How To Mitigate Legal Risks When Purchasing Bunkers

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How To Mitigate Legal Risks When Purchasing Bunkers – Lessons learned from the OW Bunker collapse

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It is almost a year since OW Bunker & Trading A/S filed for bankruptcy.

The collapse shows that there are significant risks for shipowners and charterers in using intermediaries for the supply of bunkers.

On the one hand, the intermediary issues an invoice in capacity as the contractual supplier and should be paid for the bunkers.

On the other hand, do physical suppliers in some jurisdictions have an independent right to claim the vessel for unpaid bunkers?

As a result, there is an inherent risk for competing claims against vessels to the extent the intermediary fails to pass on the payment to the physical supplier.

The Club’s FD&D lawyers presently handle about 40 cases involving disputes following the collapse of OW Bunkers.  The total sum of these disputes is in excess of USD 20 million. The legal issues are complex and case specific.

In addition, a court decision in one country may not apply in another country.  Therefore, as of today, no universal solution to the underlying dilemma with competing claims is in sight.

Steps to be taken to avoid/reduce disputes:

  • Prior to ordering bunkers, the supplier should be provided with the following notice (this is linked to the above non-lien clause):

The format:

To: Bunker Sellers (Name, address and contact details)

Take note that we, (Charterers: Name, address and contact details) are today (date) ordering (specification of) bunkers for supply at (port or place) on or about (date) on our account and our credit to MV/MT………… on charter to us and that the bunkers to be supplied to the Vessel are solely for our account as Charterers and that neither the Vessel, the Owners nor the Master is a party to the bunker supply contract and no lien, encumbrance or any rights shall arise on the Vessel.

Yours faithfully

Charterers of MV/MT………

Avoid any reference on the Bunker Delivery Receipt to the physical supplier’s own Terms and Conditions in order to avoid creating a direct contract between the vessel owner and the supplier.

Stamp and sign the Bunker Delivery Receipt with the following wording:

Vessel…………………

This bunker supply is for account of vessel’s time charterers, Messrs………………

I herewith declare that neither owners / bareboat charterers nor the vessel are responsible for payment of this supply and no lien or other claim against the vessel can therefore arise.

Date:

……………………………………………………………

Master / Chief Engineer

  • Explore possibilities to take out insurance to protect against the risk of charterer (or bunker intermediary) insolvency.
  • In the event an intermediary is used the following precautionary steps can be taken:

Endeavour to ensure that the intermediary has an appropriate credit insurance.

Endeavour to agree to pay the intermediary the profit element only by way of paying the physical supplier separately, or by way of making one payment to the intermediary .

Endeavour to ensure that the ultimate buyer has the longest credit period in the contractual chain by way of a term in the contract with the intermediary that the intermediary has to first pay their supplier in full for the bunkers before the ultimate buyer is obliged to pay them.

  • Finally, a word of caution. There is no magic answer which will eliminate all legal risks in relation to the supply of bunkers. All situations differ and there are different parties involved in supply chains.

Source: The Swedish Club

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