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US lawyers: ‘Serious question’ arises from M/V Temara verdict

Second Circuit decision questions if OW Bunker provided the fuel in ‘bad faith’ while insolvent.

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

HIGHLIGHTS:

  • In the legal battle of competing maritime lien claims against vessels whose charterers contracted with O.W. Bunker & Trading A/S or its affiliates in October-November 2014, an important decision was issued recently by the U.S. Court of Appeals for the Second Circuit.
  • Under the Commercial Instruments and Maritime Lien Act (CIMLA), a provider of necessaries may obtain a maritime lien against the supplied vessel under certain circumstances, if such provision was made on the order of the vessel or a person authorized by the owner (i.e., a charterer).
  • The Second Circuit ruled that the physical suppliers do not have liens against the vessels, but the issue of whether the security agent may assert a lien claim against any vessel remains a serious question.

In the legal battle of competing maritime lien claims against vessels whose charterers contracted with O.W. Bunker & Trading A/S or its affiliates in October-November 2014, an important decision was issued on June 13, 2018, by the U.S. Court of Appeals for the Second Circuit. The Second Circuit ruled that the physical suppliers do not have liens against the vessels. The issue of whether O.W Bunker's lending bank (the Bank) may assert a lien claim against any vessel remains a serious question. Several factors indicate that the Bank may not have secured an assignment of a U.S. maritime lien, and that O.W. Bunker's insolvency status and alleged reckless behavior at O.W. Bunker that induced charterers to purchase fuel during the critical time period preceding O.W. Bunker's ultimate bankruptcy filing may preclude it from being a "good faith" provider of necessaries.

Under the Commercial Instruments and Maritime Lien Act (CIMLA), a provider of necessaries may obtain a maritime lien against the supplied vessel under certain circumstances, if such provision was made on the order of the vessel or a person authorized by the owner (i.e., a charterer). 46 U.S.C. §31341, et seq.

Case Background
Following the global collapse and bankruptcy of O.W. Bunker & Trading A/S and its global subsidiaries (collectively, O.W. Bunker) in November 2014, O.W. Bunker failed to make payment to its subcontracting physical suppliers. Despite O.W. Bunker expecting to make only a small commission on each fuel delivery, as O.W. Bunker's security agent, the Bank sought to recover on outstanding invoices due against vessel owners by means of arrest around the world, pursuant to Fed. R. Civ. P., Supplemental Admiralty Rule C, on grounds that the Bank received an assignment of a U.S. maritime line claim from O.W. Bunker. Many of these vessel owners were not the contractual counterparties and, therefore, had no notice that funds were even owed by the respective charterers.

Despite the Bank's demand for payment pursuant to a Security Agreement and purported assignment of claim executed by O.W. Bunker (the validity of which has not yet been established in the U.S. Court for the Southern District of New York or the Second Circuit), the physical suppliers who remained unpaid by O.W. Bunker and the Bank also filed arrest claims against the vessels, demanding payment pursuant to CIMLA based on their delivery of fuel to the vessels under their contracts with O.W. Bunker.

In ING Bank N.V. v. M/V Temara, 2016 WL 6156320 (S.D.N.Y. Oct. 21, 2016) (Temara II), Judge Katherine B. Forrest held that the physical supplier CEPSA International B.V. was not entitled to a maritime lien, because it failed to meet the requirements of CIMLA. In addition, the District Court noted that it is possible that neither entity possesses a lien where neither meets the statutory requirements. The District Court held that O.W. Bunker (and therefore the Bank) was also not entitled to a maritime lien against the vessel because, at the time of the vessel arrest, it did not plan to make payment to the underlying physical supplier, it failed to take on any monetary risk in connection with the fuel delivery and its payments obligations were illusory. The District Court held that without such a risk, O.W. Bunker did not have an interest that the lien statute was meant to protect. Judge Forrest also suggested, based on clear legislative history behind the adoption of CIMLA, that there may be some good faith requirement on the part of the lien claimant, based on the legislative history of the statute. The Bank and the physical supplier filed cross-appeals.

Second Circuit Decision
The Second Circuit issued an opinion reversing in part, affirming in part and remanding the case back to the District Court to determine further issues. ING Bank N.V. v. M/V Temara, No. 16-3923, (2d Cir. June 13, 2018). In a victory for vessel owners and charterers, the Court of Appeals agreed with the District Court that CEPSA as physical supplier did not meet the requirements of CIMLA because it provided bunkers at the direction of O.W. Bunker, rather than on the authority of the vessel or charterer.1 The Court also rejected that clause L.4 of the O.W. Bunker General Terms and Conditions, which purports to substitute the physical supplier's terms in the contract between O.W. Bunker and the customer, served to create a contract or agency relationship between CEPSA and the customer that gives rise to a maritime lien.

