Time Charterers' Bunker Supplies - Risk To Owners

June 2003

(Sea Venture Volume 21)

What are the risks to owners of unpaid bunkers stemmed by time charterers? In some cases, charterers may simply fail to pay the supplier, but most often bunkers are purchased through an intermediary who has defaulted in their contract with the suppliers (as highlighted by warrants of arrest sought by unpaid suppliers against vessels traversing the Suez Canal.) 

There are several factors that determine whether a supplier can arrest a vessel. The most important - in the context of an owner's liability for charterer's bunkers - is the distinction between those states which require a direct contractual link between the supplier and owner, and those that do not.

Liability for Arrest - Common Law Jurisdictions

Under English law, and in most common law jurisdictions, the provision of bunkers gives rise to a statutory lien¹. This is essentially a right to arrest a vessel as security for a claim in contract. Thus, the supplier has to prove they have a contractual right arising out of the agreement for the delivery of bunkers against the party in possession of the vessel². As it is exceptional for a charterparty to give charterers the right to stem bunkers on owner's account there is usually no direct agreement with owners on which suppliers can rely.

It is generally known that charterers do not enjoy actual authority to bind the owner. With this knowledge, suppliers would find it hard to argue that charterers have apparent or implied authority to bind the owner. The point is important as most bunker receipts have an express term purporting to make delivery of the bunkers conditional upon a lien on the vessel. Such a term is of no effect as it does not create a contractual link between supplier and the vessel and cannot reword the charterparty to create an authority between owners and charterers to bind the vessel ³. Ultimately, suppliers can only proceed against the party to whom the bunkers were sold, who may not necessarily be the party who receives the stem.

Non-Common Law Jurisdictions

Other states⁴ do not approach liens in the same manner as common law jurisdictions. Under such non-common law systems, a party who supplies bunkers "on the credit of the vessel" is entitled to a lien, even if they contract only with charterers. Conceptually this right is an expansion of the implied authority given by owners to a charterer on the basis that, by placing charterers in possession of the ship they are empowered also to bind the vessel for necessary supplies. Thus, bunkers delivered to a charterer give rise to a lien against the ship.

As the right of lien rests on the notion of charterers having implied authority to bind owners, it will be lost if the supplier is advised that the bunkers are only for the charterer's account. This is because actual knowledge of the true level of authority displaces the authority implied by law.

Ways to avoid incurring a Lien

Unfortunately, the risk of arrest depends on the jurisdiction into which the vessel sails. To avoid arrest in non-common law jurisdictions it is vital that suppliers are advised that bunkers are for the charterer's account. Alternatively - but less practically - owners could require proof from suppliers that they have been fully paid for the bunkers before they are accepted into the vessel.

As to notifying suppliers that bunkers are stemmed solely for charterer's benefit, the following endorsement may be useful in avoiding the creation of a lien against a vessel. This clause should be brought to the supplier's attention by the master prior to the stemming of bunkers.

"The bunkers to be stemmed are solely for the account of charterers who do not, nor are they entitled to, obtain such bunkers against the credit of the vessel or of the owners. Receipt of such bunkers does not amount to an implied or tacit consent by the owner, master or crew to bind the vessel in any manner for such bunkers."

The above clause has not been tested. However, it may displace any right of lien which arises pursuant to charterers' authority, implied by law, to burden the vessel with the debts of the charterer, or of an intermediary who fails to pay the supplier.

1.In legal language, a statutory right in rem 

2.Or time charterer who owns bunkers on board a vessel 

3.The "Yuta Bondarovskaya" [1998] 2 Lloyd's Rep. 357 (QB (Adm. Ct)) 

4.Such as the USA and Egypt