Although the outcomes of arrest proceedings are becoming more predictable to the reassurance of physical bunker suppliers, it appears that shipowners will continue to be at risk of having to pay OW Bunker or its assignees under London arbitration proceedings as well as the physical suppliers if their vessels are arrested in Dubai.

Following the liquidation of OW Bunker and its subsidiaries around the world, the parties involved in bunkering transactions were faced with considerable uncertainty. Shipowners were exposed to the risk of having to pay two different parties for the same bunkers, and physical suppliers, who had extended credit to OW Bunkers were left in the dark on whether they could recover their outstanding by way of arresting the supplied vessels.

In the past, the UAE Court have generally allowed bunker suppliers to arrest the supplied vessels on the basis of bunker delivery notes (BDN). Decisions have differed, however, on the question of whether the BDN, signed and stamped by the master of the supplied vessel amounted to a contractual relationship between the physical supplier and the shipowner. The Dubai Court of First Instance (DCFI) had ruled that the BDN was held to be merely an acknowledgement of receipt of the bunkers and did not suffice to constitute a contract by itself. This question has now, again, been addressed by two recent judgments, one issued by the DCFI in October 2015, and one by the Dubai Court of Cassation (DCC) a month later.

Bunker trader as agent of the shipowner?
In the DCFI case, the defendant shipowner rejected the physical supplier’s claim on the basis that his contract was with the trader – in this case OW Bunker – and not with the physical supplier.
The DCFI ruled in the physical supplier’s favour and ruled that there was, in fact, a contract between the physical supplier and the shipowner. By relying on the principles of representation, the DCFI reasoned that OW Bunker acted as representative of the shipowner (and not as principal), and therefore concluded the contract with the physical supplier on behalf the shipowner. The DCFI further held that the physical supplier was aware of this as this was common practice in the maritime trade.

With the physical supplier and the shipowner held to be the actual parties to the bunker supply contract, the DCFI consequentially dismissed the physical supplier’s claim against OW Bunker as the latter was not a party to the agreement.

The DCC case
In the second case, the DCC was concerned with the matter after the DCFI and the Dubai Court of Appeal (DCA) had ruled in favour of the claimant bunker supplier and the shipowner had challenged the DCA’s decision. Here, although the shipowner had contracted with an intermediary bunker trader for the bunker supply, it was the owner’s agents who requested the supply to the vessel.

The shipowner, here too, rejected the claim as he had no contractual relationship with the supplier and that the supplier had, instead, contracted with the bunker trader for the supply of the bunkers. The shipowner had requested the Court of First Instance to join the bunker trader to the proceedings as a defendant as he had paid the bunker trader in full. He further argued that no inference should be made from the master’s signature on the BDN since it only amounted to acknowledgment of receipt of the bunkers, which the physical supplier was obligated to deliver under its contract with the bunker trader.

The DCC confirmed the rejection of the request to join the bunker trader on the basis that the shipowner had not proven the relationship between the trader and the physical supplier. The DCC dismissed the challenge and in doing so relied, in essence, on the following points: (1) By signing and stamping the BDN the master not only acknowledged receipt of the cargo but also accepted the terms and conditions of the underlying sale agreement; (2) the defendant shipowner was liable for the master’s actions; (3) the defendant failed to prove the relationship between the physical supplier and the bunker trader; and (4) communications between the supplier and the master of the vessel regarding the arrival of the ship and the quantity to be supplied was evidence of the relationship between the supplier and the shipowner.

Comment
It appears that the Dubai Courts are moving towards a consensus that a BDN, signed and stamped by the master, suffices to establish a contractual relationship between the physical supplier and the shipowner and that such BDN regularly provides grounds to arrest the supplied vessel under Article 115 of the UAE Commercial Maritime Law. However, in the cases at hand, the DCC and the DCFI do not reach this result through the same reasoning.

The DCFI surprisingly sees the trader in the position of an agent for the shipowner, whereby the ‘real’ contract was held to be between the shipowner and the supplier. As a consequence, the trader was released of all obligations under the supply contract.

The DCC case goes to show that, even if the shipowner has paid the bunker trader in full, he may nevertheless be at risk of having to pay the physical supplier for the same bunkers if his vessel is arrested in Dubai.


Authors:

Teresa Starr – Barrister

Moaz Forawi – Senior Associate

Shipowners May Have To Pay Twice! was last modified: January 19th, 2018 by Moaz Forawi

Moaz Forawi

Senior Associate