Göteborg: 23 February 2016

OW Bunker Bankruptcy

On 7 November 2014, OW Bunker & Trading A/S and OW Supply & Trading A/S filed for bankruptcy in the Danish court due to insolvency caused by, allegedly, speculative trading activities. Since then, a number of other Danish and overseas subsidiaries have also filed for bankruptcy proceedings. The OW Bunker Group was one of the world’s largest bunker suppliers, often acting as intermediary between owners and charterers purchasing bunkers, and physical suppliers. The bankruptcy has given rise to several difficult legal questions, the most notable being whether purchasers should pay the physical supplier actually providing the bunkers to the vessel, or the contractual supplier, OW Bunker, with whom the purchaser has a contract.

Generally, a purchaser is obliged in the first instance to pay any invoice issued by a contractual supplier unless it can be shown that the contractual supplier never had acquired title to the bunkers. On the other hand, physical suppliers may at the same time in certain jurisdiction be entitled to seek payment directly from the vessel/owners. Hence, the OW Bunker bankruptcy has had the awkward consequence that purchasers are facing competing claims for payment and that, effectively, purchasers are required to pay twice.

The duplicate claims are obviously resisted, which has resulted in hundreds of legal actions around the world. The legal systems have to date proven unable to provide satisfactory solutions to the dilemma. One complicating factor is that OW Bunker assigned most rights under its contracts to the Dutch financial institution ING Bank before the bankruptcy.

Claims by ING Bank and unpaid physical suppliers

Whether direct claims by the physical supplier will succeed will depend on the law in the country where the claim is pursued. As a first step, suppliers may try to arrest the vessel. An analysis of the risk of ship arrests for unpaid bunkers in England and Wales, Hong Kong, Singapore, US, Japan, China, Australia, South Africa and Italy can be read in the following document.

The risk of ship arrest for unpaid bunkers arising from the OW Bunker group collapse

Competing claims

Claims by ING Bank and physical suppliers against vessel owners and charterers have been subject to numerous legal proceedings world-wide. Two decisions have received significant attention, both of which generally favour ING Bank’s position:

The RES COGITANS (ultimately decided by the UK Supreme Court [2016] UKSC 23)

Precious Shipping Public Co Ltd and Others v OW Bunker Far East (Singapore) Pte Ltd and Others [2015] SGHC 187

Recommendations

Several of the Club’s members are involved in disputes concerning competing claims under OW Bunker invoices. Who should be paid for the stem is, as noted above, a complex legal issue. There is no general answer but instead each situation has to be assessed in the light of the particular circumstances and terms of the relevant contract/s. Members who are faced with competing claims are recommended to seek legal advice. Notably, disputes arising out of these types of situations are generally covered by the FD&D insurance. 

Some general recommendations may be provided:

The following important steps may be taken by owners and charterers in order to bring contractual clarity in relation to the supply of bunkers, as well as mitigate the risk for competing claims: 

Word icon Bunker Delivery Receipt template

Important: what to consider when signing the bunker Delivery Receipt

The use of a bunker intermediary will entail an enhanced risk in relation to the supply of bunkers. Members may therefore consider agreeing to only deal with physical bunker suppliers directly and, if so, a provision to that effect should be inserted in any time charterparty. 

In the event an intermediary is used the following precautionary steps can be taken: 

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. However, the above constitute steps that owners and charterers can take to try to mitigate those risks as much as possible, in appropriate circumstances. It is acknowledged that the steps may be difficult to take in practice.