02 May 2016

Judgment in Dubai Court May Alleviate Chaos Surrounding the OW Bunker Liquidation

Authored by: Raymond Kisswany

Judgment in Dubai Court May Alleviate Chaos Surrounding the OW Bunker Liquidation

In brief

  • Landmark judgment from the Dubai Court of First Instance in complex shipping scenario arising out of the 2014 OW Bunker insolvency, involving arrest of the vessel and a claim for unpaid bunkers.
  • The judgment discussed “maritime debt” as defined by UAE Federal Law No. 26 of 1981 concerning the Commercial Maritime Law (“CML”).
  • The Court of First Instance made three important findings, looking at the nature of the contractual relationship between the parties, that the Bunker Delivery Receipt (“BDR”) was merely a receipt or acknowledgement and lastly, that that the Physical Bunker Supplier (“PBS”) did not have a right to arrest the Vessel because the debt did not fall under one of the fifteen categories of a “maritime debt” pursuant to the CML.
  • The implications of this Court of First Instance decision will be wide-ranging and influential.

 

The OW Bunker (“OWB”) liquidation in late 2014 sparked turmoil, especially between shipowners, physical suppliers and OWB’s liquidators. In fact, 2015 saw countless ship arrests, lawsuits and demands for payment from physical suppliers and OWB’s liquidators as well as commercially unsound rulings from English Courts (e.g. [2016] UKSC 23 decision in the Res Cogitans). Throughout these chaotic times, our law firm represented several P&I Clubs and shipowners; indeed, I have previously written two articles in respect of the aforesaid liquidation (see, Marasi News July 2015, Issue No. 12 and IBA Maritime & Transport Law Newsletter, Vol. 11, No. 2). Recently, we successfully defended our clients in what has become a landmark judgment in the Dubai Court of First Instance (“CFI”) in a claim commenced by a physical bunker supplier against our clients, shipowners, and OWB’s Dubai subsidiary, OW Bunker Middle East DMCC (“OWBME”). 

By way of background, OWB was a Danish company with subsidiaries around the world, including OWBME, and was the world's largest marine fuel (bunkers) company. In November 2014, OWB declared insolvency amid fraud accusations and mounting debts. In the ordinary course of business, shipowners would have contracted with OWB or one of its subsidiaries and OWB would have arranged the bunker supply with a physical supplier. The shipowners would make payments directly to OWB and, in turn, OWB would pay the supplier. Suppliers usually issue a bunker delivery receipt (“BDR”) once bunkers have been delivered to the vessel. BDRs are addressed to the master, shipowners and/or charterers. The master will typically sign the BDR.  

In the present case, our clients (“Shipowners”) contracted with OWBME to arrange the bunker supply for their vessel (“Vessel”). OWBME instructed the plaintiff, the physical bunker supplier (“PBS”), to supply the Vessel in Dubai. The master of the Vessel signed the BDR once the PBS supplied the Vessel with bunkers. Shortly thereafter, OWBME went into liquidation. The Shipowner settled the amounts owed to OWBME which were paid to OWBME’s liquidators.

In spite of the above, the PBS petitioned the CFI to arrest the Vessel for unpaid bunkers as evidenced by the signed BDR and citing the unpaid bunkers to be a “maritime debt” as defined by UAE Federal Law No. 26 of 1981 concerning the Commercial Maritime Law (“CML”). The CFI granted the Vessel’s arrest (arresting ships is a method of obtaining security for litigation against shipowners). The Shipowners placed security with the CFI’s treasury in order to release the Vessel from arrest. The PBS commenced litigation against the Shipowners and OWBME.
PBS’ Statement of Claim argued that the BDR was a contract between the PBS and the Shipowner because the BDR was signed by the master of the Vessel pursuant to CML Article 115(2)(k). Therefore, the PBS alleged, the Shipowners were responsible to pay for the bunker supply directly to the PBS.

The CFI held three important findings: 

  • First, the CFI held that the PBS had supplied the Vessel with bunkers for the claimed amount based solely on the request from OWBME. This furthered the argument that the contractual relationship was between OWBME and the PBS. 
  • Second, the BDR was merely an acknowledgment, receipt or delivery note for the bunkers and was not a contract.
  • Third, the CFI held that the PBS did not have a right to arrest the Vessel because the debt did not fall under one of the fifteen categories of a “maritime debt” pursuant to the CML. As such, the CFI dismissed the arrest and the security amount placed by the Shipowners. 

The CFI’s ruling in this case is extremely important even though it is open to appeal. For over a year, shipowners faced a difficult choice of whether to pay OWB or physical suppliers, having received demands from one or the other or both. On the one hand, shipowners had valid contracts with OWB; on the other hand, the suppliers were using signed BDRs to arrest ships causing tremendous losses. Shipowners faced the dilemma that, making payment to OWB, as per the ordinary course, would not prevent a ship arrest. However, directly paying the supplier may relieve the immediate threat of a ship arrest, but the risk of OWB’s liquidator deciding to demand the same amounts from the shipowners had become a reality in various London proceedings.

The CFI’s judgment is sound and well-reasoned both in its legal interpretation as well as its commercial and shipping awareness and we hope that the CFI’s judgment leads the way to alleviate at least some of the chaos surrounding the OWB liquidation. 

 

The full article was published in Marasi News on 8 February 2016 and can be viewed here

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.