Dear Sirs,
Please kindly see a circular received from Gard, a member of the International Group of P&I Clubs, in respect of the above company’s position. Most of the clubs issued similar circular in that respect and this one has also possible questions and answers one might think. Please do not hesitate to contact us should you have enquiries.
OW Bunker (OW) with a reported 7% share of the marine fuel supply market went out of business almost overnight, filing for bankruptcy on 7 November 2014.
12 November 2014
The rapid collapse of Denmark-based OW followed the revelation of an alleged serious fraud within its Singapore subsidiary, Dynamic Oil Trading. As a result, shipowners and charterers around the world currently face a number of problems such as who to pay and threat of arrest. We have received a number of similar enquiries relating to these issues. Our advice is to take a cautious approach and not make payment to any party without first consulting your Defence insurer or taking legal advice. This Alert is intended to provide some guidance to Members and clients.
When and to who should an owner/charterer pay?
- Bunker invoices already in line for payment:
Check for (and stop) invoices which have already been put in line for payment and consider position. - Bunkers have been contracted from and delivered by the same OW company not yet in bankruptcy:
Owner should pay its contracting party, OW unless there is a possibility of set off against a debt owed to the owner by OW. - Bunkers have been delivered under an agreement with OW and the bunker supplier (whether another OW company of a 3rd party supplier) has been paid by OW:
Owner should pay OW unless there is a possibility for set off against a debt owed to owner by OW. - Bunkers have been stemmed under an agreement with OW but bunker supplier (whether a different company within the OW group or a 3rd party supplier) has not been paid:
If payment is made to OW there is a considerable risk of arrest of the ship or a sister/associated ship by the physical supplier. This risk also exists in relation to unpaid bunker supplies under contracts with OW prior to 7 November. When there are or may be competing demands for payment:
- Owner should first enter into discussions with OW/liquidator and the physical supplier to try to reach agreement between all parties as to whom payment should be made. This will not be easy due to the uncertainties surrounding OW but an attempt should be made.
- Consideration should be given to negotiating a deal with OW where owner pays the local supplier (less OW’s margin) and then pays the margin to OW. All relevant documentation should be checked to ensure that owner has not been notified of any assignment of OW`s right to payment. In addition, the bunker invoice must be checked to ensure it has not been pledged to a bank, in which case the bank’s consent would have to be obtained.
- Owner could offer to pay the funds into an escrow account pending resolution of the “dispute” between OW and the physical supplier.
- Owner may be able to pay the funds into court whereby the court will decide the party entitled to the funds. Difficult questions will arise however in relation to jurisdiction.
- Bunkers have been delivered under an agreement with OW but bunker suppliers have not been paid, and a claim for payment under the agreement is asserted by OW’s bank:
There is a real risk that a claim may also be received from bunker suppliers if payment is made to the bank under these circumstances. Consideration should be given to whether any payment of any claims made directly by suppliers can be set off against the bank’s claim, which may reduce the risk of facing double payment. The points in the last bullet above may also be relevant in this scenario.
Can the physical supplier of the bunkers arrest the vessel?
- Many physical suppliers aggressively pursue claims for payment for bunkers even where they have contracted with a time charterer.
- In certain jurisdictions, the right to arrest will depend on the law of the supply contract - even though an owner will not be a party to that contract.
- Depending on the jurisdiction, one response to a threat of arrest is to offer security which would respond to an arbitration award or court judgment.
Should owner load bunkers under charterer’s orders known to have been supplied by OW?
- It appears that OW is no longer trading, in which case owner/charterer should check whether the bunkers will actually be delivered and if not make alternative arrangements.
- Under a time charter an owner is bound to accept a time charterer’s lawful employment orders.
- The time charterer is responsible for payment for bunkers and how they fulfil that obligation is its business.
- The mere fact that a supply of bunkers to the ship may give rise to an arrest or threat of an arrest later by the physical supplier does not of itself entitle an owner to refuse the order to load the bunkers in question.
- If the vessel is arrested an owner would be entitled to look to its time charterer for re-imbursement of any liability on the basis that the charterer had the obligation to pay for the bunkers supplied to the ship, it would not matter if it had in fact paid OW.
- The practical difficulty for an owner is that unless a charterer is prepared to provide security to lift the arrest it would be necessary for the owner to provide security and then claim against the charterer under the charterparty. The financial standing of the charterer will obviously be important in this context.
What preventive steps can be taken when an owner is on notice of a supply of bunkers ordered from OW by a time charterer?
- In some jurisdictions a notice given to the physical bunker supplier may protect an owner against a subsequent arrest in the event of non-payment by OW. In others such notices are not binding. In any event, notice must be given before the physical supply is made. The following wording could be used in such a notice:
“We hereby put you on notice that the bunkers to be supplied to the vessel A at B are supplied under a contract between the vessel’s time charterer C and D, a contract to which the owner is not a party. These bunkers are not supplied on the faith and credit of the owner, its servants, agents or subcontractors, or the vessel, none of whom will have any responsibility for payment for them. No lien or other encumbrance whatsoever will be created by the supply of bunkers to the vessel A.”
Does the bankruptcy include OW’s subsidiaries/offices worldwide?
At present it is unclear whether the bankruptcy may affect OW’s subsidiaries worldwide. Some owners have tried making direct contact with OW subsidiaries, mostly with no response. Others have received what appears to be a standard for response re-directing enquiries to the trustees in Denmark.
Bunker quality beware!
This may be a time when the physical supplier is likely to be relaxed on quality control. An owner’s fuel checking programme should therefore be activated promptly for bunkers stemmed by OW or their local suppliers.
Please note these are general comments on some of the issues that could arise. For specific queries we recommend that owners/charterers contact their Defence insurers and/or seek legal advice.
The information contained in this Alert is provided for general information purposes only. Whilst we have taken every care to ensure the accuracy and quality of the information provided, Gard AS can accept no responsibility in respect of any loss or damage of any kind whatsoever which may arise from reliance on information contained in this Alert regardless of whether such information originates from Gard AS, correspondents or other contributors.
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