To Lien or Not to Lien – When bunkers are supplied to a vessel
August 19, 2015
Types : Alerts
The United States Court of Appeals for the Fourth Circuit considered whether a supplier of necessaries had a valid maritime lien despite a “no lien” clause and stamp.
In World Fuel Servs. Trading, DMCC v. Hebei Prince Shipping Co., 783 F.3d 507 (Fourth Cir. 2015), a bunker supplier arrested the vessel M/V HEBEI PRINCE, while she was anchored at the port of Norfolk, Virginia, for unpaid bunkers provided to the vessel in United Arab Emirates. The bunker order confirmation identified the bunker supplier as the “seller” and the charterer, the owners and operators of the vessel as the “buyer.” The confirmation also included language that: “Any disclaimer stamps placed by vsl on the bunker will have no effect and do not waive the seller’s lien.” The charterer due to financial problems failed to pay for the bunkers. Therefore, the supplier arrested the vessel and demanded that the vessel owner payed the outstanding amount.
When the arrest was initially challenged by the vessel owner, the District Court held that the supplier had a valid maritime line under the U.S. Federal Maritime Lien Act (“FMLA”) since proper notice of a U.S. Choice of Law provision was given to the charterer and to vessel owners, and the “no-lien” disclaimer, which was stamped on the bunker delivery received by the vessel’s chief engineer after that the fuel had been supplied, was not enforceable against the supplier.
It should be noted that, under the FMLA, a supplier of necessaries that received instruction to deliver necessaries to the vessel – in this case bunkers – from a party that is authorized to bind the vessel – in this case the vessel’s charterer – is entitled to a maritime lien on the vessel. Once a lien has been created, the supplier can arrest the vessel transiting in any U.S. port as security for a claim – in this case the amount owed by the charterer to the supplier for the bunker supply – even in absence of any other connections to the United States – like in the case at bar, where the bunker supply and the contract negotiation for such supply took place in foreign countries between foreign entities.
On appeal, the Fourth Circuit confirmed, among other things that: (1) the U.S. choice of law provision contained in the supplier’s general terms and conditions, which were referenced in the order confirmation and delivery receipt, was sufficiently noticed and enforceable; (2) no objection was made to the bunker confirmation language protecting the supplier’s lien (3) the supplier had never been provided notice of the “no lien” clause in the charter party for the vessel; (4) the “no lien” stamp was added to the bunker receipt after delivery and not in advance (e.g., when the bunkers were ordered); and (5) the supplier was not required to engage in self-help (i.e., retrieve the bunkers) after receiving the “no lien” stamp on the receipt.
World Fuel Servs. Trading, DMCC v. Hebei Prince Shipping Co. emphasizes that proper notice of contractual provisions is essential. Thus, all players in the maritime industry must pay particular attention to how they incorporate, reference, and give notice of the various terms and conditions that are part of their maritime contracts, as their respective rights and liabilities can be greatly affected for the better or for the worst.