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Holland & Knight discusses OW Bunker aftermath

New York-based legal firm discusses actions owners should take to protect against ‘secret liens’.

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The following article is written by James Harold Power and Marie E Larsen of global legal firm Holland & Knight:

HIGHLIGHTS:

  • The high-profile collapse of the O.W. Bunker Group has caused havoc in the maritime industry and illustrated the need for owners to take every step possible to avoid allowing any lien for bunkers attached to its vessel.
  • Countless owners and their vessels have been targeted because of the all-too-common failure of a charterer to pay for bunkers.
  • Stakeholders, including owners and insurers, should take immediate steps to put in place a process and procedure to be followed at every fuel delivery.

The high-profile collapse of the O.W. Bunker Group has caused havoc in the maritime industry and illustrated the need for owners to take every step possible to avoid allowing any lien for bunkers attached to its vessel. Countless owners and their vessels have been targeted because of the all-too-common failure of a charterer to pay for bunkers. Moreover, failure by the bunker seller to pay a physical supplier for the fuel it purchased on credit often leads to multiple claims against a vessel by both the seller and the physical supplier. Liens for unpaid bunkers against a vessel are the largest threat to an owner's bottom line and yet can be entirely avoided with good practices.

It is no coincidence that most bunker sales contracts incorporate U.S. law with respect to the existence of a lien against the vessel for unpaid bunkers. Simply put, U.S. law is by far the most generous in terms of allowing a lien against the vessel in favor of the seller for unpaid bunkers.

Background
The U.S. Commercial Instruments and Maritime Lien Act (CIMLA) has been the subject of increased litigation and interpretation over the past three years as a result of the O.W. Bunker bankruptcy in Denmark and its subsidiaries around the world. (See Holland & Knight alert, "Second Circuit Confirms Physical Suppliers Don't Have Maritime Liens," June 21, 2018.) To quickly summarize, the current consensus among U.S. District Courts who have heard these cases is that a contract supplier possesses a maritime lien against the vessel, while the physical supplier, acting pursuant to instructions from O.W. Bunker, has not acted on the authority of any person authorized to bind the vessel. See 46 USC §31342. Based on the typical facts surrounding the O.W. Bunker cases, a charterer contracting with a bunker supplier has not authorized that supplier to subcontract with the physical supplier, sufficient to create the agency relationship required by CIMLA.

When faced with maritime lien claims from both O.W. Bunker as contract supplier (i.e., seller), as well as from the physical suppliers down the contractual chain, owners have faced significant damages as well as litigation costs as a result of the assertion of maritime liens, regardless of the ultimate merit of those claims. This is in part due to the ex parte nature of the Rule C arrest proceedings filed by sellers and physical suppliers and the minimal pleading standard in order to obtain the requested warrant of arrest. This alert refers to sellers and physical supplier collectively as "suppliers" for the sole purpose of addressing notice issues.

Proactive Steps
The recent bunker supply cases have highlighted the need for owners to take proactive steps to protect themselves, both from physical supplier claims as well as those from contract sellers. CIMLA was drafted to protect suppliers that faced the risk of going unpaid by a vessel whose creditworthiness could not be evaluated by the supplier. But this principal is outdated in an industry where suppliers are entering into sophisticated contracts with brokers, contract suppliers and charterers, including the extension of significant lines of credit and 30 days (or longer) credit terms.

CIMLA itself provides a rebuttable presumption that a charterer is authorized, on behalf of an owner, to bind the vessel to a maritime lien for the provision of necessaries to a vessel. 46 U.S.C. §31341, specifically states:

(a) The following persons are presumed to have authority to procure necessaries for a vessel:

(1) the owner;
(2) the master;
(3) a person entrusted with the management of the vessel at the port of supply; or
(4) an officer or agent appointed by—
(A) the owner;
(B) a charterer;
(C) an owner pro hac vice; or
(D) an agreed buyer in possession of the vessel.
 

Despite the recent increase in maritime lien cases in the United States, the presumption that an owner has authorized the charterer to bind the vessel to a lien is simply that – a rebuttable presumption for the owner to overcome. An owner must therefore in the eyes of U.S. law take proactive measures in order to avoid being held responsible for a charterers' debts. In the current industry where an owner could face claims from numerous parties down the contractual chain with whom it has never interacted, the O.W. Bunker cases have shown that this is especially important.

