Type: Client Alerts
In a watershed decision concerning the scope of maritime liens under the U.S. Commercial Instruments and Maritime Lien Act (“CIMLA”), the District Court for the Southern District of New York recently held that OW Bunker entities did not have valid maritime liens for the supply of bunkers to vessels. In the first decision by a U.S. court to hold that the OW Bunker entities do not have maritime liens under U.S. law, the Court underscored that maritime liens are an extraordinary remedy for suppliers of necessaries to vessels and cannot be assumed to apply in all circumstances. This ruling, together with previous rulings by other courts holding physical suppliers did not have valid maritime liens, may leave no party with a valid maritime lien arising from the OW Bunker collapse and bankruptcies. Without a maritime lien, suppliers of necessaries to vessels do not have a right to arrest.
In the two years since OW Bunker filed for bankruptcy, scores of vessels have been arrested or threatened with arrest on maritime lien claims asserted by physical suppliers, insolvent OW Bunker entities, and by OW Bunker’s lender, as purported assignee of OW Bunker’s claims. Millions and millions of dollars in security deposits have been paid into courts by vessel owners and charterers under exigent circumstances to free vessels from the arrest or threat of seizure, while parties continue to litigate the validity and scope of such claims. A recent decision by Judge Forrest in the Southern District of New York may change the landscape for vessel arrest. In jointly administered actions arising from the arrests of the vessels OCEAN HARMONY , TEMARA, VOGE FIESTA, MARITIME KING and JAWOR1, Judge Forrest held that OW Bunker did not have an enforceable maritime lien under U.S. law. Judge Forrest denied summary judgment for plaintiff ING Bank NV (as purported assignee of OW Bunker’s maritime liens) on the existence of the underlying maritime liens for provision of necessaries to the vessels, and instead granted summary judgment to the defendant vessel owners and charterers.
In her carefully reasoned ruling, Judge Forrest examined the purpose behind the U.S. Commercial Instruments and Maritime Lien Act (“CIMLA”), noting that maritime liens are intended to protect those who provide necessaries to vessels, not to enable a windfall recovery where there has been no financial or other risk. Since OW Bunker did not pay the physical suppliers of bunkers to any of the vessels at issue in her decision, had no intention to pay the physical suppliers even if it recovered on its lien claim,and further did not itself supply the bunkers to the vessels, Judge Forrest held that OW Bunker was never at financial risk when it entered into contracts for the supply of bunkers, nor when it instructed bunker suppliers to deliver fuel to the vessels. OW Bunker, therefore, did not “provide” necessaries to the vessels, failing to satisfy one essential prong of the test for a maritime lien, and OW Bunker thus did not have a maritime lien under the CIMLA.
Judge Forrest’s ruling addresses squarely the question of whether some entity must always have a maritime lien if necessaries are supplied to a vessel – and the ruling plainly states that the answer to that question is no. As Judge Forrest stated, “The provision of necessaries does not always give rise to a maritime lien.” If each of the requirements of the CIMLA is not met, then no maritime lien will arise. In other decisions arising from the OW Bunker bankruptcies, several U.S. courts have held that physical suppliers do not have a maritime lien arising from the supply of bunkers, since such suppliers provided bunkers at the order of OW Bunker, not from a person with authority to bind a vessel (such as an owner or charterer). In her recent ruling, Judge Forrest has clearly held that OW Bunker also does not have a maritime lien where it did not undertake any risk in connection with providing necessaries; OW Bunker did not physically supply the bunkers, never paid the suppliers that did supply the bunkers, and had no intention of satisfying any such payment obligations. A maritime lien under these circumstances would improperly provide OW Bunker with a windfall and run counter to the purpose of the CIMLA.
This ruling is the first decision ruling that OW Bunker does not have a maritime lien, and underscores that a maritime lien under the CIMLA is an extraordinary remedy intended to mitigate equally extraordinary risk taken by suppliers. Although it would not be surprising if the ruling were appealed, the ruling may have a significant effect. More than 30 other arrest actions and interpleader cases arising from the OW Bunker bankruptcies are pending before the Southern District of New York, in addition to many similar cases pending in other U.S. jurisdictions. Since the OW Bunker terms and conditions for the supply of bunkers provided that U.S. maritime law would apply with respect to maritime liens, and provided for the jurisdiction of the Southern District of New York for adjudication of maritime and related claims, the decision may have considerable precedential impact on the many cases pending in the Southern District of New York. The decision may also affect the calculus of parties considering whether to commence future similar actions in the United States. Parties to bunker supply contracts also may wish to reconsider their terms and conditions in light of Judge Forrest’s ruling.
The ruling did not address OW Bunker’s contractual claims for payment for bunkers, nor did it address the issue of whether any maritime lien was validly assigned to ING, OW Bunker’s lender.
A multi-national team from Reed Smith’s New York and Hong Kong offices represented the vessel OCEAN HARMONY. If you have any questions relating to Judge Forrest's ruling, or other aspects of U.S. maritime lien law or OW Bunker-related matters, please contact Andrea Pincus or Jane Freeberg Sarma (New York office); Lianjun Li, Min Li, or Cheryl Yu (Hong Kong office); or your usual Reed Smith contact.
- United States District Court for the Southern District of New York, Cases 16-cv-95 (KBF), 16-cv-2051 (KBF), 16-cv-2923 (KBF), 16-cv-3456 (KBF), and 16-cv-6453 (KBF).
Client Alert 2016-286