Bunker issue – US – Suppliers’ lien (or lack of same)
O. W. Bunker and Trading A/S and its affiliates in several countries (collectively "OWB") went bankrupt in November 2014. This was very shortly after they had gone public with an IPO in March 2014.
Following the bankruptcies of OWB a tsunami of legal battles has taken place and do still take place in numerous jurisdictions. These cases concern amongst others civil liability, including civil liability for board members, auditors etc, bankruptcy cases, criminal case(s), sales of goods, lien etc. etc..
It goes without saying that the legal positions might not be identical in all the jurisdictions where these cases have been commenced and thus some forum shopping did also take place.
It is not possible to cover all these legal aspects in this short article and thus I will concentrate solely on the topic mentioned in the title "Bunker issue – US – Suppliers' lien (or lack of same)". It will also be apparent from the further comments below that even this topic has been heavily litigated and further that possibly the legal position is not uniform in the entire US.
Generally speaking there have been two scenarios. One scenario where an owner had ordered bunkers with an OWB company and the OWB company did then supply the bunkers to the vessel and another scenario where an owner had ordered bunkers with an OWB company but the OWB company did not supply the bunkers themselves but entered into a new contract with an actual supplier who did then supply the bunkers to the vessel. The various cases having reached the courts concern situations where bunkers had been supplied to the vessels but not paid for when OWB went bankrupt.
There have not been any problems under the first scenario mentioned above. In that scenario OWB or their assignee had a maritime lien in the vessel for the bunkers supplied cfr The Commercial Instruments and Maritime Lien Act, 46 U.S.C. §§ 31301 et seq ("CIMLA").
It is in connection with the second scenario mentioned above that there have been (and still are) several legal actions in USA. In this scenario both the actual supplier and the OWB in bankruptcy (or their assignee) demanded payment for the bunkers supplied. Whereas the vast majority if not all of the owners were fully prepared to pay for the bunkers supplied neither of them were interested to pay twice.
Frequently these court cases were commenced by either the actual suppliers or OWB in bankruptcy/the assignee having arrested the vessel in question. Both claimants argued that they had a maritime lien for their claim pursuant to CIMLA.
In order to have a maritime lien against the vessel under CIMLA the supplier has to establish
- That necessaries have been provided,
- It has been provided to a vessel and
- It has been provided on the order of a person authorized by the owner
In the second scenario it was not difficult for the actual supplier to fulfil the requirements mentioned under 1 and 2 above. The problems were all concentrated around the requirement 3. On the other hand, OWB in bankruptcy/the assignee were probably able to establish that they had fulfilled the requirements under CIMLA which has now also been confirmed by some of the judgments rendered so far, most recently by The United States Court of Appeals for the Second Circuit's judgment of 13 June 2018.
In order to try to avoid having to pay twice frequently the owners did commence interpleader actions being a procedure by which a party fearing exposure to multiple claims to a single limited fund may initiate proceedings to settle the controversy and satisfy its obligations with respect to the single limited fund in a single proceeding. Or in other words, the owners did deposit the total amount of their purchase price with the court. Then it would be up to OWB in bankruptcy, their assignee and the actual supplier to argue which of the two claimants would be entitled to the funds deposited.
The owners did also seek an injunction pursuant to 28 U.S.C.A § 2361, restraining the named claimants from instituting or prosecuting any proceeding or action anywhere than before the court where the deposit had been made. Just this aspect may warrant an article of its own – at a later stage.
All these cases were heard by various federal courts as the cases arose in admiralty. A great majority of the various federal courts issued judgments pursuant to which OWB in bankruptcy or their assignee were entitled to the funds deposited as they found that the actual supplier had not provided the bunkers on the order of a person authorized by the owner. It was thus also decided that OWB had not been acting as agents for the owners or the actual supplier regarding the ordering of the bunkers and further it was decided that a master's or a C/E's signature on a Bunker Delivering Note did not alter that position.
