Explanatory notes

Background

Charterers’ failure to pay for bunkers supplied to a vessel on time charter is likely to have severe implications for owners who, although not party to the arrangements, may nevertheless find their vessel arrested, perhaps weeks or months later, for the outstanding debt. Owners are then faced with the prospect of having to arrange security for release and possibly having to settle the claim themselves, often on top of other losses sustained when a financially weak charterer has defaulted on hire. Owners will probably find themselves responsible for most of the costs incurred since FD&D and P&I cover will normally be limited only to certain legal fees.

In practical terms, time charterers contract with a counterparty seller who will often sub-contract through several layers of traders to the final physical supplier who arrives alongside the vessel with the bunker barge. The contractual relationship is, therefore, between the time charterer and the seller. The owner is not party to the contract and therefore has no liability to the seller. Nevertheless, as the vessel is usually seen as an easy and tangible object on which to secure a claim without regard to party liability, an express term purporting to make delivery conditional on a lien over the vessel is often inserted in bunker delivery notes. Owners invariably require their master to stamp or otherwise endorse a delivery note to the effect that the bunkers are being supplied for the account and on the credit of the charterers. However, this is likely to be rejected by physical suppliers and in some jurisdictions may be viewed as a post contractual endorsement with no protective value for owners.

Under most time charters, charterers are responsible for the supply of and payment for bunkers. Whether or not a bunker supplier can exercise a lien in the event of charterer default on payment will depend on the contractual provisions and may also be fact dependent. Under English law and the majority of common law jurisdictions, the supply of bunkers gives rise to a statutory lien but if, as will be normally be the case, suppliers cannot show that owners were a party to the bunker contract, the claim will not succeed. In the US, specific steps must be taken if owners are to be protected against the presumption that time charterers can bind a vessel for bunker purchases. 

Arrangements helpful to suppliers may similarly be available in jurisdictions where time charterers are perceived to have implied authority to bind owners and, as a result, bunker suppliers are able to place a lien on a vessel. 

Purpose

The objective of the Bunker Non-Lien Clause is to provide a pre-emptive mechanism to protect owners by requiring time charterers to inform their counterparty, the seller, at the outset that bunkers ordered are being supplied for their account and that no lien can be placed over the vessel. (A suggested form of words for an accompanying Bunker Pre-order Non-Lien Notice is set out at the end of these notes).

The provision might not prevent determined interests in a seller chain from taking action to arrest a vessel (often in a carefully chosen jurisdiction) for security in the event of charterer default on payment. However, the clause and as appropriate a copy of time charterers’ notice to sellers, could be adduced in evidence by owners in such event or used in any later arbitration or court proceedings to determine the merits of bunker sellers’ claim.

Contractual arrangements for the supply and obligation to pay for bunkers are a contentious area of law and practice but the new provision represents a step towards creating a regime to protect the interests of innocent parties. It will not necessarily work in all jurisdictions or circumstances but aims to encourage charterers to accept their responsibilities. Refusal to agree its inclusion in a contract might give rise to concerns about the party’s financial standing and reliability.

BIMCO is grateful to the following members for their work in developing the new clause:

Jean-Pierre Laffaye, Cetragpa, (Chairman) (Owner)
Leonidas Los, Tri-Marine Shipping Co (Owner)
Georg Scheel, Nordisk (Club)
Barry Ayliffe, North of England P&I Association (Club)
Jonathan Young, Cargill (Charterer)

Main features of the Bunker Non-Lien Clause

Sub-clause (a) sets out charterers’ obligation not to incur any lien over the vessel in relation to
the supply of bunkers;

Sub-clause (b) contains charterers’ central obligations:

o Sub-paragraph (i) prior to ordering bunkers, to provide sellers with a written Non-Lien Notice stating that the bunkers are for charterers’ account, that the vessel, owners or
master are not a party thereto and that no lien or other encumbrance arises on the vessel;

o Sub-paragraph (ii) after ordering bunkers, to provide owners with details of sellers. In addition, owners have a discretionary right to ask for a copy of the Non-Lien Notice. This option will enable owners to decide, on a case by case basis, whether they need the added security of evidence to confirm that charterers have fulfilled their obligation to inform bunker suppliers of the position;

Sub-clause (c) in default of charterers complying with their obligations in sub-clause (b)(ii) to provide owners with sellers’ details and, if requested, a copy of the Non-Lien Notice, the master can refuse to accept delivery of bunkers. Any resulting costs are for charterers’ account and the vessel remains on hire;

Sub-clause (d) is a standard provision stating that if the owners, by complying with the Bunker Non-Lien Clause, do or omit doing something, that will not be considered to be a breach of the charter party. The provision refers specifically to the word “deviation” because if the vessel has cargo on board and is delayed while issues concerning the bunkers are resolved, it might be argued that there is a deviation, and additional expenses may be incurred, for example, in respect of bills of lading holders. Subclause (d) protects the owners in such situations.

Sub-clause (e) requires charterers to provide owners with confirmation of payments made for bunkers during the charter period; and

Sub-clause (f) this is the standard incorporation provision.

Originally published in BIMCO Special Circular No. 4, 27 November 2014 - Bunker Non-Lien Clause for Time Charter Parties