Liability of demise charterer for bunkers supplied to vessel on time charterer’s orders. Contracting in to US law on what constitutes a maritime lien.

In London Arbitration 28/22 a bunker supplier that had supplied bunkers on the order of the time charterers successfully obtained an award against the demise charterers, who later exercised their option to purchase the vessel. The bunker supplier’s invoice, dated 17 May 2021, was issued to “Master and/or Owners and/or Charters (sic) of [the Vessel] and/or [registered owners] and/or [time charterers]”.

The bunker supplier’s general terms and conditions (GTC) expansively identified the buyer under cl.2.1 as “ the contracting party/ies identified in the Nomination including but not limited to any agent, principal, associate, manager, partner, servant, parent, subsidiary, owner or shareholder thereof and any vessel as defined in clause and/or vessel owner and/or charterer and/or operator to which the Products have been delivered to and/or any other party benefiting from the consumption of the Products.” Cl.15 asserted that the seller had a lien against the vessel for sums due under the contract and also provided “It is expressly agreed between Seller and Buyer that the delivery of Marine Bunker/products creates a maritime lien in accordance with article 46 US Code § 31342 of the United States Federal Maritime Lien Act.” Cl 19 provided for English law but as regards what constituted a maritime lien the US federal Maritime Lien Act was to apply.

Arbitration was brought against the demise charterer and the time charterer. The arbitrator rejected an attempt part way through the reference to add the registered owner at the time of the sale. The only way to get at the registered owner would be by commencing second proceedings against them.

The arbitrator found that both the bareboat and time charterers came within the definition of Buyer in clause 2.1 of the GTC and that the time charterers had apparent and/or ostensible authority to bind the bareboat charterers to being liable under the GTC. Although the supply of bunkers would not create a lien under English law, it would do so under US law as a supply of ‘necessaries’. The lien could extend to bunkers supplied outside the United States if that was what the parties provided for in their contract of supply. The GTC allowed him to determine the existence of such maritime liens applying US maritime law. The maritime lien transferred to the bareboat charterers when they became the owners of the vessel upon its sale and delivery to them some months after the supply of the bunkers to the vessel. Although both the time charter and the bareboat charter contained ‘no-lien’ clauses, no notice of those clauses was given to the bunker supplier before issue of its confirmation letter.

The award may cause some alarm amongst owners and demise charterers as to their potential in personam and in rem liability in respect of unpaid bunkers ordered by time charterers. The award goes against The Yuta Bondarovskaya [1998] 2 Lloyd’s Rep 357 QB, where it was held that it was not arguable that the time charterer had any sort of authority from the owner, whether implied actual or ostensible, to make bunker contracts on its behalf. It also goes against The Halcyon Isle  [1981] AC 221 where the Privy Council found that maritime claims were classified as giving rise to maritime liens which were enforceable in actions in rem in English Courts where and only where the events on which the claim was founded would have given rise to a maritime lien in English law if those events had occurred within the territorial jurisdiction of the English Court. By contrast, under this award it is the terms of the bunker supply contract that determine what system of law, in this case US maritime law, is to apply as regards what claims constitute a maritime lien against the vessel.

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Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to five editions and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment. He has also written and taught extensively on commercial law, trusts and environmental law. Simon will be a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he will teach on both the LLM (Carriage of Goods by Sea, Land and Air and Oil and Gas Law) and LLB programmes at Swansea.

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