www.bunkerspot.com Volume 14 Number 5 October/November 2017 RSPO'"
TALLORDER SINGAPORE RAISES THE BAR FOR THE BUNKER INDUSTRY
INSIDE:
SHIPPING OUTLOOK ARBITRATION FUEL QUALlTY LPG owbunker
The bankruptcy of OW Bunker in 2014 and Hanjin Shipping's market exit last year together provided a salutary - and long overdue - wake-up call for the bunker industry and wider maritime sector. Steve Simms of Sirnms Showers reviews the subsequent legal and cornmercial changes and actions that have wrought further upheaval in the shipping world in such a short space of time
ometlme just befare 7 November 2014 talk witI1 him (Rlp finds that many are gone) about Rlp Van Winkle. Deep In a forest, (the date of OW Bunker's insolvency and they ask: 'Wtry should we buy through Rip finds a group of Dutch sailors from Sfili ng In Denmark). a bunker trader you and not direct from physical suppliers?' Henry Hudson's 1620 New York expedi namad Rlp flnds a group of strangers. Rip's expertise had a/ways added falr value tion. Mystariousty, they are aliva from more They invite Rip to take a drink wHh them (It for those customers, so what has changed? than 100 years earliar. Rip drinks with them could haya been Aquavit, the potent Oanish Rip arrests a ship to collect on sorne old char and wakes up 20 years later. He has slept natianal distillate): terer accounts. The owner's first question to through the entire American Revolution. His By degrees Rip's awe and apprehension him is, 'Did you pay the physical supplier?' dog and many friands are dead, his now subsided. He even ventured, when no eye Rip then gets a new set of sales terms from old gun is rusty, and American revolution was fixed upon him, lo laste the beverage, an old friend, a physical supplier. The supplier aries instead of the King run the country. which he found had much o, the ffavour won't sel! to Rip on credit, unless Rip assigns The 2017 bunker trader 'Rip' finds that the of excellent (Denmark). He was naturally the supplier aH rights (including arrest of the bunkering world also has changed much since a thirsty soul, and was soan tempted to vessel) against Rip's customer, and incor he went to sleep in the first days of November repeat the draught. One taste provoked porates the supplier's sales terms (including 2014, to then wake up in October 2017. the other. and he reiterated his visits to the explicit arrest right for the supplier). The sup The OW and Hanjin insolvencies have flagon so aften that al length, his senses plier insists that Rip must confirm he hasn't brought much of the change that has been were overpowered, his eyes swam in his assigned the receivable to any bank, and that seen in the global bunker industry. OW head, his head gradually declined, and he Rip has no 'no lien' notice from the customer. and Hanjin-related court litigation, from fell into a deep sleep. Physical suppliers didn't use to think this vessel arrests and insolvency proceed Rip wakes up about three years way. The supplier explains to Rip that it lost lngs, to appeals, continue throughout the later, in early October 2017. There's a hundreds of thousands of dollars when OW world. Their impact, as well as other devel lot that's changed in the bunker world. went bankrupt. He's sorry, but they can't opments in the bunkering world, such as Seven internationaJ container carriers any longer take the risk that when a trader the 2020 MARPOL 0.5% sulphur content now control 95% of the world container doesn't pay them, they can't arrest the limitations, overcapacity and technologi market. Rip learns that Hanjin Shipping, the ships which didn't pay for their bunkers. cal developments, will continue the change. world's seventh largest container carrier, Rip also hears sorne words that are new Since QW's insolvency and then the many filed insolvency proceedings on 31 August to him, like 'interpleader', 'private treaty Hanjin vessel arrests, the first question trad 2016. Hanjin's nearly-100 vessel fteet was sale', 'cross-border insolvency', and 'title ers now get is, 'have you paid your physical stopped and many vessels arrested. OW, retention'. Rip tries to find some of his old supplier?' It is now common for customers one of the world's largest bunker traders, trader friends, but many of their compa to require proof of payment before they will is gone. Two things that were unthinkable, nies are gone, bought by larger bunker pay, and this has led to two industry changes. before Rip fell asleep in November 2014. traders. Sorne are being sued by their First, there is an increased focus on the Rip hears of things entirely new to him, investors. Many are barely making a profil. development of digital approaches - 'dis like 'disintermediation' and digitised, on-line The character 'Rip' is taken from American intermediation' - which connect customers trading. Few of Rip's old customers will still author Washington Irving's 1819 short story directly with physical suppliers. Tha goal
