US court victory for West of England Club Defence Member

Nicola Cox, Head of Defence Claims at Group Club West, has reported on a US Court of Appeals victory for a West Defence Member in defeating a contractual bunker supplier’s claim for payment.

In Sing Fuels Pte Ltd v. M/V Lila Shanghai the Owners (the Club’s Member) time- chartered their vessel to Bostomar Bulk Shipping Pte Ltd.

As is usual under the terms of a time charter party, charterers were responsible for supplying and paying for bunkers. The charter (which was subject to Singapore arbitration) also included a clause stating that “charterers will not suffer, nor permit to be continued, any lien or encumbrance incurred by them or their agents, which might have priority over the title and interest of the owners in the vessel.”

Bostomar subsequently sub time-chartered the vessel to Medmar, which purchased some US$530,000 bunkers from Sing Fuels Pte Ltd – via a Mr Mylonakis (linked with/employed by Windrose Marine).

The bunkers were delivered to the vessel by physical bunker suppliers, South African Marine Fuels, in Port Elizabeth, South Africa, in July 2019.  

The vessel was redelivered by Medmar to Bostomar in August 2019.

However, by October 2019, Sing Fuels had not been paid. It approached the owners for payment. When the owners refused Sing Fuel’s demand for payment, Sing Fuels paid the physical bunker supplier and, in turn, pursued an action in rem against the vessel in the US District Court, seeking an arrest Order against the vessel, Sing Fuels claimed to be entitled to a maritime lien over the vessel in accordance with the US Commercial Instrument and Maritime Lien Act.

The matter reached the US district court in February 2021. The court found in the owners’ favour.

Sing Fuels then appealed to the US Court of Appeals, arguing that the district court was wrong to deny Sing Fuels’ request for a maritime lien under the US Maritime Lien Act.

The US Court of Appeals upheld the district court in finding in owners’ favour against Sing Fuels’ claim.

The US Maritime Lien Act grants the following statutory right to a maritime lien:

  • “(a) . . . [A] person providing necessaries to a vessel on the order of the owner or a person authorized by the owner –
  • has a maritime lien on the vessel;
  • may bring a civil action in rem to enforce the lien; and
  • is not required to allege or prove in the action that credit was given to the vessel.”

The US Maritime Lien Act provides that certain parties are presumed to possess the authority from vessel owners to obtain a vessel’s necessaries (although this presumption can be rebutted), including:

  • the owner;
  • the master;
  • a person entrusted with the management of the vessel at the port of supply; or
  • an officer or agent appointed by (a) the owner or (b) a charterer.

Whilst it was accepted that Sing Fuels had provided necessaries to the vessel, the US Court of Appeals upheld the district court’s judgment that Sing Fuels had not proven that it acted “on the order of the owner or a person authorized by the owner” (as is required by the US Maritime Lien Act).

The Court concluded that no one with actual authority authorized the purchase of the fuel. As the Courts noted, Sing Fuels never contacted the vessel owners to advise owners about the bunker supply contract or its terms, nor did Sing Fuels check whether Mr Mylonakis, who approached Sing Fuels to purchase the bunkers, ever communicated with owners, let alone whether Mr Mylonakis was authorized by the owners to purchase the bunkers. (Neither Mr Mylonakis nor any witness for Medmar appeared at trial.)

Therefore, it was held that Sing Fuels had not discharged its burden of proving that it had provided the bunkers “on the order of the owner or a person authorized by the owner”, as required by the US Maritime Lien Act.

In the US Court of Appeals, Sing Fuels raised a further argument, namely that Mr Mylonakis (the bunker broker) was Medmar’s (the sub charterer’s) apparent agent, thereby triggering the statutory presumption in favour of Mr Mylonakis having authority to bind the vessel under the US Maritime Liens Act.

The US Court of Appeals held that this argument failed because, as the Court held, this presumption of authority relies on an agency relationship actually existing, namely the communication by the alleged principal (Medmar) to a third party (Sing Fuels) that the agent (Mr Mylonakis) had authority to act on the principal’s behalf, the Court of Appeals emphasising that an agent cannot create his/her own authority.

In this case, however, Sing Fuels’ witness admitted at trial that he had never been in direct contact with Medmar, the alleged principal.

The Appeal Court held therefore that Sing Fuels could not prove that it had relied on any act or omission by Medmar (the alleged principal) to support Sing Fuels’ allegation that Mr Mylonakis had Medmar’s authority to act.

This presumed authority argument by Sing Fuels therefore also failed.

Overall, the Court was critical of Sing Fuels’ lack of due diligence checks into Medmar. The Court of Appeals noted that, despite Sing Fuels alleging that they had had many previous successful bunker supply contracts with Medmar, Sing Fuels did not provide any documentary evidence for this.

The Court also noted that Sing Fuels did not take the opportunity to arrest the vessel earlier, in other jurisdictions when they had the opportunity, including in the UK and India.

https://www.westpandi.com/publications/news/september-2022/u-s-court-of-appeals-victory-for-west-s-defence-me/