OW Bunker Bankruptcy

Canadian Update

Ottawa, Canada, September 23, 2015:

Justice Russell of the Federal Court (Canada’s admiralty court) issued a recent judgment addressing the propriety of a charterer interpleading funds to court in the context of two competing claims (one on behalf of OW and the other on behalf of the actual bunker supplier) and determining which entity is entitled to payment of the interpleaded funds, all arising from the filing for bankruptcy by the OW Bunker group.

The facts are fairly typical in the context of the OW bankruptcy.   A Canadian based charterer (the “Charterer”) of two foreign vessels had ordered bunkers through an OW subsidiary for delivery in Vancouver, Canada.   The bunkers were actually supplied by a Canadian bunker supplier (the “Canadian supplier”), not an OW related company.  The Charterer was facing claims for payment from both the OW subsidiary (and their receiver) and the Canadian supplier.

Given the competing claims the Charterer sought to interplead funds into court, rather than run the risk of paying the wrong party. Various issues arose, including the propriety of interpleading funds in the circumstances, and ultimately whether the receiver or the Canadian supplier was entitled to the funds.

The case was argued under the summary judgment rules of the court. Justice Russell in a detailed and comprehensive set of reasons concluded that the Charterer had properly interpleaded the funds despite the fact that the claims being pursued were not for the exact same amounts.  He further held that the Canadian supplier was entitled to payment, based in large measure on a direct contractual link created by the contract documents used in the transaction.  The OW subsidiary (represented by the receiver) was only entitled to payment of the mark-up on the sale of the bunkers, after deducting costs of the proceeding.

Justice Russell made some significant findings including the following:

• The OW subsidiary did not have a maritime lien under Canadian law.
• The OW subsidiary did not have a statutory right of arrest, as it had not paid the Canadian supplier for the bunkers.
• The terms of sale for the bunkers were the Canadian supplier’s terms, not the OW terms.
• The Canadian supplier had both a contractual and maritime lien against the vessels in issue under Canadian law.   This would necessarily include a right to arrest the subject vessels.
• The Canadian supplier had a direct contractual link with the Charterer as “customer” under the Canadian supplier’s terms of sale. As such, given the specific terms of sale, both OW and the Charterer were jointly and severally liable to the Canadian supplier for the price of the bunkers as delivered.
• Once payment is made out of the interpleaded funds to the Canadian supplier, any liability the Charterer had to OW will be extinguished at least to the amount of the payment.
• Until payment is made to the Canadian supplier, their maritime lien will not be extinguished.

This appears to be the first reported case in which a Canadian necessary supplier has successfully asserted a maritime lien created in 2009 by s. 139 of the Marine Liability Act. The receivers have filed a Notice of Appeal.

The Reasons for Judgment are available here.

Peter Swanson and Megan Nicholls of Bernard LLP (Vancouver) were successful counsel for the Canadian supplier.