WNW bunkerspot com owbunI 01 Ihls 'dlslntermedlatlon' Is lo reduce can exIt!he proosedIngs, bu! siso recaver lis bu! siso arres! ri!tdS Ior vesseIs. These assIgn bunkerlng costs, ellmlnating traders or attomey's lees and costs Ior lnItIatIng them. ments were no! onlylor!he margln whlch cm reducing ocnventIonaI _ comrnissIons. Before OW and Hanjln, Inlerpleader was 10 rnake re-selHng eech purchased from 'Disk Ita III8diatioi j' ck1I!eIopers siso intend to rarely was used where there were unpald physIcaI suppllers, bu! siso Ior !he amomts answer 1mmedIateIy!he questlon of payment bunkers and potenllal vessel arresls, whlch aw ...... paId !he physIcaI suppllers. of physIcaI suppllers, because they connect bu! H Is now a common beglnnlng 01 Thers ars two notable exceptIons 10 these !he supp8er dlrectly wIth !he customer ¡u US proceedlngs Involvlng OW debts. decIsIons, howeIier(bolh ~cases): chaslng from them. The pre-CNoI mar1 physical supply 01 the fuel is being under ING Bank NV v, MIV TEMARA , 2016 U.S. taken by a third party which insists that the Dist. LEXIS 146251 (S.D.N ,y' Oct. 21 , 2016). Buyer is also bound by its Qwn terms and 'Panama remains a The Court continues as follows: conditions ... the Buyer shall be deemed to jurisdiction where The undisputed facts make it clear that have read and accepted the terms and con recovery, including QW Bunker does not have a maritime lien ditions imposed by the said third party.' for the provision of bunkers to the vessels The physical supplier in Canpotex had vessel arrest, is not herein. With the exception of the place sales terms which provided far a marítime ment of sales order with the charterer, líen by the physical supplier, for unpaid bun restrained, A further nothing in the record suggests QW Bunker kers. The Federal Court held that the QW 'L.4' part of Panama took on any risk in connection with provid clause meant what it says, so that, the inter ing necessaries: It did not itself physically plead amount paid the physical supplier, not procedure provides supply any of the bunkers, and it is undis ING (claiming as 'assignee' through OW). for the entry through puted that it never paid any supplier that ING appealed and the appeals court found did. Nothing in the record supports any the evidence unclear as to which version of Panama's maritime payment obligation by QW Bunker to the QW's sales terms (the one which the physical physical supplier - either directly or indi supplier relled on, or another one not extend court of injunctions rectly. The record is devoid of information ing the physical supplier's rights) applied. This which prohibit regarding QW Bunker's arrangements question is now back before the Federal Court. down the chain. Thus, a maritime lien Well-advised physical suppliers have the transfer of a here would not fulfill its essentially pro developed terms and conditions for sales Panamanian-titled tective function; it would instead award a to traders, which expressly assign to phys windfall. Had QW Bunker paid the physical ical suppliers all rights of arrest and direct vessel. until the suppliers, the outcome might be differ recovery from customers which have ent. But QW Bunker is in bankruptcy and not paid for the physical supplies. They claims against the ING has made it clear that even if it were establish the traders as the agents and fidu vessel are paid' to recover on QW Bunker's behalf, it has ciaries for the physical suppliers, to collect neither obligation and nor intention to all amounts due for the physical supply. pay the physical suppliers. To establish They expressly permit the physical suppli physical suppliers, it (and thus ING) had no mar a maritime líen requires more than the ers to proceed ifthey are not paid, and assign itime lien rights, either. The result, concluded initial sales order QW Bunker received back the rights to the traders, when the trad the Court (somewhat inconsistently), between from the charterer. The sales order and ers pay the physical suppliers. They also the two opinions, was in one opinion , that confirmation only establish the 'authori require the traders to confirm that the trad the unpaid physical supplier without a direct sation' portion of the test under CIMLA. ers have not assigned to any third party (Iike a customer relationship (with the vessel ownerl CIMLA also requires that the necessar bank) any of the rights that the physical suppli