The insolvency of the Danish-based and other OW Bunker entities has affected vessel owners, charterers, banks and other bunker suppliers worldwide. In particular, vessel owners fear that their vessels will be arrested due to unpaid bunker supplies.
These well-publicised insolvencies have highlighted various issues concerning charterparties, bunker delivery contracts and vessel arrests. This update outlines the contractual relationships regarding bunker supply under time charterparties, the relevance of maritime liens and the arrest risks that may arise in Germany due to unpaid bunker supplies.
Who has contracted for the bunker – the vessel owner or charterer?
If the bunker delivery contract is concluded directly with the vessel owner and the vessel is not time chartered, the bunker supplier has a direct contractual claim against the vessel owner for payment of bunker invoices – subject to issues such as inclusion and validity of the bunker supplier's general terms and conditions.
If the vessel is under a time charter, the charterer is customarily responsible for the bunker supply. However, bunker supplier's general terms and conditions purport to make owners (and others) party to the supply contract in order to obtain additional debtors, but this does not always work. Under German law, the vessel owner is not normally a party to the contract between the time charterer and the bunker supplier. No one may be made a party to a contract without its consent. A time charterer is not generally authorised to enter into a bunker delivery contract for and on behalf of the owner. It is common practice in shipping that under time charters, the charterer has the right and duty to purchase and pay bunkers, and that the time charterer has neither apparent nor ostensible authority to contractually bind the vessel owner under bunker delivery contracts. Notices by owners to the suppliers that the vessel is on time charter and bunkers are ordered on behalf of the charterer's account only reinforce the point.
Maritime liens give rights against a vessel which follow the vessel into new ownership and enjoy priority ahead of registered mortgages. They are also known as 'secret liens' because they are created automatically and do not depend on a contractual relationship. Maritime liens are a true substantial right in the property of the vessel.
Maritime liens gained some notoriety in the context of the OW Bunker insolvencies on the grounds that in some jurisdictions – notably, the United States – the supply of necessaries (eg, bunker supplies) creates a maritime lien. However, most jurisdictions do not recognise necessaries as creating a maritime lien, thereby limiting the claims that do to an exhaustive list, which traditionally includes similar categories (eg, crew wages, salvage claims, claims for personal injury and death). Under German law, maritime liens are regulated under Section 596(1) of the Commercial Code. Claims for necessaries (eg, payment under bunker delivery contracts) do not qualify as maritime liens.
A maritime lien must be distinguished from a contractual lien, which is relevant only towards the contractual partner – under both German and English law – as there are no contracts at the expense of third parties. Therefore, contractual liens on the vessel (eg, under the supplier's general terms and conditions) apply only between the bunker supplier and the owner under a binding supply contract.
There is a certain risk that vessels can be arrested in Germany by bunker suppliers for unpaid bunker supplies. If the vessel to be arrested sails under the flag of another contracting state party of the Arrest Convention (1952), the vessel may be arrested for a maritime claim only against the vessel owner. Bunker delivery claims are maritime claims (Article 1(1)(k) of the Arrest Convention). If the convention does not apply, a vessel may be arrested under German law only for any payment claim against the vessel owner.(1) Payment claims against third parties suffice only in a few cases. The arrest of a vessel for a claim against its time charterer is not possible in Germany.
A bunker supplier contracting directly with the vessel owner may arrest the respective vessel for unpaid bunker deliveries. A bunker supplier without a contractual relationship to the owner (but only with the charterer or another bunker supplier) may arrest the vessel only if it is the physical supplier and it has a maritime lien against the vessel. There is no maritime lien for bunker deliveries under German law. However, Germany (different from the United Kingdom) recognises maritime liens which exist under foreign law.
After the reform of German maritime law in 2013, the special arrest ground of frustrating the enforcement of a judgment fell by the wayside. This was supposed to have turned Germany into an arrest-friendly jurisdiction (for further details please see "Ship arrests in Germany facilitated by modernised maritime trade law").
In case of unpaid bunker deliveries, the risk that a vessel will be arrested in Germany is limited. It may be present if there are direct contractual relations between the vessel owner and bunker supplier or if the physical bunker supplier has a maritime lien in respect of the vessel (which is not the case under German or English law).
If the vessel arrest turns out to be unlawful, the vessel owner may claim damages from the arresting party. Under German law, there is strict liability for wrongful arrest. In case of time-chartered vessels, the vessel owner may also claim damages from the time charterer due to breach of contract in case of unpaid bunker invoices. In this respect, the owner may in certain cases also have a lien on cargo, bunker, freight and sub-freight.
A vessel owner may file a caveat against a potential arrest in the court that is competent for the port at which the vessel is expected to call. The purpose of the caveat is to:
- dispute the potential arrest claim (arguing that the bunker supplier has neither a contractual relationship nor a maritime lien);
- apply for a hearing on the merits of the arrest claim; and
- apply for the arresting party to put up counter-security before the arrest.
For further information on this topic please contact Esther Mallach, Sarah Wolf or Marcus Webersberger at Dabelstein & Passehl by telephone (+49 40 31 77 970) or email (email@example.com, firstname.lastname@example.org or email@example.com).
(1) Sister vessels may be arrested only if the debtor is also the formal owner of the other vessel – mere beneficial ownership is insufficient and there is no associated sister ship arrest in Germany.
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