Timely reporting of Debts

A substantial number of debts recently reported to us have been uncollectable, even when the client had a valid lien against the vessel.  This is simply because the debt had not been passed on to us in a timely manner.  The ship owners in most cases have sold the vessels or transferred ownership and charterers have simply disappeared.

 

BELOW IS AN ARTICLE FROM OUR PANAMANIAN ATTORNEYS:-

 

ARE BUNKER TERMS AND CONDITIONS REQUIRING A FULL REVIEW ?

Many suppliers are not taking advantage of updating TAC’S to their benefit.

A recent publication by the Nordisk Defence Club expressed the “surprise” of a member after a vessel was arrested in Panama on a bunker claim.  The sub-heading of the article stated “Panama court applies U.S. Law on maritime liens”.  What is missing in the title is that the U.S. Law was applied by virtue of the Terms and Conditions (T.A.C.) of the Bunker Supplier which included a choice of U.S. Law.  The article correctly cites the position of Panamanian Law stating “In Panama, the choice of law agreed between the parties is accepted for the purposes of exercising a maritime lien.  The Panamanian Court accordingly allowed the arrest of the vessel and, under these circumstances; our member had no choice but to settle the bunker supplier´s claim”.  The article continues stating the reality of bunker supplier´s debt collection efforts “In many parts of the world, the bunker supplier would not have been entitled to arrest the vessel in similar circumstances.” This statement is only true if the applicable law does not permit a maritime lien on the vessel and requires an personam liability of the shipowner or charterer who ordered the supply before any proceeding against the vessel is taken, as it is the case when U.K Law or similar is applicable.

Although the article makes no detailed reference to the Terms and Conditions of the bunker supplier, the basis for the arrest in Panama were precisely the terms and conditions of the sale which permitted the application of U.S. law.  In other cases in Panama, vessels have been arrested where the T.A.C. call for the application of the law of the forum, U.S. Law or either the law of the flag, provided that a maritime lien is recognized.  Under the laws of Panama where the terms and conditions of the supply include applicable law or to legal formulas conceding a maritime lien (i.e. law of the forum, law of the flag, law of the place where services were rendered), the court recognizes the choice of law and orders the arrest of the vessel. 

In the case of Associated Steamship v. M/V Zeetor, the Panama Supreme Court held “it is obvious that the privileged credit arising out of purchasing stores, repairs or services provided to the vessel could include an ample variety of activities related to the continuous navigation of the vessel or her conservation.” The Court adopted a standard that all expenses making possible that the vessel fulfills the objectives relevant to its ordinary line of business activities are maritime liens, however in a case by case analysis. 

Today many bunker suppliers are using TAC´s calling for the application of U.K. Law or similar where the right to go against the vessel and the owner, is not as flexible as having a right to claim a maritime lien.  Bunker suppliers using this limited type of terms and conditions paint themselves into a corner by filing the proceedings in foreign countries as a result of the vessel´s mobility. Bunker suppliers adopting U.K or similar laws in their TAC´s are finding very quickly that the remedies available in foreign forums are diminished. Their collection efforts are simply limited by their own TAC´S. However, other suppliers have included in their terms and conditions rights to proceed against the vessel either under the law of the forum, the law of the place where the services were provided or the law of the flag, or their national law find a much better possibility of successful collections. The main advantage of using flexible TAC´S including a maritime lien choice of law, is that in many jurisdictions bunker suppliers are permitted (such as in Panama, U.S.A., South Africa and Canada) to have an in rem action against the vessel regardless of who ordered the supply, as long as it is a person with authority to do so, or that the maritime lien has not being knowingly waived. Such an action has to be filed normally within a year of the delivery or the invoice date. In favoring the existence of a maritime lien there is no clear distinction between common and civil law countries. Some civil law countries do not permit maritime liens for supplies of goods and/or services and some common law countries include the maritime lien in their statutes or permit the enforcement of foreign maritime liens.  The legal approach of the countries favoring maritime liens, if the TAC´S include such a provision, is a matter of legislative or judicial policy intended to protect the supplier and not the shipowner or charterer.

