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Lawyer: Is a bunker delivery note a binding contract under Maltese law?

20 Jun 2018

The following legal article is written by Adrian Attard at Fenech & Fenech Advocates. Interested parties can contact him by telephone (+356 2124 1232) or email ([email protected]). The Fenech & Fenech website can be accessed at www.fenechlaw.com.

Following the collapse of OW Bunkers, physical bunker suppliers worldwide have had to rethink their business model with respect to the potential debt exposures that they face when conducting business through bunker traders. The matter is further complicated due to the fact that in many cases, there is not just one bunker trader involved, but rather a series of intermediaries, brokers and intermediary traders.

When faced with non-payment, many physical suppliers attempt to arrest or commence litigation against the vessels that they supplied or their owners, in hopes of recovering payment directly from said owners. Whether this is permissible heavily depends on the contractual relationships at play, as well as the domestic legislation of the jurisdiction in question.

The aftermath of the OW Bunkers saga has, if nothing else, shown the bunkering community that there is a dire need to ensure that the legal landscape within which physical suppliers ply their trade is well defined, either through regulation or jurisprudence. A number of landmark judgments in certain jurisdictions have helped to give the shipping community this degree of certainty in those countries.

Over the past four or five years, a wave of bunker claims have also been instituted before the Maltese courts by out-of-pocket suppliers. Analysis of these pending claims suggests that most suppliers justify the legal basis of their claims against supplied vessels and their owners (irrespective of the involvement of any intermediary traders) by including stipulations in the bunker delivery note (BDN) incorporating suppliers' terms and conditions. Suppliers contend that a vessel's acceptance of the BDN is tantamount to the acceptance of the suppliers' terms and conditions, which generally tend to hold the shipowner liable in solidum in cases of non-payment.

Until recently, the Maltese courts had not yet had the chance to pronounce a judicial decision on this specific point. However, in the past couple of months, the Maltese courts have delivered two judgments on precisely this matter.

Recent case law
Both actions were incidentally instituted by the same physical supplier with respect to unpaid bunker supplies furnished to vessels within Maltese territorial waters. In both cases, the purchases were not made directly by the shipowner or charterer but ordered through bunker brokers or traders. Following non-payment of its pending invoices, the physical supplier proceeded to arrest the vessels and commenced the relevant proceedings in rem against the respective vessels.

Under Maltese law, and unless a claim is considered privileged, one of the cardinal requirements for the Maltese courts to enjoy jurisdiction in rem is the fulfilment of the 'relevant person test' found under Article 742D of the Code of Organisation and Civil Procedure. In order to satisfy this two-tier test, a creditor must first prove that the person liable for the claim was the owner or charterer, or in possession or control, of the ship or vessel when the cause of action arose. Second, that same person must be the owner, beneficial owner or bareboat charterer of the ship when the action was brought.

Given that the shipowners of the respective vessels had not directly contracted the physical supplier for the consignments of bunkers, in both cases, the latter argued that the shipowner was jointly and severally liable as a result of the crew's acceptance of the BDNs. In both cases, the vessel had accepted and signed the bunkers delivery notes without issue. These notes declared that all deliveries were being made to the physical supplier's general terms and conditions, which in turn had specific clauses holding the vessel and its owners jointly and severally liable in case of non-payment.

BDN does not create juridical relationship
The first judgment concluded that the signing of a BDN does not render the vessel as a participant in the contract of sale. In the presiding judge's view, such a 'delivery note' serves only as evidence of receipt of the agreed quantities of fuels. The court held that the signing of a BDN creates no juridical relationship between the physical supplier and the owners of that vessel. In light of the above, the court ruled against the supplier. This first judgment was naturally applauded by shipowners.

BDN does create juridical relationship
However, a second subsequent judgment delivered less than two months later took a completely different approach when determining precisely the same matter. The second court opined that the clause in the BDN did in fact create a juridical relationship between the owners of the vessel and the physical supplier. The judge held that by accepting and signing the BDN, the owner's representative had recognised that the delivery was being made subject to the physical supplier's terms and conditions. The court went on to explain that the juridical relationship between the shipowner and supplier was created the moment that the bunker traders involved had failed to pay the same physical supplier. The court therefore held in favour of the physical supplier and ordered the vessel in rem to pay the invoice amount for the fuel supplied. Malta does not follow the doctrine of precedent; accordingly, this second judgment was greatly welcomed by local physical bunker suppliers.

These two judgments are diametrically opposing decisions which effectively leave the question unaddressed. There are a handful of similar proceedings currently pending before the Maltese courts and it would have therefore been convenient if the courts had reached a similar conclusion on the matter, as this would have at least offered a degree of certainty. That said, by the end 2018, there will likely be a spate of similar judgments. Hopefully, the collective body of these judgments will put an end to this conundrum. Until then, the bunkering community must continue to watch this space.

Photo credit: Fenech & Fenech Advocates
Published: 20 June, 2018


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