The recent English Supreme Court judgment in the Res Cogitans case, in effect a test case arising from the financial collapse and insolvency of OW Bunker & Trading A/S and its associated companies (OWB), has set the tone for dozens of pending claims on the international scene, with decisions largely coming down in favour of OWB receiving payment from the buyer. Here we explore the recent developments in the on-going OWB saga as well as the potential changes to future bunker supply contracts driven by the Baltic and International Maritime Council (BIMCO) as they review their standard contract.
In the July edition of Legalseas we covered the judgment, which held that a bunker supply contract is to be construed as a licence for the consumption of bunkers for the propulsion of the ship to which the Sale of Goods Act 1979 (SOGA) does not apply. Under a licence there is no requirement for the supplier to transfer or be able to transfer title in the bunkers. This left the buyers with no defence to ING’s/OW Bunker’s (OWB) claim to the contractual price, even though OWB as the bunker suppliers, had in most cases, not paid the physical supplier.
One of the key issues arising from the Res Cogitans judgment was the risk that shipowners would have to pay for bunkers twice, once under their contract with OWB and again to the entity which carried out the physical supply to the ship. The likelihood of physical suppliers succeeding in an independent non-contractual claim depends on whether the act of supplying bunkers to a ship gives rise to a maritime lien under local law. Under English law, the supply of bunkers to a ship never gives rise to a maritime lien, and, in the case of a non-contractual supply, the physical supplier does not even acquire a right of arrest. In recent decisions in other jurisdictions, physical suppliers have failed to establish independent rights of recovery. The courts have upheld the right of the contractual supplier (OWB) to recover the contractual debt, but have ruled against third-party subcontractors doing so. For example, in two separate US cases, the physical suppliers Rouke and Valero, having contracted solely with OWB, did not meet the criteria for a maritime lien under US law. The difficulty in a physical supplier establishing a lien makes it unlikely that shipowners will have to pay twice. However, the risk remains and it may arise in certain cases due to the particular facts and/or issues of local law - for example, there may be instances where the physical supplier can establish a maritime lien if the shipowner had directed the selection of the physical supplier.