Several courts have expressed the fact that the shipowner is always in a better position to protect his interest when negotiating charter agreements. Therefore, many courts have denied the maritime lien where evidence shows clearly that the supplier was timely aware of the no lien clause or that the supply was not on the credit of the vessel.  Several judgments have referred to the precautions taken by the “prudent shipowner”.  It seems to be an undisputed fact that having a no lien clause in a charterparty is not enough if the supplier has no knowledge of it.  In addition many courts have accepted the maritime lien despite stamping no lien notifications in the delivery receipts which are normally signed and stamped when the goods or services were already supplied. What seems to restrict the maritime lien is a clear evidence of the supplier´s awareness of a no lien clause at the time the decision to furnish goods or services to the vessel is made.

There are other important elements which have been considered in adopting or interpreting maritime lien statutes, such as: there are little doubts that in the shipping industry some owners have abused the use of corporations acting as shipowners, charterers and agents in an effort to avoid liability.  In these cases corporations are deemed as simple alter egos of a controlling company or beneficial ownership scheme and these arrangements are overridden as shams upon court review. As an example, in many countries registered owners, charterers and agents are deemed to be the real or beneficial owners in proceedings for criminal charges for flouting environmental laws when guilty pleas are entered. Also, harsh fines are imposed and as a matter of public policy no corporate scheme bars prosecution of all involved.   In other cases where the operating scheme of the vessel is legitimate, meaning that all the parties are not controlled by the owners, the issue arises as to who is in a better position to protect their own interest in the charter agreements. In addition, case law in the area of maritime liens is full of cases where shipowners have diligently send all sorts of notification to known and unknown suppliers advising on the charterparty’s no lien clause.  Proper notification to suppliers prevents the maritime lien, as decided in the case of Gulf Oil v. M/V Caribe Mar in the U.S. Court of Appeals for the Fifth Circuit.

 At the end of the day, several TAC´S we have reviewed, adopting  U.K. or similar laws provide a very convenient position to the shipowner by placing the burden on the supplier to establish whether the operating scheme of the vessel is legitimate or not and who seems to be liable in personam in order to proceed against the ship without a maritime lien, but in the meantime the economic benefits of trading and the unjust enrichment of not paying for important supplies furnished by the supplier on the credit of the vessel simply continues. 

The “surprise” alleged by the owners in the case cited from Panama on the rights of the bunker supplier also reveal the lack of understanding of the TAC´s under which their vessels are operating and receiving credit worldwide. In other words, a lack of knowledge on how the vessel is being operated, while receiving economic benefits from its activity, in many cases ensues potential liability to innocent third parties which kept income flowing to shipowners and charterers and is somehow offset by incorporating maritime lien provisions in the TAC´s by the supplier.

The so called “surprise” goes to the core of the legal argument existing for years in many countries as to which party ought to be protected by the law: the shipowner who charters his vessel (being a real or a corporate scheme) or the supplier of goods and/or services who relies on the credit of the vessel and keeps financing the operation.

The U.S. Court of Appeals for the Fifth Circuit in a leading case decided in banc, resumed the controversy and ruled in favor of the supplier of services in a case involving insurance premiums and P&I calls.  In Equilease Corp. V. M/V Sampson, the controversy was whether or not insurance premiums were “necessaries” under the maritime lien statute. The court gave a brief outline of the history of the statute which was an effort to spur incentives in the merchant marine industry by making private investment in shipping more attractive and was “a compromise between two conflicting interests: that of the materialmen, who wanted an automatic and far reaching lien, and that of the shipowners, who preferred never to have any lien attach.”  The court held that insurance premiums were “necessaries” and were a maritime lien. The court determined that “necessaries” includes most goods or services that are useful to the vessel, keep her out of danger, and enable a ship to perform her particular function.  “Necessaries are the things that a prudent owner would provide to enable the ship to perform well the functions, for which she has been engaged”