Many charters include a "no lien clause" which states that the charterer is not authorized to bind the vessel to a maritime lien. It could be argued these "no lien clauses" are standard in many form contracts and an owner, or a broker acting on its behalf, should take steps to negotiate that a "no lien clause" is contained within the charter. But typically, where the fuel supplier does not receive a copy of the contract and has no notice of such a provision, this clause cannot be relied upon by an owner when defending a maritime lien claim from the supplier. A supplier must have "actual knowledge" of the relevant clause. Additionally, even if the charterer is under a contractual obligation to communicate the "no lien clause" to the supplier, which the new Baltic and International Maritime Council (BIMCO) clause purports to require, it is difficult to police this in practice, and a charterer's failure to do so may result only in a breach of contract claim, which the owner must then pursue against a likely defunct charterer. Thus, the new BIMCO lien clause is insufficient to protect an owner against a lien for unpaid bunkers under U.S. law and caution should be exercised by any owner who is advised that a BIMCO lien clause is all that is needed.

Additionally, courts have consistently held that the addition of a "no lien stamp" to a bunker delivery note, which is affixed following the transfer of fuel, does not provide sufficient notice to the supplier. In our experience, the most common mistake made by owners is caused by a misunderstanding of the effect of a "no lien stamp." While a "no lien stamp" may put the supplier on notice that a "no lien clause" is contained within the charter and that the owner objects to any lien being lodged against the vessel is essentially has no effect in preventing a lien against the vessel. Any owner relying on a "no lien stamp" placed upon the bunker delivery note subsequent to the delivery of fuel to the vessel must immediately come to terms with the fact that a "no lien stamp" is meaningless under U.S. law unless certain additional steps are taken by the owner to convey its position that the fuel is being supplied solely on the credit of the charterer.

Holland & Knight has been a leading U.S. firm representing owner's interests on lien issues in defense of bunker liens and recently represented the owner in a case before the U.S. District Court for the Northern District of New York, Bomin Greece S.A. v. M/V Genco Success, 2017 A.M.C. 1716 (May 30, 2017). This case is the most important decision in favor of an owner in recent years and provides useful guidance for owners attempting to avoid a maritime lien. In that case, the Court agreed with relevant precedent that the burden of showing that the supplier has actual knowledge of the charterer's lack of authority rest squarely on the owner of the vessel to overcome the supplier's statutory presumption under CIMLA. Where the chief engineer of the vessel, on behalf of the owner, made affirmative representations to the captain of the bunker supply barge in a pre-bunkering meeting, such communications were sufficient to overcome the presumption. In that case, the pre-bunkering notice of the no-lien provision of the charter party and lack of authority of the charterer to bind the vessel was also documented contemporaneously with a letter of protest that the barge crew was asked to sign, though they refused.

The Bomin case involved a finding that the corporate entity responsible for crewing the bunker supply barge was related to the physical supplier. However, the Court noted that the owner was responsible for providing notice to the only party it was aware of – and that the physical supplier in turn was in a position to "effect" renegotiations of the contract, if necessary.

Conclusion and Takeaways
While ultimately the Bomin court found that the notice provided in the pre-bunkering meeting was sufficient to provide actual notice to the supplier in that particular situation, there are further preventative steps that should be taken by an owner to avoid costly litigation in the first place, not to mention an arrest of the vessel. A checklist of actions should be instituted by vessel owners that masters and chief engineers must follow, and protection and indemnity (P&I) insurers should require or encourage these policies in order to reduce litigation costs for bunker claims. It makes little sense in today's uncertain market that an owner would continue to put itself at risk for payment of fuel which a charterer ordered for its own behalf. Owners can 100 percent prevent what amounts to strict liability for payment of fuel delivered to the vessel. Stakeholders, including owners and freight, demurrage and defense (FD&D) insurers, should take immediate steps to put in place a process and procedure to be followed at every fuel delivery. Taking such steps, including those recommended by Holland & Knight in its "Bunkering Checklist," will ensure victory in the fight against the ever-increasing efforts of fuel suppliers to hold the owner strictly liable for fuel delivered to the vessel.

Published: 27 June, 2018
 

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Legal

Singapore police seizes local tugboat and SGD 8,200 cash, arrests 15 men over illegal MGO transaction

Preliminary investigations revealed crew misappropriated MGO without their company’s knowledge by selling it to members of a foreign-registered tugboat.

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15 MEN ARRESTED FOR ILLEGAL TRANSACTION OF MARINE GAS OIL

The Singapore Police recently arrested 15 men, aged between 26 and 56 years old, for their suspected involvement in an illegal transaction of marine gas oil (MGO).

On 1 March 2024, officers from the Police Coast Guard arrested eight crew members of a Singapore-registered tugboat and another seven crew members of a foreign-registered tugboat for their suspected involvement in illegal transaction of MGO at the sea off Tuas, Singapore.

Preliminary investigations revealed that the crew members of the Singapore- registered tugboat were believed to have misappropriated the MGO without their company’s knowledge by selling it to the crew members of a foreign-registered tugboat. The tugboat and cash amounting to SGD 8,200 were seized as case exhibits.

