiaries (“OW”) have also highlighted another issue plaguing ship owners. Many owners and charterers contracted with OW to supply their vessels with bunkers. OW, in turn, would subcontract with a local supplier where the vessel was located to fulfill the order. The local supplier would provide the bunkers to the vessel and obtain a receipt signed by the master. With OW in bankruptcy, the local supplier who would ordinarily look to OW for payment has demanded payment from the vessel and its owner. OW and its trustees in the insolvencies proceeding are also seeking payment for the same bunkers. Both the OW and physical suppliers could threaten to arrest the vessel to secure the same claim. This puts owners in the untenable position of having two different parties demanding payment for the same debt, both of the creditors claiming a lien on the vessel. Although there can only be a single lien arising from the fuel delivery, if the wrong creditor is paid the vessel remains subject to arrest by the other creditor.

US Maritime Lien Law

The problem stems from the desire of the US Congress to assist US suppliers of bunkers and other necessaries. Prior to the enactment of Federal Maritime Lien Act, the law provided logically that when a supplier of necessaries either knows or could easily find out that a ship is under charter or preferring ignorance to knowledge, “shuts his eyes” to obvious facts he is put on inquiry to what the charter contains. This meant that the suppliers of necessaries had a duty to inquire if the charterer had the power to grant a maritime lien over the vessel.

In 1971, however, Congress abolished the duty of a supplier to inquire. The 1971 amendment to the Federal Maritime Lien Act deleted the words “but nothing in this chapter shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of the charter party ... the person ordering the repairs, supplies, or other necessaries was without authority to bind the vessel.” After this change in the law, charter terms requiring the charterer to pay for certain goods and services and prohibiting liens on the vessel were not enough to defeat a lien in favor of the supplier – although all regular suppliers knew that the prohibition of lien clause was ubiquitous. Subsequent cases held that only if the person resisting the maritime lien could prove that the supplier had “actual knowledge” of the prohibition of liens clause in the charter could the lien for necessaries be defeated.

Because of this favorable US law, most bunker suppliers have incorporated a U.S. choice of law and often US forum selection clauses into their standard contract terms. These clauses are routinely enforced by US courts.

Vessel owners have tried various ways to show that the supplier had actual knowledge of the prohibition of lien provision in a charter. The most common is for the master or chief engineer to stamp the bunker delivery receipt with a “no liens” provisions stating that the bunkers are ordered solely for the account of the Charterers and not for Owners, and no lien or other claims against the vessel or owners can therefore arise. Courts have held that this is insufficient to establish actual notice for two reasons. First, the bunker delivery receipt is only stamped after the bunkers are delivered. Second, at least some courts have held that the actual knowledge must be attributable to an employee of the supplier who has the ability to evaluate the contract with charterer. Thus, a court found there was no defense to the lien when the Claimant “presented no evidence that Plaintiff’s employees, outside of the accounting department, actually read the anti-lien stamps on the bunker delivery receipts or had actual knowledge of it.” Indeed, courts have held that even when the bunker supplier specifically segregates the accounting and management functions to avoid management having knowledge of the “no liens” provision, this does not prevent the lien from attaching.

Allowing suppliers to ignore information within their actual control is disconcerting. As long ago as 1869, the Supreme Court declared that “it is well-settled law that a party cannot wilfully shut his eyes to the means of knowledge ... and thereby escape the consequences which would flow from the notice if it had actually been received.” Generally, if a person claims ignorance of specific facts, but endeavored to avoid learning of such facts, it amounts to “knowledge” under the law. Moreover, nowhere in the Maritime Lien Act does it specify that actual knowledge is required. It was simply presumed that deletion of the presumptive language from the Maritime Lien Act meant that the burden was on the person opposing the supplier’s lien to show actual knowledge. Consequently, only where the owners can prove it has provided actual notice to a person who can evaluate the contract (i.e. by way of letter or fax to the supplier’s management office) have the courts found “actual notice.”

Who has the Lien?

Making matters more difficult for owners, if the bunker broker becomes insolvent, as with OW, both the bunker broker’s bankruptcy trustee and the local supplier of bunkers may assert that they have a maritime lien for the same fuel delivery. The law is somewhat unsettled in this area but seems to favor the broker who actually contracted with the charterer or owner. Courts have upheld liens on behalf of fuel brokers because they dealt directly with the vessel owner or charterer even though the brokers never held actual title to the bunkers because the broker took the order from the person authorized to lien the vessel under the Maritime Lien Act (i.e. the master, charterers or owners).  

Although the law clearly favors the bunker broker over the physical supplier, there is enough uncertainty that an unpaid physical supplier could arrest a vessel in the US without fear. Under US law, only arrests accomplished with "bad faith, malice or gross negligence" are considered wrongful.

Are Interpleader Actions the solution?

Owners threatened with arrest of their vessel by both the fuel broker and the fuel supplier may wish to institute an interpleader action in federal court. Interpleader is used when more than one claimant seeks the same property or fund. The plaintiff is required to post the disputed payment or an equivalent bond with the court. The court may issue an injunction against all claimants requiring that they refrain from any collection actions except for seeking payment in the interpleader action. The owners are then free of the possibility that the fuel broker will arrest the vessel in one jurisdiction, the vessel will be delayed while appropriate security is arranged, and, after the vessel is released, it is again arrested by the fuel supplier in a second jurisdiction. The owner generally takes little role in the interpleader action after it is instituted. The two claimants incur the majority of fees in determining who has priority to the funds.

Although interpleader actions can be helpful in resolving these disputes, such actions may not always be available. The court must have jurisdiction over all claimants in order to issue the injunction and dispose of the matter. Whether or not the court has jurisdiction over a party depends on the extent of the party’s contacts with the forum. Fortunately, in choosing US law in their bunkers contracts, many bunker suppliers have also choose the US courts to resolve disputes, thus eliminating the burden of proving jurisdiction.

With a multitude of cases concerning maritime lines pending, including interpleader actions, the law should become clearer on whether it is the bunker broker or the physical supplier who has the maritime lien. This will not solve the problem for ship owners, however, who will continue to face arrest of their vessels for liens incurred by charterers without authority.

Contributed by John Kissane, Partner in Dispute Resolution Team, Watson Farley and Williams, New York

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