Second Circuit Weighs In On Maritime Lien For Bunker Supply
In a long-awaited decision, the U.S. Court of Appeals for the Second Circuit became the latest U.S. court to hold that a maritime lien for a bunker supply belongs to the bunker trader, not the physical supplier of the bunkers. A copy of the decision can be accessed here.
This was another case featuring a supply by the O.W. Bunker group shortly before their collapse. The vessel’s charterer ordered the bunkers from O.W. Denmark, who subcontracted with O.W. USA, who subcontracted with the physical supplier, CEPSA. ING bank became the assignee of O.W. Denmark’s rights by way of a financing agreement.
The Second Circuit affirmed the lower court (the U.S. District Court for the Southern District of New York), agreeing with the U.S. Court of Appeals for the Eleventh Circuit that the physical supplier does not have the lien, essentially because the physical supplier did not deal with the charterer who ordered the bunkers. [L&F Note: the issue of who has the maritime lien - - the trader or physical supplier - - is now also before the U.S. Courts of Appeal for the Fifth and Ninth Circuits, and decisions from those courts ought to be issued in the next several months.]
In rejecting the physical supplier’s claim to a maritime lien, the Second Circuit court made clear that liens can be created only by law, not by contract. Therefore, the physical supplier’s argument that O.W.’s bunkering supply terms and conditions confer a lien on the physical supplier failed. The court also rejected, as unsupported in the record, the claim by the physical supplier that the O.W. entities acted as agents of the physical supplier.
Further, the Second Circuit court rejected the physical supplier’s argument that it had a maritime lien on equitable grounds, holding that a claim based on equity or unjust enrichment does not give rise to a maritime lien and can be asserted only in an in personam action, the case before the lower court being solely in rem [L&F Note: please recall from our newsletter of May 11, 2018 that the Eleventh Circuit court in the Martin Energy case found in favor of a physical supplier against a vessel owner in personam on a quantum meruit theory. Now that the clear trend of U.S. courts is to deny that physical suppliers have a maritime lien against vessels in rem, it will be interesting to see if physical suppliers will assert quantum meruit claims against vessel owners in personam, perhaps attempting Rule B attachments to establish jurisdiction. As noted in our May 11, 2018 newsletter, the Eleventh Circuit in Martin Energy did not expressly decide whether a quantum meruit claim can be the basis of a Rule B attachment.]
As for the assertion by ING (as assignee of O.W. Denmark) of a maritime lien, the lower court held that there was no lien because O.W. Denmark did not have a financial risk in the transaction. The Second Circuit reversed that holding, finding that the consideration of risk is irrelevant where it was clear that O.W. Denmark contracted with the charterer to supply bunkers to the vessel. The Second Circuit said that, in any event, there was evidence in the record that O.W. Denmark was exposed to risk.
If you have any comments or questions regarding this newsletter, please feel free to contact Randolph Donatelli at rdonatelli@lyons-flood.com or Martin West at mwest@lyons-flood.com.
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