The eight crew members of the Singapore-registered tugboat will be charged in court with criminal breach of trust by employees and the seven crew members of the foreign-registered tugboat will be charged in court with dishonestly receiving stolen property on 2 March 2024.

If convicted for criminal breach of trust by employees under Section 408 of the Penal Code 1871, they shall be punished with an imprisonment term, which may extend to 15 years and shall be liable to a fine.

If convicted for dishonestly receiving stolen property under Section 411 (1) of the Penal Code 1871, they shall be punished with an imprisonment term that may extend to five years, or with fine, or with both.

“The Police takes a serious view of illegal transaction of MGO in Singapore waters,” it said.

“The authorities will continue to conduct enforcement and security checks to prevent, deter and detect such illicit activities in Singapore waters.”

 

Photo credit: Singapore Police Force
Published: 4 March 2024

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Winding up

Singapore: WWL Shipowning Singapore Pte Ltd to be wound up voluntarily

Creditors are required on or before 1 April 2024 to send in their names and addresses and particulars of their debts or claims to appointed liquidators, according to Government Gazette notices.

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RESIZED Drew Beamer

Several notices were published to inform the passing of several resolutions for WWL Shipowning Singapore Pte Ltd on 28 February, according to a notice released on Friday (1 March) posted on the Government Gazette.

The resolutions set out below were duly passed:

Special Resolutions:

  • That the Company be wound up voluntarily pursuant to Section 160(1)(b) of the Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018).
  • That the Liquidator be and is hereby authorised to exercise any or all of the powers given to the Liquidator by Section 144(1)(b), (c), (d), (e), (f) and (g) of the Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018).
  • That in accordance with the provisions of the Company’s Constitutions, the Liquidator be and is hereby authorised to distribute in specie all or any part of the assets of the Company remaining after satisfaction of all debts and liabilities.

Ordinary Resolutions:

  • That Mr. Lai Seng Kwoon c/o 7500A Beach Road #05-303/304 The Plaza, Singapore 199591, be and is hereby appointed Liquidator of the Company, for the purpose of such winding up.
  • That the remuneration of the Liquidator be based on his normal scale rates for carrying out the assignment and that the Liquidator’s fees and disbursements be paid out of the assets of the Company.

In another notice, the liquidator said creditors are required on or before 1 April 2024 to send in their names and addresses and particulars of their debts or claims, and the names and addresses of their solicitors (if any) to the liquidator.

Liquidators may also require creditors to, “come in and prove their debts or claims at such time and place as shall be specified in such notice, or in default thereof they will be excluded from the benefit of any distribution made before such debts are proved.”

The liquidator for the liquidation can be contacted at the following address:

Lai Seng Kwoon
Liquidator
c/o 7500A Beach Road #05-303/304
The Plaza, Singapore 199591

 

Photo credit: Drew Beamer
Published: 4 March, 2024

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Bunker Claim

Large Danish investors led by pension funds prepare to settle in OW Bunker case

Pension funds ATP, PFA and 22 other institutional investors are willing to settle claims against Carnegie, Morgan Stanley, Altor, OW Bunker company and former management and board of directors, reports ShippingWatch.

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Several large Danish investors led by pension funds are prepared to settle with the possibility of a year-long legal battle after the crash of OW Bunker, according to ShippingWatch on Wednesday (28 February).

Eventhough the settlement is not yet signed and in place, ShippingWatch has been given access to the settlement text dated January 25, 2024 and a draft press release.

According to the text, pension funds ATP, PFA and 22 other institutional investors are willing to settle the claims against the banks Carnegie, Morgan Stanley, the private equity fund Altor, the OW Bunker company and the former management and board of directors with a total amount of DKK 665 million (USD 96,697,729.80).

This includes costs related to the case, according to the draft press release.

The pension funds had sued the parties with allegations of an erroneous and misleading prospectus.

The settlement amount will be significantly lower than the original claim from the pension funds.

In two lawsuits in 2016 and 2017, they claimed a total of DKK 833 million in compensation for the losses that the investors suffered when OW Bunker was listed on the stock exchange in 2014 by its owner, the private equity fund Altor.

In reality, the DKK 833 million, including interest, would have grown to more than DKK 1.3bn after the first six years after the summons, ShippingWatch has previously reported.

Related: Malaysia: Update on ING Bank, O.W. Bunker legal suit against bunkering firm TMD
Related: O.W. Bunker USA and affiliate O.W. Bunker North America reaches USD 23.5 million settlement with creditors

 

Photo credit: Pepi Stojanovski from Unsplash
Published: 4 March, 2024

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