Source: Lloyd’s List
April 18th 2016
SHIPOWNERS may now face tougher credit terms and rewritten supply contracts for bunkers, as physical suppliers respond to unfavorable court judgments in the wake of the collapse of intermediary giant OW Bunker.
Peter Hall, chief executive of trade association the International Bunker Industry Association, spoke to Lloyd’s List after two recent US court cases established – seemingly irrefutably – that physical suppliers do not have a lien when stems are booked through intermediaries.
As a result, independent and third party suppliers in particular may seek to avoid anything like this happening again, perhaps by rewriting jurisdiction clauses or even demanding cash up front. And more ominously for the industry, generous 60-day credit terms are likely to get a lot tighter.
But bigger ship-owners, with mature supply agreements with the bunker majors, may be able to fall back on the existing relationship.
The OW Bunker imbroglio has left hundreds of operators fearful that they might have to pay twice for the same fuel, with both the physical suppliers and Dutch bank ING as OWB’s assignee both chasing payment of outstanding invoices, and arresting ships to enforce their claim.
Following the setbacks in O’Rourke Marine Services v Cosco Haifa in the Southern District of New York earlier this month and Valero Marketing v Almi Sun in the Eastern District of Louisiana in February, US lawyers have concluded that physical suppliers might as well throw in the towel and that owners should simply pay ING.
While Mr Hall accepted that bunker suppliers now face a challenging situation, and may lose out to the tune of hundreds of millions of dollars, he insisted that the matter had yet to be resolved.
There are thought to be around 30 similar lien cases currently pending in New York, and numerous others elsewhere in the US.
The two judgments are not binding on other courts, but may be cited as a persuasive authority. There might still be resort to appeal, and ultimately even the Supreme Court, especially if defense insurers are willing to fund legal action.
In addition, three English court judgments and the refusal of Singapore to grant interpleader relief means that the situation appears to be heading towards an outright legal win for ING.
On the other hand, a number of other jurisdictions have ruled more favourably to bunker suppliers, with the Dutch courts granting that they have an arguable case for unjust enrichment.
“A broad perspective is, we are getting quite a lot of differences in court rulings around the world,” said Mr Hall.
“Any inconsistency creates challenges for the industry. Whether you are a supplier or a buyer, inconsistent rulings are not helpful.”
A lot of contracts currently specify the use of US law in the event of dispute, and some suppliers are already amending the relevant wording, said Mr Hall.
“There are adjustments within the market in terms of terms and conditions, it just takes a while to develop a good and fair mechanism that provides confidence to both parties.”
There is also likely to be a challenge to the existing system of credit, and the drive to require cash for transactions is likely to intensify.
There will also be more emphasis on relationships, as bunker suppliers will prefer to deal with counterparties they know and trust.
“We’ve been facing this situation little by little that credit becomes a challenge,” he added.
Meanwhile, a verdict is still awaited in a recent UK Supreme Court test case brought by Pappas interests, which attempted to establish that bunker supply contracts via intermediaries are contracts within the meaning of the Sale of Goods Act 1979, and thus amenable to the remedies contained in the legislation.