On Wednesday 11 May the UK Supreme Court finally settled a point of law of great importance to the shipping community.
The owners of the RES COGITANS had disputed their obligation to pay a OW Bunker invoice on the basis that the bunker contract was subject to the UK Sale of Goods Act 1979, and therefore OW Bunker, including their assignee ING Bank, being the contractual supplier, could not claim payment since they never had had title to the bunkers when “selling” them. The Supreme Court dismissed this argument, in line with the lower courts’ decisions. Owners’ argument may at a glance seem far-fetched not to say disingenuous had it not been for the prevailing circumstances. OW Bunker had gone bankrupt due to speculative trading activities leaving debts to physical bunker suppliers in excess of USD 1 billion. As a result, physical suppliers claim payment from vessel owners for bunkers supplied under OW Bunker contracts, which resulted in duplicate claims against owners. The decision by the Supreme Court means that, under English law, owners cannot rely on the UK Sale of Good Act to resolve that problem.
The owners of the RES COGITANS are far from alone; the Club is presently handling about 40 FD&D cases involving bunker invoices worth in excess of USD 20 million for members being in the same situation, facing duplicate claims from OW Bunker / ING Bank on the one hand, and physical suppliers on the other hand. It could be said that the just solution would be to pay the physical supplier, being the party out of pocket. However, one can also say that if a physical supplier agrees to sell bunkers through an intermediary they must accept the consequences of such a decision, follow the contractual chain and launch their claim in the OW Bunker bankruptcy proceedings like any other debtor. The basis for the direct action against vessels is derived from the rather ancient right of a maritime lien in the vessel for unpaid bunkers, which may not sit very well today’s contractual arrangements.
The decision by the Supreme Court arguably makes sense from a legal perspective although it obviously does not assist owners facing duplicate claims in relation to bunker stems.
It should be remembered that the Supreme Court decided on a preliminary issue. The RES COGITANS case as a whole is expected to be referred back to the arbitral Tribunal for final resolution in due course.
The Club has provided some useful guidance how to mitigate risks in relation to the purchase of bunkers in our Member Alert of 7 December 2015.
Anders Leissner
Director
Corporate Legal & FD&D
The Swedish Club
Tel: +46 31 638 442
Mobile: +46 705 271 477
anders.leissner@swedishclub.com
Member Alert is published by The Swedish Club as a service to members. While the information is believed correct, the Club cannot assume responsibility for completeness or accuracy.