The UAE Federal Supreme Court has ruled that a bunker supplier, contracted by OW Bunker before the Danish firm’s sudden and tumultuous demise in late 2014, has no right to recourse against the cache of owners/charterers for unpaid bills.
Commercial law firm Ince & Co unveiled the verdict Monday after partners Mohamed El Hawawy and Rania Tadros successfully represented the owners/charterers in one of the UAE’s highest courts. The group had been exposed to double and even triple payment of bunker cargoes purchased from OW Bunker and delivered by the third party supplier, an undisclosed UAE company.
The UAE Federal Supreme Court found two clearly distinct contractual obligations in the case, the first between the owners/charterers and the OW entity, which required the owners/charterers to make payment. The second contract, between the OW entity and the physical supplier, clearly left the recompense onus at OW Bunker’s door. With the contractual chain clearly established, the court cleared the owners/charterers of any direct liability to the physical supplier.
OW Bunker filed for bankruptcy on 7 November 2014, just 48 hours after announcing it had uncovered an alleged but as yet unproven $125m “fraud” at Singapore subsidiary Dynamic Oil Trading (DOT) and $150m in risk management losses.
The collapse of the Danish juggernaut with a 7% share of global bunkering market came just seven months after an initial public offering (IPO) had valued the company at $900m and triggered a flurry of legal wrangles around the globe. They simmer away unabated today as creditors, ING Bank chief among them, circle the corpse of OW Bunker and pick away at what assets are left.
As the UAE legal system is built around a civil law framework, the OW Bunker ruling is of “persuasive value if not binding”, Ince & Co said in a statement. However, it expects lower UAE courts asked to rule on future cases to revert to and respect the Federal Supreme Court decision.
The UAE Federal Supreme Court is the highest in the UAE, save for Abu Dhabi, Dubai and Ras Al Khaimah (RAK), which have their own high courts, each known as the Court of Cassation. The Federal Supreme Court adjudicates matters of legal principle in the five other emirates including the bunker hotspots of Fujairah and Sharjah (home to the port of Khor Fakkan).
Ince & Co has an additional “eight or nine” unresolved OW Bunker-related cases on its books and knows of more than 20 in total still fluid across the UAE. Of those cases, an estimated 70% originated from Fujairah and Khor Fakkan and mostly involve ship and chartering companies headquartered outside of the UAE.
Ince & Co partner Mohamed El Hawawy said the Federal Supreme Court ruling would have “far reaching ramifications” for bunker suppliers in the UAE and was “certainly good news” for owners/charterers.
“This judgement now sets the principle and will be a good guide for the other courts to follow. It has not been an easy decision for any judge to decide whether to give the physical supplier the right to recourse against the owner/charterer or not [until now],” El Hawawy said.
El Hawawy said the bunker supplier had argued that owners/charterers had benefitted from bunker and should therefore pay. With OW Bunker facing huge debts on receivables around the world, there has been a scramble to secure anything on which a claim could be made, mainly bunker cargoes sat on ships which had been sold on 60 day buyers’ credit as is standard in the sector.
“The court said yes, the owners had benefitted from the using the bunker but this was by virtue of a contract between the owners and OW. It doesn’t mean there is a kind of direct relationship between the owner and the physical supplier.”
In a long running process Khor Fakkan’s Court of First Instance originally ruled that owner/charterers sole payment obligation was to the party it had contracted for bunkering, in this case OW Bunker.
The UAE bunker supplier subsequently challenged this in the Khor Fakkan Court of Appeals, presumably on the basis that it had nothing to lose by appealing given there is very little left to recoup from OW Bunker directly. The Court of Appeals eventually agreed that both OW Bunker and owner/charterers should pay the supplier. This has now been overturned by the Federal Supreme Court judgement.
The UAE Federal Supreme Court decision is a piece of good news for shipowners in the ongoing legal actions around the world relating to OW Bunker, unlike a UK Supreme Court ruling in May which dismissed an appeal by a shipowner to not pay for the bunker fuel received, a convoluted case reported by Seatrade Maritime News.
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