Type: Client Alerts
On 7 November 2014, OW Bunker A/S (“OW”), a global supplier and trader of marine fuel, filed for bankruptcy in Denmark. Further bankruptcies of OW subsidiaries and affiliates swiftly followed, including the bankruptcy of certain U.S. and Singapore-based OW entities.
Protective interpleader proceedings were brought in the U.S. and Singapore by vessel owners and charterers who found themselves the subject of competing claims by third-party physical suppliers of the fuel, OW entities and/or ING, the bank to which it is alleged that OW assigned its rights under certain fuel supply contracts in December 2013.
Interpleader proceedings are designed to protect a party facing multiple claims in respect of a single obligation, by asking the court to determine the entitlement of competing claimants and, in the interim, granting equitable relief by making a form of anti-suit injunction to restrain the competing claimants from proceeding elsewhere. OW, which had contracted to supply fuel to various vessel owners and charterers, often sub-contracted with third-party fuel suppliers who would physically deliver the bunkers to the vessel. In the wake of the bankruptcy, some suppliers sought to enforce maritime liens directly against vessels, regardless of whether the shipowners or charterers had already paid the amounts owed to the OW entities with whom they had contracted.
In two recent decisions, the Federal District Court in New York (New York Court) and the High Court of Singapore (“Singapore Court”) reached opposing conclusions on whether interpleader proceedings relating to: (i) contractual (or ‘in personam’) claims; and (ii) maritime lien (or ‘in rem’) claims that were asserted against the vessels that had received the fuel, could be brought in those courts.
New York Proceedings In the New York proceedings, in which this firm is acting, the third-party fuel suppliers argued that the New York Court lacked jurisdiction to give interpleader relief and adjudicate on the maritime lien claims against the vessels because:
- The maritime lien in rem claims against the vessels were distinct from the in personam contractual claims against the shipowners and charterers, so the claims were not competing.
- Not all the vessels had been arrested or present in the jurisdiction when actions were commenced and injunctions issued, and the relevant parties had not consented to the substitution of the amounts paid to the court in place of their maritime liens.
On 2 July 2015, the New York Court found that the contractual (in personam) claims and the claims against the vessel (in rem) were merely “alternative procedural devices to obtain the same relief”, citing extensive U.S. precedent on the scope of federal interpleader jurisdiction The judge found that in each of the 24 pending interpleader cases before her, the proceedings in contract and the proceedings against the vessels had, at their source, the same obligation for the payment of fuel and were “inextricably interrelated”.
Notably, in the course of her judgment, the judge emphasised that the third-party suppliers were effectively attempting to jump the queue of OW creditors by proceeding directly against the vessel to collect the amounts owed, even though there were claims by other creditors directly competing on the very same legal basis. The judge further pointed out the irony that the fuel suppliers were seeking to rely on an equitable argument when their case relied on the inequitable premise that it was more fair for the shipowners to pay twice, or even three times, for the same fuel than for the fuel suppliers, who had effectively extended credit to OW, to take whatever ‘haircut’ might be imposed upon them in the bankruptcy proceedings or to wait to receive their portion of the interpleaded funds.
Having concluded that she had jurisdiction to adjudicate the claims, the judge went on to find that she had broad statutory authority to restrain the parties from instituting any proceedings that might affect the subject matter of the interpleader application in order to protect the vessel owners and charterers from parallel proceedings. Most significantly, the judge found her orders to be proper and necessary in each case. Among other things, her orders, upon deposit of funds into court, enjoined vessel arrests, as well as any other actions against the vessel owners and charterers to collect payment for the bunker supplies.
Singapore Proceedings In the earlier judgment in Singapore proceedings, which concerned ING (asserting the right to pursue OW’s claims) and a third-party fuel supplier, the interpleader application was dismissed. ING was pursuing a contractual (in personam) claim against the shipowners who had purchased the fuel, while a third-party fuel supplier sought to rely on a maritime lien (in rem) claim, a retention of title clause and the laws of agency.
On 24 April 2015, in a short decision, the Singapore court concluded that the contractual (in personam) claim for payment brought by ING and the in rem claims asserted by the third-party fuel supplier through the retention of title clause and under the maritime lien were of a different nature, did not concern the same debt and, as such, could not be the subject of an interpleader application. The fact that there was a slight difference in the amount claimed by each party was described by the judge as indicative, but not determinative, that the subject matter debt was different.
As regards the agency claim, it was held to be too weak to amount to a prima facie claim and, therefore, could not be the subject of an interpleader application.
Conclusion As the industry attempts to navigate the fallout from OW’s bankruptcy, the conflicting outcomes of the interpleader decisions in the U.S. and Singapore illustrate the difficulty that comes from a bankruptcy in which contractual claims and maritime lien claims interact, and the added complexity that comes from differences in the governing laws of different jurisdictions hearing similar proceedings.
While the Singapore court chose to focus more on the technical equivalence of the claims, the U.S. court drew on U.S. precedent for the broad application of interpleader relief to claims related to the same transaction or debt, regardless of whether they were brought in rem or in personam, and also addressed the legal fiction that an in rem claim could somehow be divorced from the actual person or legal entity that would pay the claim if due.
Client Alert 2015-190