charterer) had no maritime lien (even though ies be provided by the entity seeking the ers have {through their sales terms} to directly the physical supplier had paid for the bunkers lien. The term 'provided' directly implies an recover each amount owed to the physical and physically provided them to the vessel). out-of-pocket expense or liability worthy suppliers, including through vessel arrest. In the second opinion, the Court con of protection. Here, QW Bunker meets Well-advised physical suppliers are also cluded that QW had no maritime lien (and certain first steps of the CIMLA test (nec now aware of the sales terms of the traders no arrest right) either, with the overall con essaries and authorisation), but fails the they sell to, assuring (and requiring) that the clusion being, that no party had any arrest final one (providing). traders have received no 'no lien' notices, right (so the vessel owners, essentially, ING Bank N,V v, MIV TEMARA , 2016 that the traders' sales terms effectively pro received free bunkers). The Court in the U.S, Dist. LEXIS 146251, al 26-27. vide for arrest based on maritime liens in rem, second Temara opinion, writes as follows: This decision also is presently on and that the traders' sales terms effectively The key issue in determining whether appeal to the United States Court preserve any title retention which the phys QW Bunker has a maritime lien is what of Appeals for the Second Circuit. ical suppliers make in their own sales terms. the term 'provided' means under [the US With well-advised, clear assignment of rights These physical suppliers al so have law providing for maritime liens in rem , the from the trader to the physical supplier, there contact with the customer, including com Commercial Instruments and Maritime will not be the odd result aboye, where neither municating their sales terms in each Líen Act, "CIMLA"]. Dresdner Bank AG v. the trader nor physical supplier has security communication with the customer (as a part MNOLYMPIA VOYAGER, 465 F,3d 1267, for payment for the supply, including no right of confirming details of physical supply, for 1274 (11th Cir. 2006)(a lien for necessar to arrest. The trader receives its margin for example, by web li nk in messages to cus ies arises, pursuant to clear statutory re-selling and other valuable services it pro tomers and their local husbanding agents) language, when the claimant provides vides, and the physical supplier assures that and through their bunker delivery notes. necessaries to the vessel.) (emphasis in the trader, or if not the trader, the ultimate cus This is a development, given a further US original). Can QW Bunker, steps removed tomer or its vessel, pays for the physical supply. court decision, that traders should welcome. from the physical provision of bunkers Rip al so awoke to learn of the UK In a second opinion issued in connection with and never having had a tangible financial Supreme Court's PST Energy 7 Shipping the M/V Temara and other ves seis, the court risk with regard to them, be deemed to LLC v QW Bunker Malta Limited decision, decided that because QW had never paid the have 'provided' them? in May 2016 (the Res Cogitans). The .... Bunkerspot OctoberlNovember 2017 WNW.bunkerspot.com 57 QW bunker shipowners argued that QW had sold goods Both QW and Hanjin saw almost imme further ways to recover from the mortgage (bunkers) and that through the UK Sale of diate cross-border insolvency proceedings holders and owners. Against mortgage hold Goods Act, had no right to calleet anything brought in many major world jurisdictions. ers, at least for Hanjin, mortgages frequently because QW had never paid for the goods. This was, and will be, a further difference were unpaid for months as the mortgage hold The Supreme Court upheld lower court from trader Rip's pre-November 2014 world. ers allowed Hanjin to take on bunker supplies and arbitrators' decisions, that because QW's Soon after QW's main insolvency proceed which the mortgage holders (as its lenders, sales terms retained title (until QW was paid ing filing in Denmark, and Hanjin's in South carefully monitoring Hanjin's cashflow) at least for bunkers) the UK Sale of Goods Act didn't Korea, there were corresponding proceed should have known Hanjin could not pay foro apply. No goods were actually sold, instead ings for assistance filed in the United States The same was the case for the owners of QW only gave the right to consume them. (under US bankruptcy law 'Chapter 15), the vessels which Hanjin was chartering, who Befare November 2014, title reten United Kingdom, Canada, Australia, Japan, had not been paid charter hire for months. tlan clauses were common in