News 14 Dec, 2015

OW Bunkers - do English Interpleader Proceedings Provide an Alternative Approach?

As has been widely publicised, several shipping companies have commenced interpleader actions in England in an effort to avoid paying duplicate claims arising from OW Bunker A/S’s insolvency. 

The West of England has hosted a round-table discussion led by John Kimbell QC (Quadrant Chambers) with participation from the Club’s FD&D claims handlers and solicitors instructed in West of England Members’ OW Bunker cases. The topic of discussion was the potential benefits of English interpleader proceedings as a means of protecting owners from duplicate claims by both OW Bunker entities and physical suppliers.

A common approach to date:

The Club is supporting several London arbitration proceedings for its FD&D Members where owners are seeking a declaration that they are not liable to the claimant OW Bunker entity under the English Sale of Goods Act 1979, following the arguments in the well-publicised “RES COGITANS” case - the Club's News Article on that case can be found here.

In “RES COGITANS” the owners have lodged an application for permission to appeal to the Supreme Court, the outcome of which is expected in early 2016. What should be noted, however, is that “RES COGITANS” is based on assumed facts (including, importantly, that the physical suppliers consented to vessel owners burning the bunkers prior to payment) and it is therefore not necessarily binding in other cases. Even the tribunal in “RES COGITANS” will have to re-consider the facts of the claim when the matter comes back to it from either - depending upon whether or not owners are successful in their application for leave to appeal to the Supreme Court - the Court of Appeal or the Supreme Court.  

Also, “RES COGITANS” style arbitration proceedings do not prevent claimant physical suppliers (who are not party to any of the London arbitration proceedings) from arresting owners’ vessels and advancing money claims in their own right.

English interpleader actions: an effective alternative?

Interpleader actions are designed to allow a defendant who is facing multiple competing claims to lodge the claim sum in court and to ask the court to determine which claimant should succeed.  The court can in appropriate circumstances support such interpleader proceedings by granting injunctions preventing vessel arrest pending the outcome of the interpleader proceedings.  It is also possible for vessel owners or charterers to combine an interpleader application with a request for a declaration of non-liability, similar to that requested in “RES COGITANS”, outlined above.

English interpleader proceedings have been commenced in Stena Bulk AB v Copley and Others [2015] 1 LLR 280 and other similar proceedings. Whilst Stena Bulk is still at the interlocutory stage, owners and charterers in the case have succeeded in obtaining an ex parte Order allowing payment into Court of the sum claimed by OW Bunker/ING and an injunction against the overseas physical suppliers arresting owners’ vessels. As a result of case management orders made in the summer, and in response to ING’s applications, London arbitration proceedings have also been commenced by ING claiming sums under OW Bunker invoices in respect of the supply of bunkers.  In owners’ favour, the sums previously paid into court in the interpleader actions have been declared to stand as security for both the claims in arbitration and any claims made in court by the physical suppliers.  The English High Court interpleader proceedings are effectively on hold whilst it remains to be seen whether the Supreme Court will grant permission to owners in “RES COGITANS”.

Other jurisdictions in which interpleader actions have been permitted:

Whilst Stena Bulk may be viewed in England as a novel approach to using interpleader proceedings because it does not follow previous English case law (see Cool Carriers AB v HSBC Bank and Others [2001]), such proceedings in the U.S. and Canada have proved successful.

In the US, the Southern District of New York Court granted interpleader applications on behalf of owners and charterers. As publicised on 2 October 2015, the Canadian Federal Court has also not only allowed an interpleader motion but decided the rival claims. This interpleader motion was issued by a charterer, Canpotex, who paid the total amount of US$661,051 owing for the bunkers into a trust to avoid the risk of having to pay both OW and the physical supplier, Marine Petrobulk.  Canoptex (as well as Oldendorff Carriers and another vessel owner who applied to join the proceedings) sought judgment that this payment extinguished all of its liabilities whereas ING and Marine Petrobulk sought judgment that each was entitled to these funds.

The court agreed with Canpotex that the payment extinguished all the charterer’s liabilities. According to the judge’s decision, “both law and common sense suggest… that justice requires the intervention of interpleader to ensure that Canpotex does not have to pay twice for the marine bunkers that MP supplied to the vessels, and that ING does not receive a windfall to which OW UK was not contractually entitled.”  The Court held that ING was not entitled to the funds because Marine Petrobulk’s terms and conditions were accepted by OW as applying not only between OW and Marine Petrobulk but also as between OW and Canpotex. This was on the basis of clause L4 in OW’s standard 2013 terms and conditions which provides that where a physical supplier insists on its own terms applying, OW’s own terms are modified accordingly. In the case, Marine Petrobulk’s terms made OW and the charterer jointly and severally liable for payment of the bunkers supplied. Therefore, payment by Canpotex to Marine Petrobulk reduced any liability of Canpotex to OW. Accordingly Canpotex was ordered to pay the amount of $648, 917 (ie 98% of the $661,051 held in trust) to Marine Petrobulk, namely the amount invoiced, plus interest. In contrast, the Canadian Federal Court held that ING and the receivers were only to receive an amount equivalent to OW’s mark-up on the physical supplies. ING and the receivers were also ordered to pay the legal costs of both Canpotex and the physical supplier.

Conclusion:

It is easy to see why an interpleader approach can be viewed as providing the most equitable result for all parties in the bunker supply chain, particularly where there are two (or more) active competing claimants and where the claim is large. The Canadian approach provides a swift and efficient disposal of the rival claims.

The Club is keeping under consideration which of its Members’ cases may, similarly, be suitable for English interpleader proceedings. If you have any questions, please contact Nicola Cox or your usual contact within the claims department.

This article was written by Nicola Cox, FD&D Deputy Director, with input from John Kimbell QC of Quadrant Chambers.