Perhaps many shipowners will also be surprised in finding out that P&I Clubs file cases against several vessels in foreign forums such as U.S.A and Panama seeking maritime liens for insurance premiums and calls not paid despite having their contracts subject to U.K. Law, but stating in their Rules provisions that the right to claim maritime liens is subject to the laws of the forum.  In a consolidated appeal in 2002, the Fifth Circuit Court of Appeals in Louisiana framed the relevant legal issue: “The parties agree that English law generally governs the contract.  Moreover, they agree that the procedure for enforcing liens is controlled by the law of the foreign jurisdiction in which the lien is being enforced. Their disagreement concerns the issue of whether foreign law also determines the existence of a maritime lien.”  The court agreed with the Club´s position that despite having the contract subject to U.K. Law, the determination of the existence of a maritime lien for unpaid premiums was a matter for the U.S. Law as established in the P&I Rules.  This is the same position many bunker suppliers are taking and perhaps other suppliers have to re-consider in their TAC´s.  By including in their TAC´s the right to pursue the vessel via a maritime lien, whether under the law of the forum, the law of the place of service, the law of the flag or by applying a particular law such as U.S.A. law, they have additional protection when risking credit and keeping international commerce going on. If pursuing a maritime lien for unpaid premiums by claiming maritime liens in foreign forums is good for the Clubs, so is for the bunker supplier. 

            Bunker suppliers incorporating maritime liens in their TAC’s have several common elements in their supply agreement.  There are basically three separate clauses that have been looked at by foreign courts:

            The first one is the definition of who is the buyer.  A review of the definition clauses include language similar to the following:  “Buyer” means the vessel supplied and jointly and severally her Master, Owners, Managers/Operators, Disponent Owners, Time Charterers, Bareboat Charterers and Charterers or any party requesting offers or quotations for or ordering Bunkers and/or Services and any party on whose behalf the said offers, quotations, orders and subsequent agreements or contracts have been made.  Sales are on the credit of the receiving vessels as well as on Buyer’s promise to pay, and amounts due shall be maritime liens against such vessels and Buyer’s property in favor of Seller. If the order for the Marine fuels was placed by Buyer acting as agent on behalf of a disclosed principal, buyer shall be liable for performance of all obligations of the principal, including payment. 

 

            The second clause is the interest charged for non-payment.  A review of the interest clauses include language similar to the following:   Any delay in payment shall entitle the Seller to interest at, presently, the rate of 2 (two) per cent per month or any part thereof without prejudice to any rights or remedies available to the Seller, and furthermore the Seller is entitled to charging administrational penalty fee of USD 1.00 per m/ton supplied, or the equality thereof in local currency, thus minimum penalty fee of USD 250.00.

            The third and more important is the applicable law clause. A review of the clauses include language similar to the following:  This present Agreement is subject to _(country)_ law, notwithstanding anything to the contrary herein and without prejudice to any rights or remedies otherwise available to the Seller, the Buyer by its acceptance of the product supplied, entitles the Seller to look to the ship owner for payment to the extent that the ship owner is liable according to the  jurisdiction where the vessel may be found, legislation of the place of delivery or the flag State of the vessel or the owner’s place of business at the choice of the Seller.  In addition, the Seller shall be entitled to any cost (legal cost, attorney fees, collection fees etc.), which the Seller may incur in connection with the recovery of his debt.

 

Although there are no magic words or formulas in drafting applicable law clauses, it is important to notice that many bunker suppliers are using language calling for the direct application of U.S. Law.  In some cases filed in the U.S., Canada, South Africa and Panama these clauses have been recognized by the courts. Bunker Suppliers must realize that the wording of the contract as to the applicable law of a specific country is not the issue.  The issue is that the TCA´s must work to their own advantage if there is a need to file an arrest for debt collection.  Including the proper language seeking the flexibility of the recognition of the maritime lien in foreign legal systems where the vessels go, is an additional tool in recovering their bad debts.

 

Francisco Carreira-PittiAdmitted to practice in Panama, State of Michigan and U.S. Supreme CourtSenior PartnerCARREIRA PITTI P.C. ATTORNEYSPanama, Republic of Panama