bunker sales New Zealand, Singapore and Germany. Against the mortgage holders, the unpaid terms. Res Cogitans has led to questions These quickly prevented any creditors from suppliers and traders may have the right about whether they should remain. The short filing proceedings in those jurisdictions of equitable subordination. This is avail answer ¡s, that they should, both for trad against QW or Hanjin assets, or against able where a security holder with an ers and physical suppliers (and the latter Hanjin-owned or chartered vessels. The otherwise superior claim, fails to exercise should insist that traders incorporate those result was to prevent even those with direct it to the detriment of otherwise less secure terms). Res Cogitans still gives arrest rights claims against Hanjin vessels, from recovery. claimants (like bunker suppliers/traders). to both traders and physical suppliers, which The vessels called on the ports pro Against owners, there may be the right of have retained title. Continuing rights to at tected, discharged cargo, obtained revenue proceeding for unjust enrichment, namely, least un-consumed bunkers (and argua and then their banks sailed the vessels to that but for consumption of the bunkers bly to those replacing consumed bunkers, friendly jurisdictions, where they could con which owners should have paid for, the where the title retention clause extends to veniently have the vessels judicially sold. owners never would have been able to get those) have been recognised under UK law Hanjin's banks frequently had the vessels their vessels to scrap or favourable sale. since the House of Lords' decision in THE sold by 'private treaty' sales, with little if any Trader Rip had never had to consider equi SPAN TERZA, [1984[ 1 Lloyd's Rep. 119. public notice, giving unpaid bunker provid table subordinatíon, or unjust enrichment Since befo re QW and Res Cogitans, it ers, and others, little immediate chance to action, befo re QW or Hanjin. But he has remains ultimately the vessel owners' res pon object (and the jurisdictions involved, fre noticed, that at least in the container market, sibility either to assure that they (if buying quently expensive or difficult, in which there are now only seven carriers which con directly) or any charterers, pay for the bunkers to raise any objections in the first place). trol95% of the world's container trade. There their vessels take on, whether or not the sales terms include title retention. Properly-drafted title retention clauses allow traders, and "'1 don't give a rip" is an English idiorn, physical suppliers, to at least reclaim un-con sumed bunkers which have not been paid foro rneaning, basically, '1 don't care'. Sorne in the They also keep the unpaid-for physical supply from being claimed as assets of a bunkering industry, even with the events since defendant vessel owner or charterer, including Novernber 2014, have continued the sarne when a vessel is returned by a charterer to an owner and the bunkers aboard otherwise cred practices, irnagining nothing has changed' ited against unpaid charter hire (or to otherwise fulfil a duty to return a vessel with a certain fuel amount). Well-drafted retention clauses also Often, both the Hanjin vessels, and those also is overcapacity, which with the Jikely prevent unpaid-for bunkers being included in with bunker supplies unpaid-for by QW, bunker market price rise occurring around the bankruptcy assets ('estates') of custom escaped from arrest under command of 2020 (and 0.5% sulphur fuel content limita ers, or from reverting to the customers' banks their owners, using the unpaid-for bunkers tions) will place continued pressure on not under loan assignment or security clauses. to enable that. In the case of Hanjin, those only the seven large container carriers, but Along with this, well-drafted retention owners used the unpaid-for bunkers to sail the particularly on the smaller ones making up clauses will provide for UK law to control ves seis for scrap, after which, of course, the the remaining 5% of world container trade. them (only), even if the sales terms otherwise vessels could not be arrested. The case was He also has noticed that although there provide (as they should) for US maritime law (and is) similar for the vessels taken over by are fewer bunker traders since November right of arrest in rem. This is because in the their mortgage holders. The mortgage hold 2014, with many having been purchased United States, title retention is considered ers used the unpaid-for bunkers to power by larger traders, there still are many more to be a security interest, which must have the vessels to the arrest locations, where bunker