About a year has passed since OW Bunker & Trading A/S filed for bankruptcy. The collapse shows that there are significant risks for shipowners and charterers in using intermediaries for the supply of bunkers. On the one hand the intermediary issues an invoice in capacity as the contractual supplier and should be paid for the bunkers. On the other hand do physical suppliers in some jurisdictions have an independent right to claim the vessel for unpaid bunkers. As a result, there is an inherent risk for competing claims against vessels to the extent the intermediary fails to pass on the payment to the physical supplier.
The collapse of OW Bunker has not only generated disputes involving competing claims against vessel owners by contractual suppliers and physical suppliers, but also charterparty disputes between owners and charterers. The Club’s FD&D lawyers presently handle about 40 cases involving disputes following the collapse of OW Bunkers. The total sum of these disputes is in excess of USD 20 million. The legal issues are complex and case specific. For instance, it has been argued that OW Bunker or their assignees cannot claim payment at all under English law since they never owned the bunkers for which they issued an invoice. This argument was recently dismissed by the English Court of Appeal, see the Club’s Member Alert of 23 October 2015. In addition, a court decision in one country may not apply in another country. Therefore, as of today, no universal solution to the underlying dilemma with competing claims is in sight.
The OW Bunker collapse has generated important lessons for the future. The following steps may be taken by owners and charterers in order to bring contractual clarity in relation to the supply of bunkers, as well as mitigate the risk for competing claims:
- Insert BIMCOs non-lien clause in the charterparty, see Special Circular from BIMCO.
- Prior to ordering bunkers, the supplier should be provided with the following notice (this is linked to the above non-lien clause):
To: Bunker Sellers (Name, address and contact details)
Take note that we, (Charterers: Name, address and contact details) are today (date) ordering (specification of) bunkers for supply at (port or place) on or about (date) on our account and our credit to MV/MT………… on charter to us and that the bunkers to be supplied to the Vessel are solely for our account as Charterers and that neither the Vessel, the Owners nor the Master is a party to the bunker supply contract and no lien, encumbrance or any rights shall arise on the Vessel.
Yours faithfully
Charterers of MV/MT………
- Avoid any reference on the Bunker Delivery Receipt to the physical supplier’s own Terms and Conditions in order to avoid creating a direct contract between the vessel owner and the supplier.
- Stamp and sign the Bunker Delivery Receipt with the following wording:
Vessel…………………
This bunker supply is for account of vessel’s time charterers, Messrs………………
I herewith declare that neither owners / bareboat charterers nor the vessel are responsible for payment of this supply and no lien or other claim against the vessel can therefore arise.
Date:
……………………………………………………………
Master / Chief Engineer
- Explore possibilities to take out insurance to protect against the risk of charterer (or bunker intermediary) insolvency
As mentioned above, the use of a bunker intermediary will entail an enhanced risk in relation to the supply of bunkers. Members may therefore consider agreeing to only deal with physical bunker suppliers directly and, if so, a provision to that effect should be inserted in any time charterparty.
In the event an intermediary is used the following precautionary steps can be taken:
- Endeavour to ensure that the intermediary has an appropriate credit insurance.
- Endeavour to agree to pay the intermediary the profit element only by way of paying the physical supplier separately, or by way of making one payment to the intermediary which is split into two; the intermediary receives the profit element as principal and the substantive sum as agent for the physical supplier. At least the first alternative needs to be expressed in the contract with the intermediary.
- Endeavour to ensure that the ultimate buyer has the longest credit period in the contractual chain by way of a term in the contract with the intermediary that the intermediary has to first pay their supplier in full for the bunkers before the ultimate buyer is obliged to pay them.
Finally, a word of caution. There is no magic answer which will eliminate all legal risks in relation to the supply of bunkers. All situations differ and there are different parties involved in supply chains. However, the above constitute steps that owners and charterers can take to try to mitigate those risks as much as possible, in appropriate circumstances. It is acknowledged that the steps may be difficult to take in practice.
For further guidance or assistance please contact any of the Club’s FD&D lawyers.
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.