A recent Federal Court case involved a time charterer losing all the bunkers they paid for to the vessel’s owner, who used it to settle a debt with another time charterer further up the line. The Court suggested this would not have happened if a retention of title clause was inserted. This article looks at that case and other Federal Court cases on bunkers to assess the dangers for bunkers owners.

Facts

Daebo v Go Star involved a string of five contracts. Go Star (ship owner) time chartered a vessel to Breakbulk, who did the same with Bluefield, who did the same with Daebo, who did the same with Nanyuan. Daebo then asked Nanyuan to pay for the bunkers (~USD$465,000) and hire. In the meantime Go Star decided to withdraw the vessel as Breakbulk was heavily in arrears, and warned Nanyuan not to pay Daebo. Go Star did withdraw the vessel, and retained possession of Daebo’s bunkers to offset what was owed to it by Breakbulk. Daebo was understandably aggrieved by this and commenced proceedings in the Federal Court of Australia, seeking recovery of the value of the bunkers.  

Judgment

Daebo lost. The reason was that in their charterparty with Nanyuan the parties agreed that Nanyuan would be ‘taking over’ the bunkers upon the delivery of the vessel. Lord Diplock of the United Kingdom’s House of Lords (as it then was) stated that “the words: ‘take over and pay for’ and the references to price, seem to me to be wholly inconsistent with the property in the bunkers being vested in anyone other than the charterers. The words I have italicised would otherwise be meaningless”, The Span Terza (No.2) [1984] 1 WLR 27 at 31-32 (emphasis in original). Justice Siopis. of the Federal Court agreed with The Span Terza (No.2) in which charterers cancelled their time charter when the vessel was arrested due to monies owed to third parties by the owners. Lord Denning referred to the charterer’s retention of title clause over the bunkers and this gave the charterers a right to proceeds from sale over the bunkers, because the charterers were the bunker’s true owners.  

Justice Siopis went on to say that Daebo could have protected itself similarly, by inserting a “Romalpa Clause” (retention of title until payment clause), saying that “property of the bunkers was to remain with the disponent owner until payment was made” [78], but without this explicit clause, one could not be inserted by the court.

We may receive more guidance as to whether this will be effective soon, especially under the new Personal Property Securities Act – which still has scant reference to its treatment of claims under maritime and admiralty law, when the Full Federal Court sits on the appeal of this matter.

It is now worthwhile having a look at some of the other dangers facing bunker owners as well as how strong other courts have found Romalpa clauses to be as a form of protection. Thus, below are the main Federal Court cases on bunkers from the last fifteen years:

Previous cases

  • In OW Bunkers ([2007] FCA 1139), Justice Mansfield said that bunkers “are commonly the property of the charterers” [23] and stated that since the mortgage holder did not specify that bunkers were part of their security in the mortgage document, there was no ground by which the mortgage holder could claim them.
  • In Scandinavian Bunkering (151 FCR 126), Justices Ryan, Tamberlin and Kiefel, held that a ‘ship’, which is a term that was said by Justice Ryan to include a vessel’s bunkers, if performing illegal fishing activities, could have its bunkers taken by the government, without a right to claim them back.
  • In Metall (145 FCR 145) Justices Lee, Tamberlin and Allsop, held that bunkers cannot be arrested in connexion with a general maritime claim if the bunkers themselves are unconnected or unconcerned with that particular claim. This provides slightly more protection to bunker owners.
  • In Fortis ([2003] FCA 524), it was held that the charterer had property in the bunkers that it brought on board and if the charterparty was terminated, the ship owner would reclaim the bunkers as bailee of the bunkers (not owner of it) and would need to repay the chaterer in line with the general rule (see Span Terza No.2 above). When the vessel was arrested, the Marshall (who arrests the vessel) consumed some of the bunkers. This consumption needed to be repaid before the vessel was released from arrest, as it was not used for the benefit of the bunker’s owners.
  • In Patrick Stevedoring ([1998] FCA 1013) Justice Tamberlin reiterated the importance of the Romalpa Clause, but nevertheless implied that charterers will generally have ownership of the bunkers that they pay for; the actual claim for bunkers failed for lack of evidence.

In short, property in bunkers tends to be the property of the sub-charterers that are furthest down the line of charterers. However, this is subject to the many caveats summarised previously.

A general warning is also worth stating, which is, that sub time charterers should be very wary of charters further up the line, especially the first charterer, as that is the only person that has a contractual relationship with the ship owner.  

Conclusion

The law is unclear when it comes to protecting your bunkers. The best protection is of course bunkering your bunkers with only enough bunkers to last each section of the journey, though in many cases this will be unrealistic. At the very least, charterers should insert a Romalpa clause in their charterparty.