Dutch courts take a stand in the ‘OW Bunker Chronicles’
Dutch courts take a stand in the ‘OW Bunker Chronicles’
Owners' and Charterers' interests trump that of a physical supplier, no double payment
The fallout of the OW Bunker Group’s bankruptcy has kept lawyers around the globe busy for the last couple of years. In its essence these cases all concern a chain of bunker sales, starting with Vessel Owners or Charterers purchasing the bunkers from an O.W. Bunker entity, who in turn purchases the bunkers from a physical supplier. The latter actually delivers the bunkers on board of the concerning vessel, but before the Vessel Owners or Charterers have paid O.W. Bunker as their contractual counterparty, O.W. bunker goes bankrupt. The big conundrum is whether physical suppliers left unpaid by the bankrupt O.W. Bunker have a right of recourse against the first buyer in the chain (Vessel Owners or Charterers) and – as a consequence – whether Vessel Owners and Charterers may be obliged to pay twice, i.e. pay their contractual counterparty O.W. Bunker (or rather its assignee ING Bank) plus pay the physical supplier.
On 28 September 2016 (ECLI:NL:RBAMS:2015:10145) the District Court of Amsterdam rendered a judgment in the case of Equinox Global Ltd. v. Yang Ming (Liberia) Corp. and Yang Ming Marine Transport Corp., in which the claim of a physical supplier(‘s credit insurer) against a Vessel Owner and Time Charterer were denied. In appeal, the Court of Appeal of Amsterdam again left no doubt as to its position in the ‘OW Bunker Chronicles’ and confirmed the first instance judgment on 18 December 2018 (ECLI:NL:GHAMS:2018:4765) by denying both the contractual and tortious claim against the Vessel Owner and Time Charterer. These are the lessons presented by the Dutch courts.
Yang Ming Marine Transport Corp. (hereinafter “YM Transport”) are the Time Charterers of the vessel “YM Uniform”, which vessel is owned by Yang Ming (Liberia) Corp. (hereinafter “YM”). YM Transport ordered bunkers from O.W. Bunker Far East (Singapore) Pte Ltd (hereinafter “OWBFE”), which ordered the same from its Dutch affiliate O.W. Bunker (Netherlands) B.V. (hereinafter “OWBNL”). Both of these contracts were subject to OW Bunker Terms and Conditions of Sale for Marine Bunkers Edition 2013 (hereinafter “OWB GTC’s”). OWBNL in turn ordered the bunkers from Rotterdam-based physical supplier Argos Bunkering B.V. (hereinafter “Argos”), which would ultimately deliver the bunkers on board “YM Uniform” in Rotterdam on 4-5 November 2014. This latter contract was subject to the general terms and conditions of the Dutch Organization for the Energy Industry (hereinafter “Argos GTC’s”). Both of the aforementioned sets of GTC’s contained a retention of title, with consent to use the bunkers only for propulsion of the vessel. The chief engineer, employed by Vessel Owners YM, signed a bunker requisition which – in addition to various considerations regarding sampling and quantities – contained the following statements:
“I place this order to enable the vessel to proceed on her voyage. (…)
I herewith agree that this contract is subject to your general terms of sale and delivery. (…)
All our offers, agreements of sale resp. purchase, subsequent agreements are exclusively governed by the General Conditions of the Dutch Association of Independent Bunker Suppliers deposited at the District Court of Rotterdam (…)”
After conclusion of the bunker operation, the vessel sailed. However, before YM Transport paid the purchase price of approximately USD 2.5 million to OWBNL (and before the concerning invoice became due), news broke of O.W. Bunker’s collapse through the bankruptcy of OW Bunker A/S on 7 November 2014. Physical supplier Argos took immediate action and notified both OWBNL and YM of its retained title to the bunkers and demanded YM to either return the bunkers or pay the purchase price thereof to Argos directly. So now YM and YM transport were faced with the dilemma of paying ING Bank N.V. as assignee of OWBNL’s and OWBFE’s claims or paying Argos, both options possibly leading to a double payment.
In the meantime Argos – clever enough to have taken out credit insurance – was reimbursed by its credit insurers. The latter sought recourse against Vessel Owners YM and Time Charterers YM Transport before the District Court of Amsterdam through their Lloyd’s cover holder Equinox Global Limited (hereinafter “Equinox”), acting as assignee of Argos’ claim. Equinox based its claim both on contract (an alleged direct contract had come into existence between Argos and YM/YM Transport) and on tort (the continued use of the bunkers by YM/YM Transport after Argos’ notification of the retention of title was allegedly unlawful).
In light of the many vessels Argos had supplied through a contract with OWBNL, prior to the collapse of the OW Bunker Group, and the subsequent significant losses for which Argos was reimbursed by its credit insurers, the concerning case regarding m.v. “YM Uniform” was tried as an informal test case for Equinox.
Judgment in first instance
The District Court of Amsterdam was quick to dismiss Equinox’s contractual claim. Equinox had argued that due to the signing of the bunker requisition by the vessel’s chief engineer Vessel Owners YM and/or Time Charterers YM Transport entered into an agreement with Argos, to which the Argos GTC’s applied and which made YM and/or YM Transport liable to pay the purchase price of the bunkers to Argos (and now Equinox). The District Court held that in light of the already existing agreement for the purchase of the bunkers between Argos and OWBNL, the mere signing of the bunker requisition by YM and/or YM Transport does not constitute the voluntary entering into an agreement. The wording of the bunker requisition, as quoted above, is not sufficient for that purpose. Since no agreement came into existence between Argos and YM and/or YM Transport, the Argos GTC’s declared applicable thereto could not be relied on vis-à-vis them and neither could they be held to pay the purchase price of the bunkers on that basis.
