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FREEHILL WINS ANOTHER OW BUNKER CASE

On the heels of a favorable Second Circuit Court of Appeals ruling in an OW Bunker matter in February 2016, on April 8 Freehill partners Jim Ross and Gina Venezia scored a significant victory in the U.S. District Court for the Southern District of New York, successfully defeating a lien claim by a physical supplier of bunkers.  In this case, O’Rourke Marine Services L.P., a physical supplier of bunkers, had brought in rem arrest actions against the M/V COSCO HAIFA and M/V COSCO VENICE, both owned by China Ocean Shipping Company  (“COSCO”).   Bunkers for the two vessels had been ordered by COSCO from OW Far East, which then sub-contracted, through OW USA, with O’Rourke to deliver the bunkers. The parent of OW Far East, OW Bunker, subsequently entered bankruptcy, leaving O’Rourke unpaid, and leaving COSCO faced with competing claims for payment from O’Rourke and ING Bank, which claimed to hold an assignment of all OW Far East accounts receivable. Security was posted to secure the release of the vessels from arrest and thereafter O’Rourke moved for summary judgment, claiming that it held a lien against both vessels.

Freehill, defending COSCO, argued that O’Rourke did not meet the criteria for a maritime lien because it had not furnished the bunkers “on the order of the owner or a person authorized by the owner.” Examining the contractual trail of the bunker purchases, the district court concluded that COSCO did not enter into any agency relationship with OW Far East, which would have authorized intermediary OW entity (which contracted with O’Rourke) to bind the vessels to contracts.  In the absence of such an agency relationship, O’Rourke could not demonstrate that it had provided the bunkers “on the order of the owner or a person authorized by the owner.”  The Court did find that, by virtue of the assignment it held from OW Far East, ING Bank did possess a lien on the vessels. However, the court’s decision should eliminate the risk that COSCO might have to pay twice for the bunkers.