News and Reports

Firm Defends Foreign Flag Vessel & Owner from Maritime Lien Claim for Bunkers

Neil Klein and Rocio Ashby successfully defended a foreign flagged vessel and its owner in a maritime case of first impression in federal court in Los Angeles. The Singapore bunker supplier sued a Malaysian flag vessel and its Malaysian owner for non-payment of bunker fuel oil supplied in Korea, while under charter to a Taiwan company. The supplier threatened to arrest the vessel at the port of Long Beach, but the arrest was averted once the vessel's P & I Club put up a "letter of undertaking."

The supplier operated under "standard terms and conditions" with a U.S. "choice of law" clause. The supplier contracted with a Taiwanese charterer (under a long term charter party) via a series of faxes that referenced the standard terms and conditions. The charterer failed to pay and disappeared from sight, owning millions of dollars to creditors around the world, and the owner and vessel were a natural target. The supplier filed claims for breach of contract, unjust enrichment and maritime lien for "necessaries." The vessel and its owner denied they were liable for the debt.

The supplier tried 3 novel approaches:

First, it tried to hold the vessel owner liable under the bunker contract with the charterer, even though it was not a party, via a "joint venture" theory. Second, it contended the owner was "unjustly enriched" by the bunkers, even though the vessel was operated at the time by the charterer. Third, it sought to create a U.S. maritime lien for "necessaries" via the U.S. choice of law clause in its standard terms and conditions (the U.S. being the most liberal of jurisdictions for such type of lien), and thereby avoid the laws of Malaysia, Singapore and Taiwan which would otherwise apply but did not provide a maritime lien for bunker supply.

The court agreed with defendants' position that, under U.S. law, the vessel owner was not a party to or bound by the bunker contract. Then, in light of the many foreign contacts – Singapore plaintiff, Malaysian defendants, Taiwanese charterer, Korean supply, and payment through U.S. bank – the court agreed with defendants and ruled that Malaysian substantive law applied. See [Reported Decision].

The supplier also tried to prevent the court from ruling on a motion for partial summary judgment, on the ground it "needed" more time to conduct discovery. However, defendants pointed out the supplier had basically sat on its hands since filing the case, and the court agreed (denying plaintiff's FRCP Rule 56(f) request). See [Reported Decision].

Thereafter on a motion for summary judgment, defendants convinced the court that the supplier could not prevail under Malaysian law, since there was (a) no basis to hold a nonparty vessel owner bound by a contract between supplier & charterer, (b) no provable "direct benefit" to the vessel from the actual bunkers supplied (among others, charterer failed to pay charter hire to owners) to support a claim for unjust enrichment, and (c) no Malaysian maritime lien on a vessel for bunker supply.

Defendants also defeated the supplier's argument that it was entitled to a U.S. maritime lien based on the U.S. choice of law clause in its standard terms and conditions. The court held the Federal Commercial Instruments and Maritime Lien Act was intended to protect U.S. (and not foreign) suppliers, and did not provide a maritime lien for goods or services supplied in a wholly foreign based transaction, i.e. foreign supply to foreign flag vessel in foreign port under contract negotiated outside the U.S. [Reported Decision].

The court entered final judgment for defendants and awarded their costs – a victory for vessel interests. The supplier has filed an appeal with the 9th Circuit Court of Appeals.