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Legal Eagle

A round-up of legal news for the bunker industry

HK delays launch of bunkers convention

Hong Kong will not implement the International Maritime Organization’s bunker convention until the end of this year, owing to a series of drafting delays. According to the Marine Department and the Hong Kong Shipowners’ Association (HKSA), Hong Kong will not ratify or introduce the convention until the end of 2009, up to nine months after China, where the convention came into force in early March.

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Speaking in Lloyds List, Marine Department senior surveyor of ships Stephen Li said that the convention was being drafted into law, and that it should be ready for use by the end of the year. Hong Kong operates a different legal system to China, meaning that ratification in China cannot be extended to cover Hong Kong as it has, for example, in Macao.

Genmar fined in magic pipe case

A US federal judge in Corpus Christi, Texas, has fined General Maritime Management (Portugal), a subsidiary of US-based Genmar, $1 million and placed the company on probation for five years for making false statements to the US Coast Guard and failing to maintain an accurate oil record book on the tanker Genmar Defiance, the country’s Department of Justice (DOJ) has announced. The company and two of its seafarers had been found guilty at a hearing in November.

During the probation period, a court-appointed official will monitor and audit GMM Portugal’s compliance with its environmental compliance plan, and GMM Portugal is required to designate a responsible corporate officer to submit monthly reports to, and respond to inquiries from, the court’s probation department. The Court warned that, should GMM Portugal engage in future conduct in violation of its probation, it may, under appropriate circumstances, ban certain of the company’s vessels from calling on US ports.

Genmar notes in a statement: “The entering of a final judgement by the Court remains pending. The Company has the right to appeal and is evaluating its options.”

The DOJ says that special conditions of the probation also require the company to rehire the whistleblowers who drew the US Coast Guard’s attention to the ship if they reapply for employment. During the November hearing, the court awarded $250,000 to the five whistleblowers to be divided on a proportional basis for their actions and cooperation.

The ship’s chief engineer Antonio Rodrigues was sentenced for the same violations in February to three months of confinement in a half-way house, a $500 fine, a special assessment of $200 and five years of probation. The first engineer Cavadas was likewise sentenced on Feb. 10 2009 to six months of confinement in a half-way house, a $500 fine, a special assessment of $200 and five years of probation.

The case came to light because two engine room crew members secretly photographed an alleged illegal ‘magic pipe’ bypass of the oily water separator connection and provided the photographs to the Coast Guard during a routine boarding of the vessel in November last year when the ship called at the Valero refinery, Corpus Christi.

Genmar says it expects to recognise a charge of $650,000 in the first quarter of 2009 in connection with the case.

Crackdown on oil record books

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A further US court case has again seen a shipping company fined for failing to maintain an accurate oil record book. Swedish-based owner Holy House Shipping was sentenced to pay a $1million fine and pay a special assessment of $400,000 in community service payments and serve three years of probation, by a US District Court in Camden, New Jersey. The US Justice department says the record book was falsified to attempt to conceal illegal discharges of oil-contaminated waste directly into the ocean from 15,512 gt reefer ship Snow Flower. The 1972-built Cook Islands-flag vessel has since been scrapped according to its classification society, Lloyd’s Register.

“The Coast Guard is committed to aggressive enforcement of US laws and international requirements designed to prevent pollution at sea. We thoroughly investigate credible reports of alleged illegal discharges of oil and/or tampering with shipboard anti-pollution equipment or falsifying oil discharge records,” said David Scott, Commanding Officer of the US Coast Guard.

Bunker claim? Act fast

Writing on the International Law Office website, Carel JH Baron Van Lynden of Netherlands-based firm AKD Prinsen Van Wijmen warns that delays in pursuing bunker claims can be fatal, particularly in the current market.

Lack of access to credit, combined with sharply rising operating costs, could mean that certain time charterers, operators and owners that built or contracted in a time of plenty will struggle to survive the financial crisis. Shipping companies going bankrupt will have a significant knock-on effect on service companies in the industry, including bunker suppliers.

For example, Europe West Indies Lines, a specialist ocean carrier based in Rotterdam, recently went bankrupt, leaving millions of dollars of bunkers unpaid. This raises the issue of what bunker suppliers can do in such a situation to recoup – or at least mitigate – their losses.

Bunker suppliers have traditionally offered generous credit terms and the structure of the market is such that they will almost certainly continue to do so. Credit helps to keep things moving, but it also increases the level of financial risk involved in the venture.

Suppliers can retain title to bunkers, with the bunkers remaining in the ownership of the supplier. Retention of title must be agreed contractually. This may prove to be invaluable in the event that, following a declaration of bankruptcy by an owner or its agents, the bunkers remain on board the vessel. The supplier can then claim back the bunkers and should be unaffected by the bankruptcy. However, the situation may become complex in cases where the bunkers in question have been mingled with other bunkers from different suppliers.

Even without a retention-of-title clause in the contract, it may be possible for the bunker supplier to claim back the unpaid bunkers. Under Dutch law, this must be done within six weeks of supply, and the bunkers must obviously be unconsumed. However, a complication may arise under the provisions of a timecharter, if the bunkers have been redelivered to the shipowner in the meantime. When the claim for bunkers is against the owner, the ship can be arrested, but this is unlikely to help in the case of bankruptcy.

It is vital for bunker suppliers to know with whom they are contracting. On many occasions bunkers are typically ordered by ‘agents’ or ‘managers’; it is essential to establish exactly whom these agents and managers represent. When making a claim, such information will prove vital.

When the claim is against the bareboat charterer of the ship, the ship can be arrested for the bunker claim. However, when the ship has been time chartered, the situation is more complicated. First, it must be established whether the bunker claim has created a maritime lien, and if so, where and when that lien can be exercised. This will depend on the applicable law in each particular case. For example, under US law, a bunker claim creates a maritime lien. In other countries it is not possible to arrest the ship, irrespective of whether, under the applicable law, a lien has been created.

Timecharters will usually contain a ‘no lien’ clause, which may also prohibit a claim against the ship. Even then, an arrest may still be possible in some countries, such as Belgium, which interprets the Ship Arrest Convention in such a way that a claim for bunkers gives the right to arrest a particular ship. A so-called ‘Liverpool and London’ clause may help. This clause stipulates that the question of whether a lien exists is governed by a specific law or the law of the place where the ship is located. Such a clause must be incorporated in the supply contract. Depending on where the ship is, this may create the possibility to arrest that ship.

There are a variety of other issues involved, such as the sale of the vessel to a third party, which can affect the rights of bunker suppliers in the event that their principals file for bankruptcy.

These issues demonstrate the need for the bunker industry to move quickly in order to pursue a successful recovery of bunker claims against an insolvent principal. Any delay (or failure) in taking the most appropriate action may be fatal.

Added 20 April 2010 in the category: Summer 2009

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