Equinox’s additional contractual argument was that the Argos GTC’s were applicable, because the OWB GTC’s – applicable between the Time Charterers and OWBFE – offer the option of applicability of the physical supplier’s GTC’s:
“L.4 (a) These Terms and Conditions are subject to variation in circumstances where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions. In such circumstances, these Terms and Conditions shall be varied accordingly (...)"
The District Court held that even if Argos could be deemed to be such a “third party”, Argos had furthermore “insisted” that its GTC’s would apply and YM and/or YM Transport could be deemed to be the “Buyer” under this clause, the Argos GTC’s would still not apply. After all, that could only cause the Argos GTC’s to apply in the contractual relationship between YM transport and OWBFE, and not between YM Transport (or even YM) and Argos.
The tortious argument of Equinox came down to YM and/or YM Transport acting unlawfully vis-à-vis Argos, by continuing to use the bunkers after notification by Argos of its retained ownership, without Argos’ consent. And even if consent was deemed to be given, such consent was withdrawn upon notification of Argos’ retained ownership. This should lead to payment of damages to Equinox in the amount of the purchase price of the bunkers, according to Equinox. The District Court considers that express consent to use the bunkers for propulsion of the vessel was given by OWBFE to YM Transport in the OWB GTC’s and also by Argos to OWBNL in the Argos GTC’s. That makes it clear that the vessel was allowed to use the bunkers. The District Court furthermore holds that under these circumstances the use of the bunkers can only be unauthorized and therefore unlawful if it is continued even after the valid invocation of the retention of title by Argos vis-à-vis both its contractual counterparty (OWBNL) and the party which has possession of the bunkers (YM Transport). It is concluded that Argos did not invoke its retention of title vis-à-vis the bankrupt OWBNL as its contractual counterparty. Moreover, by not explicitly notifying YM Transport that it was no longer allowed to continue to use the bunkers, Argos had not validly invoked its retention of title. Consequently, the continued use by YM transport (and/or YM) of the bunkers, after the notification of retained ownership by Argos, was not unlawful.
Judgment in appeal
Equinox’s contractual claim was dismissed by the Court of Appeal on the same grounds as used by the District Court.
However, the District Court’s aforementioned considerations regarding Equinox’s tortious claim were somewhat ambiguous. After all, this dismissal of the tortious claim seemed to rely on formalities which were not met by Argos, thereby creating an opportunity for tortious claims by physical suppliers against Vessel Owners and/or Time Charterers. The Court of Appeal, however, put an immediate end to any confusion, by dismissing Equinox’s claims outright.
The Court of Appeal held that Argos (like OWBFE) had not only consented to use of the bunkers in its GTC’s, but that YM and/or YM Transport could have reasonably understood Argos to consent thereto, because of i) the wording of the bunker requisition (“I place this order to enable the vessel to proceed on her voyage“) and ii) Argos itself factually delivering the bunkers on board of the vessel, whilst knowing the vessel would sail and use the bunkers immediately thereafter whilst Argos’ invoice had not yet been paid (credit term of 45 days). The fact that the Argos GTC’s contain a prohibition for the buyer to (re)sell the bunkers, which is exactly what OWBNL did, does not make YM and/or YM transport liable vis-à-vis Argos either. After all, the mere profiting of a breach of obligations by another party is not unlawful under Dutch law and Argos was well aware that it was delivering the bunkers on board of a vessel which was not owned or operated by its buyer OWBNL. This knowledge of Argos is also the reason the Court of Appeal dismissed Equinox’s argument that the contractual right to use the bunkers only applied to use on board of the buyer’s own vessel. The wording of Argos’ GTC’s did not support this interpretation either. So the interim conclusion was that YM and/or YM Transport were allowed to use the bunkers for propulsion of the vessel, regardless of the retention of title of Argos. This also means that Argos’ retention of title became fairly meaningless once the vessel sailed with the bunkers on board, because neither Argos nor OWBFE had in any way stipulated that the right to use the bunkers would end if Argos was not paid (timely) by its contractual counterparty.
The Court of Appeal proceeded to discuss the invocation by Argos of its retention of title and the alleged revocation of the right to use the bunkers. And where the District Court left this opportunity open by discussing formalities, the Court of Appeal held that – regardless of the invocation of the retention of title – the right to use the bunkers was worded unconditionally. Moreover, the revocation of that right was not stipulated in any way and YM and/or YM Transport did not have to consider that possibility, especially not whilst sailing on high seas. Therefore, the messages by Argos, in which the retention of title was invoked, could not lead to the conclusion that the continued use of the bunkers was unlawful.
From a Dutch law point of view, the judgments present an understandable and expected outcome, as they leave the consequence of the bankruptcy of a contractual counterparty (non-payment) for the risk of the party who sold bunkers on credit. The difficulty here is that bunker sales on credit are standard in this business and indeed Argos was very fortunate to have taken out credit insurance, as many small bunker suppliers went bankrupt in the wake of the O.W. Bunker bankruptcy. In light hereof, these judgments may give rise to some future amendments in bunker supplier’s GTC’s, at least where it comes to possible revocation of the right to use the bunkers.
This case is one of the first O.W. Bunker cases so extensively litigated on the merits in the Netherlands and, since no appeal has been lodged to the Dutch Supreme Court, the Court of Appeal judgment has now become final. It has also been guiding for the District Court of Rotterdam, which in two very recent judgments dated 30 January 2019 (ECLI:NL:RBROT:2019:781) and 13 March 2019 (ECLI:NL:RBROT:2019:1934) denied similar claims against Vessel Owners and Time Charterers. It will be interesting to see whether the position taken by the Dutch courts will resonate with foreign courts presiding over O.W. Bunker cases currently still being litigated.