In one judgment from the S.D.N.Y, The Temara OWB's assignee's motion for summary judgment on its maritime claim was denied but this aspect of the judgment was reversed in appeal by The United States Court of Appeals for the Second Circuit's judgment of 13 June 2018. Actually, this appeal judgment did affirm in part, vacate in part and remand to the District Court for further proceedings. The outcome of this appeal judgment was that OWB's assignee had a maritime lien for OWB' claim, the actual supplier did not have a maritime lien for its claim and the actual supplier did not have an in personam claim based upon equitable principles, such as unjust enrichment either.
Still there are many judgments which are presently under appeal to the various relevant Circuit Courts of Appeals. As mentioned above so far, the trend seems to be that OWB in bankruptcy and their assignee succeed and so far, the actual suppliers have merely succeeded in one judgment only, ie The Martin, see below.
It will not be possible just to look upon The Martin in isolation. In that context The Deep Blue is also relevant. These two judgments are the only judgments which so far has be decided by the relevant appellate court ie The United States Court of Appeals for The Eleventh Circuit.
The Deep Blue was initially decided by The United States District Court for the Southern District of Alabama. This judgment followed the trend mentioned above and it was decided that a maritime lien had arisen in favour of OWB, and was duly assigned to their assignee. This judgment was upheld by The United States Court of Appeals for The Eleventh Circuit in its judgment rendered on 30 November 2017.
The Martin was initially decided by United States District Court for the Northern District of Florida. Subsequently The United States Court of Appeals for The Eleventh Circuit did on 10 May 2018 affirm the judgment of the court of first instance. From a quick reading of this judgment it looks like it is in conflict with The Deep Blue as in The Martin it was decided that the actual supplier was entitled to the full amount of its invoice (USD 286,200) vis a vis OWB with the latter merely being entitled to receive the small uplift being its profit (USD 3,900). However, the legal merits of these two judgments are very different and account for the different outcome of the two cases.
The Deep Blue was decided pursuant to CIMLA whereas that was not the situation in The Martin. Although the district court in The Martin also found that the actual supplier had a valid maritime lien against the vessel, the actual supplier's Complaint was not filed as an in rem action. The actual supplier did not seek a Rule C arrest of the vessel to which it had supplied bunkers because the vessel had left the jurisdiction of the court, and no party asserted a maritime lien. At oral argument the parties agreed that a maritime lien "is not an issue" in the case. In addition, the district court acknowledged at the summary judgment hearing that the claim at issue was in personam and not a Rule C in rem action. ("A Supplemental Rule B action is an in personam action that would give rise to, at most, an in personam lien claim – not a maritime lien").
It was accepted in The Martin that where a case arises in admiralty (as here), the court should apply the general maritime law, which is federal law. However, it was further stated "when neither statutory nor judicially created maritime principles provide an answer to a specific legal question, courts may apply state law provided that the application of state law does not frustrate national interests in having uniformity in admiralty law".
It did then follow that applying Florida law, in the absence of a valid contract claim against the owner and with the relevant OWB entity in bankruptcy and unpaid, the actual supplier can recover in quantum meruit [a doctrine by which the law infers a promise to pay a reasonable amount for labour and materials furnished, even in the absence of a specific legally enforceable agreement between the parties] from the owner for the benefit of the bunkers the actual supplier delivered and provided to the owner. However, after The United States Court of Appeals for the Second Circuit's judgment of 13 June 2018 in The Temara mentioned above, it seems to be the position that The Martin and The Temara have reached different decisions on this point, although it should be added that initially The Temara was commenced in the United States District Court for the District of Maryland but was then by January 2016 transferred to the Southern District of New York. Thus, it may be that there is a difference between Maryland and Florida state law.
Thus, the conclusion which can be reached from the judgments rendered by the district courts and the 3 appeal judgments rendered so far seems to be that the trend is that the actual suppliers do not have a valid maritime lien pursuant to CIMLA, that OWB does have a maritime lien pursuant to CIMLA which maritime lien may have been assignable, but further, the legal position may be different in the different states depending on how the claim is advanced and the relevant state law. From this may then also follow that we may not get a final uniform answer to the question raised in this article, even if one case should reach The Supreme Court of the United States eventually.