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LP 28/2016 OW ruling a blow to physical suppliers

2016-04-21

A US federal judge has issued a key ruling that could spell trouble for physical supplier claims in US litigation over the OW Bunker collapse.

US District Judge Shira Scheindlin ruled that OW creditor ING Bank, but not O’Rourke Marine Services, has a lien against two vessels for which China Ocean Shipping Company (Cosco) purchased fuel through OW.

"O'Rourke has failed to demonstrate that it provided necessaries to the Cosco vessels 'on the order of the owner or person authorised by the owner'," the judge wrote, quoting US federal law.

Second lien decision

It is the second ruling to come down from the US courts to deprive physical suppliers of a lien that empowers them to arrest ships that purchased fuel through OW.

And while Scheindlin's decision is not binding on other judges, including her colleague in the federal court in Manhattan that is handling the bulk of the dozens of OW-related lawsuits, it is expected to carry significant weight in the many cases in which shipowners face competing claims from physical suppliers, ING and OW entities lingering after their Danish parent's December 2014 collapse.

"This is a very good decision and a solid decision on the law that makes it clear that the physical suppliers do not have a lien, and if anyone does it’s the bank," said Bruce Paulsen, the Seward & Kissel lawyer representing ING. The Dutch bank provided OW with a $700m loan that was secured by its accounts receivables.

Sheindlin’s decision emerges from an April 2015 lawsuit filed by O’Rourke to arrest the 4,250-teu containersihps Cosco Haifa (built 2012) and Cosco Venice (built 2013) over $244,000 in fuel bills that were still unpaid amid the confusion that followed OW's liquidation filing.

O'Rourke's lawyers at Baltimore firm Simms Showers asked the judge for a summary judgment in its favour, but Cosco's Freehill, Hogan & Mahar lawyers resisted, arguing that it has no liens against the ships because it was OW, not the US supplier, that had a contract with the Chinese shipowner.

US maritime law is generally considered friendly to suppliers of fuel to ships, and all sides agreed that O'Rourke met two of the requirements to have a lien against the Cosco Haifa and Cosco Venice by providing an item deemed a "necessary" to the vessels.

But the debate focused on whether the company supplied the bunkers on an order by the owner or a company acting as its agent.

Sheindlin wrote that OW subcontracted the fuel supply to the Cosco ships, but the Chinese shipping giant did not act as an agent that could bind it to contracts.

"No facts, disputed or undisputed, suggest Cosco was in any way involved in the selection of O'Rourke as physical supplier," she said in what will be among her last maritime decisions before she retires later this month.

Follows same path

Lawyers say the decision is along the lines of a February order by District Judge Nannette Jolivette Brown declaring that Valero did not have a lien when it supplied an Almi Tankers vessel in an OW-brokered transaction.

A lawyer for O'Rourke could not be immediately reached for comment. The company has a 30 days to appeal.


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