The Court of Appeals did find that O.W. Bunker met the requirements of CIMLA and disagreed with Judge Forrest that some "financial risk" at the time of arrest or contracting was required in order to obtain a maritime lien. However, the Second Circuit left wide open the issue of whether a factual finding that O.W. Bunker provided the fuel in bad faith (i.e., contracting while insolvent on the eve of bankruptcy, knowing that it could not and would not pay the physical supplier) would negate any such lien. The issues of alleged bad faith and fraud of O.W. Bunker was not before the Second Circuit and will be fully ligated on remand provided that the Bank can overcome the threshold issue of whether it was assigned a U.S. maritime lien claim from O.W. Bunker. The Second Circuit also found that the District Court erred in its initial grant of summary judgment in favor of the vessels without providing O.W. Bunker an opportunity to submit additional evidence that O.W. Bunker had paid its downstream affiliate in the contract chain with the ultimate physical supplier.

The Second Circuit has remanded the case back to the District Court for further proceedings after full discovery into the alleged bad faith and fraud of O.W. Bunker. As such, the renewed District Court proceedings will likely address any additional defenses or exceptions to the lien, such as "bad faith" or fraud, as significant developments and disclosures concerning O.W. Bunker's activities have come to light since Judge Forrest's original decision. Additionally, the Court of Appeals' finding that O.W. Bunker meets the requirements of CIMLA still leaves open the question of whether a maritime lien was validly assigned by O.W. Bunker to the Bank (the assignment being governed by English law, which does not give rise to a U.S. maritime lien).    


 Notes
1 The Second Circuit has since been joined by the U.S. Court of Appeals for the Fifth Circuit in finding against the physical suppliers. Valero Marketing & Supply Co. v. M/V Almi Sun, No. 16-30194 (5th Cir. June 19, 2018). The Eleventh Circuit has also so ruled in Barcliff, LLC v. M/V Deep Blue, 867 F.3d 1063 (11th Cir. 2017).

Source: Second Circuit Confirms Physical Suppliers Don't Have Maritime Liens
Published: 25 June, 2018

 

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Business

Liberia-flagged bulker “Eleen Armonia” placed under Sheriff’s arrest

Ship was added to list of vessels under Sheriff’s arrest in Singapore’s court system and it is currently held at Eastern Bunkering Anchorage; arrest was made on behalf of Allen & Gledhill LLP.

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Liberia-flagged bulk carrier Eleen Armonia was arrested in Singapore waters on Monday (4 December). 

The 55,522 DWT vessel was added to the list of vessels under Sheriff’s arrest in Singapore’s court system. 

According to the list, the vessel was arrested at 12.25pm and the arresting solicitor listed was law firm Allen & Gledhill LLP. The ship is currently held at the Eastern Bunkering Anchorage. 

No details regarding the reason behind the arrest were provided in the list. 

Photo credit: Manifold Times
Published: 7 December, 2023

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Crime

Malaysia: MMEA detains three vessels for illegal anchoring in East Johor waters

Vessels, including those registered in Barbados and Copenhagen, were detained on 4 December and captains of ships had failed to present any document of authorisation to anchor in Malaysian waters.

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Malaysia: MMEA detains three vessels for illegal anchoring in East Johor waters

The Malaysian Maritime Enforcement Agency (MMEA) on Tuesday (5 December) said three vessels have been detained for illegally anchoring in East Johor waters on 4 December. 

MMEA Tanjung Sedili Zone acting director Maritime Cmdr Mohd Najib Sam said the first ship, registered in Port Klang, was detained by a patrol boat at 11.30 am at 19.8 nautical miles east of Tanjung Sedili Kechil.

The second ship, registered at Bridgetown in Barbados, anchored at 11.30am at 18.1 nautical miles northeast of Tanjung Penawar.

And the third ship, registered at Copenhagen, was detained by a MMEA patrol vessel at 5.30pm at 21.5 nautical miles east of Tanjung Balau.

MMEA2 1
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Najib said all captains of the ships had failed to present any document of authorisation to anchor in Malaysian waters and the case will be investigated under Section 491B(1)(L) Merchant Shipping Ordinance 1952.

He added that the detention of all three ships has brought the total number of ships detained for the same offence so far this year to 86.

Photo credit: Malaysian Maritime Enforcement Agency
Published: 6 December, 2023

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Winding up

Singapore: Annual general meetings set for Hua Sheng Shipping Pte Ltd

Creditors to receive an update on the liquidation of the firms, and to receive an account of the liquidators’ acts and dealings, and of the conduct of winding up.

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An annual general meeting for Hua Sheng Shipping Pte Ltd will be held via electronic means on 14 December 2023, according to a notice on the Government Gazette on Thursday (30 November). 

The agenda of the meetings for the creditors (2pm) and contributories (11am) for the following purposes:

  • To receive an update on the liquidation.
  • To receive an account of the Liquidators’ acts and dealings, and of the conduct of the winding up 

The following are the details of the liquidator of the company:

Ho May Kee
Liquidator
c/o 8 Marina View
#40-04/05 Asia Square Tower 1
Singapore 018960

Manifold Times previously reported several notices were published on the Goverment Gazette regarding the annual general meetings held electronically for Hua Sheng Shipping Pte Ltd, Nan Zhou Maritime (Pte) Ltd and Xin Sheng Shipping (Pte) Ltd.

Photo credit: Benjamin child
Published: 4 December, 2023

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