Web alert: OW Bunker Bankruptcy
13 November 2014
Although the OW Bunker group (OWB) only had a reported 7% share in the marine fuel supply market, the recent financial troubles affecting OWB are having an unforeseen and very immediate impact on the wider ship owning community. Indeed, we have received a number of queries from our members as a result of this recent financial collapse.
Different types of cases are emerging from OWB’s difficulties, but the most common cases we are seeing stem from circumstances where a vessel owner/operator (or time charterer) has recently contracted with OWB to supply bunkers, but a 3rd party physically supplies the bunkers and remains (or alleges that it is) unpaid.
These cases lead to a difficult choice for an owner (or time charterer), namely whether:
(i) to pay either OWB or the physical supplier, but risk double payment; or,
(ii) to withhold payment and risk arrest.
The concern arising from (i) is that payments made to OWB are unlikely to result in the physical supplier being reimbursed in turn, potentially giving the latter a direct claim against the vessel (perhaps by virtue of a maritime lien). However, payment to the physical supplier will leave an owner exposed to contractual claims from OWB’s liquidator. Similarly, withholding payment as per option (ii) may also expose an owner to risk of arrest, unless carefully managed.
It is important to note that each case will turn on its own facts, not least because OWB contracted on different terms, which variously included English or Danish law clauses. In addition, different jurisdictions have diverse approaches to claims regarding non-payment of bunkers, though in most cases it gives rise to a lien over the vessel, subject to who purchased the bunker stem (i.e. owners or charterers).
There isn’t space to explore the latter issues and how to avoid such liens here. Such steps may, in any event, already be too late for an owner caught up in the OWB fall-out. Consequently, we concentrate on the more practical steps that might be taken by an owner faced with options (i) and (ii) above.
For such an owner, the broad message is to think very carefully before making any payments in relation to such OWB bunkers. Payments to OWB are likely to be retained by the duly appointed liquidators rather than passed on to the physical supplier (hence the vessel may still be vulnerable to arrest), while payment to the physical supplier rather than OWB is likely to expose an owner to contractual claims for non-payment.
Consequently, it is suggested that the prudent course may well be to write to OWB (and/or their trustees) and the physical bunker suppliers, seeking written confirmation of payment instructions to the latter and/or proof of payment. If payment to the physical supplier is due imminently, the owner may add that payment to OWB will be postponed until agreed payment instructions are received, while at the same time making it clear that the owner is willing and able to pay.
If there is no agreement between OWB and the physical supplier regarding payment, or one or both remain silent, then the owner may be able to pay the money into escrow pending resolution of the ‘dispute’ between OWB and the physical supplier; or alternatively pay the monies into court and ‘interplead’. The latter is a procedure in England & Wales where a claimant starts proceedings to compel competing parties to litigate a common dispute. Similar procedures are found in other jurisdictions, including we believe in the US and South Africa.
Other options may, of course, arise on a case-by-case basis such as payment to the physical supplier in return for an express indemnity to defend and hold the owner harmless from any attempt by OWB to seek payment. Of course, any such arrangement is only as good as the terms on which it is written and also depends on the financial standing of the physical supplier. Bear in mind also the jurisdiction where the supplier is located in case subsequent enforcement is required.
An owner knowing of a potential arrest at a future port of call should seek local advice to find out what might be done. For example, it may be possible to file a caveat against arrest, though this typically requires security to be put up in short order. If an owner knows that its vessel is at risk of arrest but does not know where, then to minimise the risk of detention and subsequent delays it may wish to take pre-emptive steps to have adequate security ready at short notice.
Finally, members should be aware that likely arrest jurisdictions include not only the country where the bunkers were supplied but also South Africa, USA, Singapore, Holland, Belgium, Panama, Nigeria, Chile, Venezuela, Argentina, and India. China is also possible if the supplier was a national company.
This article intends to provide only general guidance on the above issues, arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Instead its aim is to assist the club’s members in identifying the issues requiring consideration and to decide on what further enquiries and/or advice should be sought from its club and/or preferred lawyers before acting.
In this regard, this article has been prepared with the kind assistance of Mr. Jamie Wallace, Partner at Bentleys, Stokes and Lowless. (Jamie can be contacted on: firstname.lastname@example.org)
In case of any doubt, the member should not hesitate to contact the authors, or their usual club contact. The law is not static and if in any doubt The Standard Club is always on hand to assist.