Since the insolvency of OW Bunker in 2014, a massive number of lawsuits have been taken to US courts. However, as a result of the unclear agreements used between the parties and the obsolete transaction practices which were followed, all these legal cases are winding down.
In most lawsuits, US courts judged that ING Bank, who had lent OW Bunker approximately $700m secured by its account receivables, was entitled to liens against ships for unpaid bunkers. Those judgments are unfavorable to local physical suppliers who refueled the vessels on credit to OW, since they could not take advantage of the lien rights in order to claim their money.
The lessons taken from those legal cases have forced market participants take actions which lead the industry into modernisation through a path of irrevocable changes some of which are the following:
– Clearer contracts used to avoid disputes: According to Adrian Tolson, senior partner of 20|20 Marine Energy and former executive of OW Bunker, people have changed the way they document bunker transactions to a more formal and professional way and give higher value proposition to the terms and conditions incorporated in the contracts. Stephen Simms, of law firm Simms Showers, notes that in an effort to overcome the issues raised in the OW case, special clauses are now incorporated in the contracts. Such clauses specify that the right to lien is transferred to the physical suppliers until the bunkers are paid. Basis those clauses, suppliers have the right to arrest a ship for the proportion they are owned and until they are fully paid, when the lien is transferred back. Simms notes that such clause has already been used by bunker suppliers. Despite the fact that bunker traders and shipowners are still skeptical, all of them seem to examine in more detail the relevant terms.
– Due diligence is becoming more and more important: The fallout of OW Bunker, the bankruptcy of Aegean Marine Petroleum, the severe financial difficulties of Brightoil and similar stories which have hit the news, have hurt the reputation of the industry and have made the bunkering transactions more sensitive to credit risk. Therefore, all parties concerned -including the financial institutions and the buyers- focus on the counter-party risks and the due-diligence is becoming part of the core activities among the supply chain participants.
– Access to the source adds transparency: In an effort to minimise counter-party risk and increase transparency, some shipowners are now buying their bunker fuels directly from physical suppliers squeezing out intermediaries like OW Bunker.
According to Adrian Tolson: “Such changes represent a change for an industry that was “old school” for most of its history.”