traders than the present low-mar a properly filed Uniform Commercial Code the vessels further consumed the bunkers. gin market (certainly lower than November (UCC) Form 1 to be perfected. Even then In all of these situations, for the first time 2014) allows to do business profitably. Which those relying on retention clauses should file widespread since November 2014, mortgage traders will continue to operate, and, he won UCC-1 s if there is any chance that the bun holders and vessel owners were able to use ders, in order for Rip to continue to operate, kers may have to be recovered in the United unpaid-for bunkers, at the expense of the what will he need to do? Certainly, traders States or (as more likely) the customer would unpaid suppliers and traders. Consequently, must prepare for more considerations that be involved in US insolvency proceedings. unpaid suppliers and traders have looked for OW and Hanjin have made commonplace. 58 www.bunkerspot.com Bunkerspot October/November 2017 QW bunker There was one thing that Rip recognises including vessel arrest, is not restrained. A fur place and to tel! his industry friends about has remained the same - and his obser ther part of Panama procedure provides for what he's learned so they can take action, too. vations of his 'time asleep' during QW the entry through Panama's maritime court '1 don't give a rip' is an English idiom, and Hanjin unquestionably reinforce this. of injunctions which prohibit the transfer of meaning, basically, '1 don't care'. Some in the That ¡s, pre- and post-November 2014, trad a Panamanian-titled vessel, until the claims bunkering industry, even with the events since ers and suppliers must aet almost instantly against the vessel are paid. Many Hanjin November 2014, have continued the same when there is an insolvency situation, ideally, chartered vessels were Panama registered, practices, imagining nothing has changed. before it is filed but certainly after. The QW and many others, and those fuelled by OW, also Hopefully, trader Rip's story is encourage and Hanjin lessons enforce those of before. had to transit the Pan ama Canal. Recognising ment to 'give a Rip' about the changes since Be ready to arrest quickly. Have able counsel this, a number of well-advised bunker trad November 2014 and those certain to follow. ready to do that, who know your operations, ers were able to use Pan ama procedure to and who have a network of correspondents arrest vessels and prohibit title transfers, 1 Rip Van Winkel, a short story by the American writer who they are able to lead to aet on a simulta Washington Irving ( 1783-1859), Great Short Stories by alfowing them to recover where others did not. neous, international basis. Make sure you have American Writers (lhomas Fassano, Ed.), al 7, Coyote Rip continues to be amazed at the pro Canyon Press 2011. documented each transaction well, including found changes in his industry. That, plus the communication and incorporation of your the crazy talk about LNG-powered con sales terms and conditions. Know where the ~ Steve Simms is Principal of law firm tainer vessels (which he learns isn't so crazy) Sirnms Showers, LLP, immediate past vessels you have sold to are going, know the and low sulphur bunkers (necessary, he Board member of the International credit situation of your customers, and know agrees, but no one in 2014 ever thought it Bunker Industry Association (lBlA) and where you can arrest and recover where would really happen), seems overwhelming. serves as Chair of IBIA's Legal Com you have to do that. Act before the vessel or mittee. The views expressed in this But, trader Rip does get the point. Things debtor is covered by any insolvency stay, be article are his own. well-prepared to do that, and don't hesitate. that worked before OW and Hanjin, that the A development related to this in both Hanjin industry believed were 'good' for it, won't Acting for major bunker suppliers and and OW, highlights Panama as an impor work now. Rip thinks for a minute and with traders, Steve Simms continues to be tant place for recovery. Panama is not part thanks sees that three years of sleep gave extensively involved internationally of any international cross-border insolvency him a unique, and valuable perspective. He with the OW Bunker and Hanjin system. So, as cross-border insolvency resolves to call his maritime lawyer (who, in Shipping insolvencies. injunctions were entered across the world, contrast, hasn't slept much tor the past three Iill Tel: + 1 443 290 8704 Panamaremainsajurisdictionwhererecovery, years) to make sure al! that's needed is in Email: [email protected] Bunkerspot OctoberlNovember 2017 WNW.bunkerspot.com 59