Banking and Finance Law Daily Subcontractor not entitled to maritime lien for $700K in delivered fuel
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Wednesday, December 6, 2017

Subcontractor not entitled to maritime lien for $700K in delivered fuel

By Lisa M. Goolik, J.D.

The U.S. Court of Appeals for the Eleventh Circuit has concluded that a subcontractor that supplied 850 metric tons of fuel to the vessel M/V Deep Blue was not entitled to a maritime lien against the vessel for almost $700,000 in unpaid invoices. Although the subcontractor provided necessaries to the vessel, satisfying two of the three elements to assert a maritime lien, it did not do so "on the order of the vessel’s owner or agent," the third element. Rather, ING Bank N.V. (ING), was entitled to the lien as an assignee of the general contractor’s right to payment under a valid security agreement (Barcliff, LLC v. M/V Deep Blue, Nov. 30, 2017, Black, S.).

Chain of events. In late 2014, the Deep Blue required refueling, and its owner, Technip UK Limited, contacted marine fuel supplier, O.W. Bunkers (UK) Limited (O.W. UK). O.W. U.K. agreed to sell the fuel and deliver it to the Deep Blue, but rather than fulfill the order itself, the supplier purchased the fuel from an affiliate, O.W. Bunker USA, Inc. (O.W. USA). O.W. USA, in turn, subcontracted with Barcliff, LLC, d/b/a Radcliff/Economy Marine Services (Radcliff), a local maritime fuel provider, to supply and deliver the fuel. Radcliff fueled the Deep Blue in November 2014. Technip was to pay O.W. UK, which would pay O.W. USA, which, in turn, would pay Radcliff.

However, before any money changed hands, O.W. Bunker Group, the conglomerate that owned O.W. UK and O.W. USA, filed for bankruptcy protection. As a result, Radcliff was never paid. Radcliff asserted a maritime lien on the Deep Blue in a bid to recover directly from the ship.

ING intervened in the action, claiming it was entitled to the payment from Technip UK. In December 2013, members of the O.W. Bunker Group, including O.W. UK and O.W. USA, entered into a $700 million revolving credit agreement with ING to supply working capital. The credit was secured by O.W. Bunker Group’s receivables due from customers around the world pursuant to a security agreement. Included among them was the unpaid invoice to O.W. UK.

After a bench trial, the district court determined Radcliff did not have a lien on the Deep Blue. Instead, a lien had arisen in favor of O.W. UK, and was duly assigned to ING. Radcliff appealed.

Radcliff’s lien. To obtain a lien under the Maritime Lien Act, a person or entity must: (1) provide necessaries; (2) to a vessel; (3) on the order of the owner or agent. Notwithstanding the fact that its contractual obligation to supply the ship had been owed to O.W. USA, not to Technip, Radcliff contended that it had supplied the vessel and not been paid, so it was entitled to the lien.

The Eleventh Circuit disagreed. Although there was no dispute as to the first two elements, Radcliff had not supplied the fuel "on the order of the owner." Radcliff acted as a subcontractor in the transaction, which is merely a contractual counterparty of the general contractor, and had no relationship with the owner. "It is the general contractor that, on the order of the owner, provides the necessaries to the ship," wrote the court. As a result, absent significant and ongoing involvement, a subcontractor cannot meet the third statutory element required to obtain a maritime lien, the court concluded.

Notably, although the court was persuaded by Radcliff’s argument that it had established significant and ongoing involvement with the vessel, it had failed to raise the issue at the district court level, so it was not properly before the appellate court.

ING’s lien. Turning to ING’s claims, the court noted that whether ING had a lien on the Deep Blue depended on: (1) whether O.W. UK had a lien; and (2) whether that lien was assigned to ING under the security agreement. Both were answered in the affirmative.

Although Radcliff actually delivered the fuel, O.W. UK "provided" the fuel, within the meaning of the statute, when it subcontracted with O.W. USA to deliver the fuel. Further, it was immaterial that O.W. UK had not paid O.W. USA for the fuel—the lien attaches on delivery and does not require payment, as Radcliff contended.

In addition, the court found that O.W. UK properly assigned its maritime lien to ING. Maritime liens are assignable, and the security agreement assigned all "rights, title and interest in respect of the Supply Receivables," which would include the money owed by Technip to O.W. UK. "The lien on the Deep Blue is, without a doubt, a ‘right’ or ‘interest’ under the agreement ‘in respect of’ … Technip’s obligation to pay O.W. UK for the fuel," the court concluded.

The case is No. 16-17755.

Attorneys: Gilbert Larose Fontenot (Maples & Fontenot, LLP) for Barcliff, LLC d/b/a Radcliff/Economy Marine Services. William Cuthbert Baldwin (Jones Walker, LLP) for M/V Deep Blue. James Marshall Gardner (Maynard Cooper & Gale, PC) for ING Bank N.V.

Companies: Barcliff, LLC, d/b/a Radcliff/Economy Marine Services; ING Bank N.V.; O.W. Bunkers (UK) Limited; O.W. Bunker USA, Inc.; Technip UK Limited

MainStory: TopStory SecuredTransactions

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