International legal firm Adams and Reese LLP Maritime Team Leader and Partner Matthew C.Guy on Wednesday (24 June) published an article cautioning bunker suppliers to be aware of their maritime lien rights when drafting supply contracts to avoid tricky situations whereby the party to whom it supplies bunkers is carrying the fuel as cargo to another supplier and defaults on payment:
In Martin Energy Services, LLC v. M/V Bourbon Petrel et al., the Fifth Circuit recently held that when a supplier of bunkers provides fuel to a supply vessel that will be transporting the fuel to another vessel for its use, the bunker supplier does not have a maritime lien against the supply vessel.
The ruling should be of concern to bunker suppliers as this means they may not have the protection of a maritime lien against a vessel when the fuel purchaser defaults on payment. Bunker suppliers should consider revising the terms and conditions of their supply contracts to make sure that their maritime lien rights are protected as far as possible in light of this ruling.
Lien on Me
Martin Energy Services, LLC (Martin Energy) delivered fuel to three support vessels owned by CGG Services, US, Inc. (CGG) that carried the fuel in their cargo tanks to three vessels performing seismic surveys off the coast of Louisiana.
CGG had originally purchased fuel directly from Martin Energy, but due to credit problems had begun to buy through a trader, O.W. Bunker USA, Inc. (OW Bunker), although Martin Energy, still supplied the fuel. Each vessel had a cargo tank that carried the fuel bound for the seismic vessels and a day tank for the supply vessels themselves. OW Bunker filed for bankruptcy. CGG had not paid its invoices for the fuel supplied by Martin Energy. CGG settled with OW Bunker but did not forward payment to Martin Energy, who commenced suit.
Lien on Me, When You’re Not Strong
The district court held that Martin Energy had a maritime lien on the CGG vessels because it had provided “necessaries” to those vessels within the meaning of the Commercial Instruments and Maritime Liens Act, 46 USC. 31301-31343 (CIMLA). The district court reasoned that the supply vessels were “floating gas stations” and that the fuel was “necessary” to perform their mission.
The Fifth Circuit reversed the district court and held that the fuel was merely cargo carried to support other vessels. Cargo could not be said to be necessaries to create a maritime lien. Fuel would qualify as a necessary under CIMLA if it was supplied to refuel a vessel and may have qualified as such with regard to the seismic vessel, but that was not the case with the supply vessels that were just carrying it. The Fifth Circuit agreed with CGG that to hold that fuel supplied as cargo was a necessary would represent an unprecedented expansion of CIMLA.
We All Need Somebody to Lien On
The ruling potentially leaves bunker suppliers without a maritime lien when the party to whom it supplies bunkers is carrying the fuel as cargo to another supplier and defaults on payment. The Fifth Circuit acknowledged that the bunker supplier may have a maritime lien against the vessel that is ultimately being supplied but rejected Martin Energy’s claim that the situation needed to be viewed “from the vendor’s perspective.” This increases the risk being assumed by the bunker supplier because the vessel that is ultimately being supplied may have left the jurisdiction or be encumbered by preferential lien rights. Bunker suppliers should consider what steps they can take contractually to secure maritime liens against both the supply vessel and the vessel to which the bunkers are ultimately bound.
Our Maritime Team will continue to share the latest developments and provide insights as we continue to monitor the ever-changing, ever-shifting legal landscape in the maritime industry.
Source: Adams and Reese LLP
Photo credit: CA5 U.S. Courts
Published: 30 June, 2020
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