OW Bunkers US: legal position of jurisdiction

This is a series of pieces based on Shipowners’ Club recent set of articles on the global legal impact of the collapse of OW Bunkers last year, and the subsequent debate on whether owners owed money to the liquidator or to the physical supplier of goods. Law firm Holman Fenwick Willan provided much of the technical detail.

The bankruptcies of OW Bunker & Trading A/S and Bunker International led to numerous interpleader actions being filed, in particular before the US Court of

Appeals for the Fifth Circuit (Texas and Louisiana) and the US Court of Appeals for the Second Circuit (New York).

The common issue among these cases was whether a maritime lien could be asserted by a physical supplier of bunkers to a vessel.

The Commercial Instrument and Maritime Liens Act (CIMLA) states that a person who provides necessaries; (1) to a vessel; (2) on the order of the owner, or a person authorized by the owner, has a maritime lien against the vessel.

A 1999 case formulated a test that has been accepted by multiple federal courts to determine whether a physical supplier may assert a maritime lien where there is no direct contract, but a chain of contracts. The courts look to: (1) the “general contractor/subcontractor” line of cases; and (2) the “middleman” line of cases.

(1) The bunker supplier is entitled to a maritime lien against the vessel even if it does not actually deliver the bunkers, provided they can demonstrate that “an entity authorized to bind the ship controlled the selection of the subcontractor or its performance.”

(2) The ultimate deliverer of bunkers may be able to obtain a maritime lien. The test is the nature of the relationship between each pair of entities that are involved in the transaction at issue (e.g., agent v. independent contractor). Whether a claim falls within either the “general contractor/subcontractor” or the “middleman” line of cases is often a difficult fact-intensive enquiry.

Due to the numerous OW Bunker filings, the Valero Marketing case has garnered significant interest, which includes the filing of several amicus briefs and presents an opportunity for the Fifth Circuit (where it is on appeal) to either reaffirm the Lake Charles decision or to provide substantive changes to the law governing a physical supplier’s right to assert a maritime lien.