O.W. Bunker Litigation in the United States: Contract Supplier and its Assignee have Enforceable Maritime Liens

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In our previous update concerning OW Bunker litigation in the United States, we discussed orders issued by the United States District Court for the Eastern District of Louisiana in which the court held that a physical supplier of bunkers did not have an enforceable maritime lien against a vessel.  Valero Marketing and Supply Co. v. M/V ALMI SUN, No. 14 Civ. 2712 (NJB) (E.D. La. decided Dec. 28, 2015 and Feb. 8, 2016). We further wrote:

Although the court entered judgment in favor of the vessel, the judgment did not resolve all claims relating to the bunker supply. Notably, O.W. Malta, O.W. USA, and ING Bank were not parties to the litigation. Therefore, the court did not directly address the issue of whether contract or intermediary bunker suppliers, or their assignees, are entitled to maritime liens against vessels or payments pursuant to their contracts.

However, a recent opinion and order by the United States District Court for the Southern District of New York did, in fact, directly address the issue of whether a contract supplier and its assignee have enforceable maritime liens against vessels. O’Rourke Marine Services L.P., L.L.P. v. M/V COSCO HAIFA, No. 15 Civ. 2992 (SAS) (S.D.N.Y. decided Apr. 8, 2016).  The court, after holding that the physical supplier did not have enforceable maritime liens against the vessels, held that the contract supplier’s assignee had enforceable maritime liens against vessels.

In connection with the bunker supplies at issue in O’Rourke, specifically, COSCO purchased bunkers from O.W. Far East (the contract supplier) for delivery to two of its vessels.  O’Rourke (the physical supplier), who did not communicate in any way with COSCO, delivered the bunkers to COSCO’s vessels pursuant to separate contracts with O.W. USA (the intermediary supplier).  When O.W. USA became insolvent and did not pay O’Rourke, O’Rourke sought to arrest COSCO’s vessels and enforce its alleged maritime liens under the U.S. Commercial Instruments and Maritime Lien Act, 46 U.S.C. § 31342, et seq. (“CIMLA”).

CIMLA requires a party asserting a maritime lien to show that (1) it furnished repairs, supplies, or other necessaries, (2) to any vessel, (3) upon the order of the owner or of the person authorized by the owner.  The parties did not dispute whether necessaries were supplied to COSCO’s vessels; however, the parties disputed whether the suppliers delivered the bunkers “on the order of the owner or a person authorized by the owner.  46 U.S.C. § 31342.  In the absence of a direct contractual relationship with the vessels, as was the case between COSCO and O’Rourke, the key issue determining whether O’Rourke had enforceable maritime liens against COSCO’s vessels was one of agency: whether O.W. Far East and O.W. USA were COSCO’s agents.

The court in O’Rourke analyzed the factual record and found the following: COSCO did not select O’Rourke to be the physical supplier; the series of contracts underlying the bunker supplies were each separate contracts of purchases and sales; COSCO did not direct O.W. Far East to select O’Rourke to be the physical supplier; and COSCO did not authorize O.W. Far East to bind COSCO’s vessels. The court wrote that COSCO “simply contracted with O.W. Far East for the provision of bunkers, and O.W. Far East independently subcontracted through the remaining steps of the supply chain.”  Therefore, O’Rourke did not supply the bunkers “upon the order of the owner or of the person authorized by the owner” and did not have enforceable maritime liens against COSCO’s vessels.

O’Rourke also argued that it had enforceable maritime liens against COSCO’s vessels because the vessels’ chief engineers signed O’Rourke’s bunker delivery receipts which allegedly contained language that created enforceable maritime liens, but the court rejected O’Rourke’s argument because maritime liens are created solely by law – CIMLA – and cannot otherwise be created by contract.

In contrast, the court held that ING Bank, as the assignee of O.W. Far East, had enforceable maritime liens against COSCO’s vessels.  The court reasoned that only O.W. Far East took orders for the bunkers from COSCO or persons authorized by COSCO.  The court noted that whether O.W. Far East itself physically delivered the bunkers to COSCO’s vessels was immaterial.  Therefore, ING Bank, as the assignee of O.W. Far East, was the only party that possessed an enforceable maritime lien for the value of the bunkers.

Although the Valero orders are being appealed and the O’Rourke opinion and order will likely be appealed, the message in the U.S. is clear: unless a physical supplier of bunkers had a direct contract with a vessel or O.W. Bunker acted as an agent for the vessel when it subcontracted to the physical supplier, the physical supplier does not have an enforceable maritime lien against the vessel.  In such circumstances, CIMLA provides that O.W. Bunker and/or its assignee have an enforceable maritime lien against the vessels regardless of O.W. Bunker’s insolvency.

If you have questions regarding this matter, please contact Robert E. O’ Connor in New York at (212) 867- 9500 or via email at roconnor@mmwr.com.