United States District Judge Valerie E. Caproni recently issued a highly anticipated order and opinion in three O.W. Bunker “test” cases in the United States District Court for the Southern District of New York. See, e.g., Nippon Kaisha Line Ltd. v. O.W. Bunker USA Inc., No. 14 Civ. 10091 (S.D.N.Y. Jan. 9, 2017). Judge Caproni, who has been presiding over more than 24 O.W. Bunker-related interpleader cases, joined other district courts in Louisiana, Texas, Washington, and Alabama in concluding that the physical suppliers do not have maritime liens on vessels because they did not provide necessaries “on the order of” the vessels or their agents. Judge Caproni also held that O.W. Bunker does have maritime liens on the vessels because it “provided” bunkers to the vessels.
Historically, O.W. Bunker’s trading business operated through a series of back-to-back contracts. Generally, vessels would order bunkers from O.W. Bunker and O.W. Bunker would, in turn, order bunkers from a local physical supplier. When O.W. Bunker collapsed, both O.W. Bunker and physical suppliers demanded payment from vessels and asserted maritime lien claims against vessels. Under US law, a party claiming a maritime lien must establish (1) that goods at issue were “necessaries”, (2) that it “provided” necessaries to a vessel, and (3) that it did so upon the “order of the owner … or a person authorized by the owner.” 46 U.S.C. § 31342. As a general response to these payment demands, a number of Vessels filed complaints in interpleader and invited O.W. Bunker and physical suppliers to prosecute their competing claims in the same action.
In our previous updates concerning O.W. Bunker litigation in the United States, we explained how US courts affirmed interpleader jurisdiction and denied the physical suppliers’ maritime lien claims. We also explained how US courts granted O.W. Bunker’s maritime lien claims . Judge Caproni’s latest order and opinion in an integral part of a growing consensus among US courts answering the question of who a vessel should pay when it ordered bunkers from now-liquidating O.W. Bunker, who then sub-contracted delivery of those bunkers to a physical supplier.
On December 28, 2015, the United States District Court for the Southern District of Texas became the first US court to issue an order denying a physical supplier’s maritime lien claim against a vessel. Valero Mktg. & Supply Co. v. M/V ALMI SUN, No. 14 Civ. 2712 (E.D. La. Dec. 28, 2015). The district court reasoned that the physical supplier did not provide bunkers upon the “order of the owner … or a person authorized by the owner.” Since that first decision was published, several other district courts published decisions likewise denying physical suppliers’ maritime lien claims against vessels. See, e.g., Bunker Holdings Ltd. v. M/V YM SUCCESS, No. 14 Civ. 6002 (W.D. Wash. June 6, 2016); Aegean Bunkering (USA) LLC v. AMAZON, No. 14 Civ. 9447 (S.D.N.Y. Aug. 24, 2016); ING Bank N.V. v. M/V CLIPPER IYO, No. 15 Civ. 2004 (S.D. Tex. Dec. 29, 2016). In fact, every court that has so far considered the issue has denied physical suppliers’ maritime lien claims.
On April 8, 2016, United States District Judge Shira A. Scheindlin published an opinion and order holding that O.W. Bunker (and its assignee ING Bank) possessed maritime liens against vessels. O’Rourke Marine Servs. L.P., L.L.P. v. M/V COSCO HAIFA, No. 15 Civ. 2992 (S.D.N.Y. Apr. 8, 2016). Two other district courts soon followed Judge Scheindlin in concluding that O.W. Bunker has maritime liens on vessels. Barcliff, LLC v. M/V DEEP BLUE, No. 14 Civ. 590 (S.D. Ala. Sept. 28, 2016); NuStar Energy Services, Inc. v. COSCO AUCKLAND, No. 14 Civ. 3648 (S.D. Tex. Dec. 1, 2016).
However, on August 24, 2016, United States District Judge Katherine B. Forrest, who was assigned to O’Rourke Marine Servs. L.P., L.L.P. v. M/V COSCO HAIFA upon Judge Scheindlin’s retirement, vacated Judge Scheindlin’s decision with respect to O.W. Bunker’s maritime lien. O’Rourke Marine Servs. L.P., L.L.P. v. M/V COSCO HAIFA, No. 15 Civ. 2992 (S.D.N.Y. Aug. 24, 2016). Then, on October 21, 2016, in ING Bank N.V. v. TEMARA, Judge Forrest, relying on an evidentiary record which lacked complete information regarding O.W. Bunker’s back-to-back contractual arrangements, determined that O.W. Bunker did not have a maritime lien. ING Bank N.V. v. TEMARA, No. 16 Civ. 2051 (S.D.N.Y. Oct. 21, 2016). Judge Forrest’s opinion required a party to demonstrate a risk of financial loss – an additional requirement not reflected in the statute – and ultimately used this unwritten requirement and the incomplete evidentiary record to conclude that O.W. Bunker was not exposed to real risk of financial loss and, therefore, did not “provide” bunkers to the vessel.
On a full evidentiary record, however, Judge Caproni concluded that O.W. Bunker did have a real risk of financial loss on the transaction, providing O.W. Bunker with maritime liens in the “test” cases, consistent with Judge Forest’s decision. Judge Caproni recognized that a party may “provide” necessaries to a vessel indirectly through a subcontractor. Judge Caproni further recognized that all of O.W. Bunker’s back-to-back contractual arrangements imposed significant financial risk on O.W. Bunker – the risk of providing bunkers to vessels even if the physical suppliers failed to deliver and the risk of paying the physical suppliers even if the vessels failed to pay. As such, Judge Caproni held that O.W. Bunker “provided” bunkers to vessels and, therefore, had maritime liens. Equity and public policy did not dictate a different result.