What OW Bunker Taught the Industry About Counterparty Risk

In March 2014, OW Bunker listed on the Copenhagen exchange. It was Denmark's third largest company by revenue and the largest marine fuel supplier in the world. Eight months later it was in bankruptcy, thirteen banks were owed $750 million, and shipowners across every major trading region were discovering that they might have to pay for the same bunkers twice.

The collapse produced a decade of litigation across multiple jurisdictions, a UK Supreme Court decision that reclassified what a bunker supply contract actually is, and a settled line of U.S. authority on maritime liens that reversed what physical suppliers had assumed about their position for generations. More than eleven years later, the structural problem it exposed has not been fixed. It has only been documented.

This article walks through what happened, what the courts decided, and what an operator buying fuel today should take from it.

The Collapse

The public sequence took two weeks.

On October 23, 2014, OW Bunker announced a risk management loss of $24.5 million. The company's messaging at the time characterized its downside as protected.

On November 5, it announced two things at once. A fraud had been discovered at Dynamic Oil Trading, its Singapore-based subsidiary, with preliminary findings suggesting a loss of around $125 million. Separately, a review of the group's risk management contracts had revealed a mark to market loss of approximately $150 million, over and above the figure disclosed thirteen days earlier. The head of risk management was dismissed with immediate effect. Total disclosed losses came to roughly $275 million.

Trading in the shares was suspended. The banks declined further credit. On November 7, OW Bunker A/S, O.W. Bunker & Trading A/S, and O.W. Supply & Trading A/S filed for bankruptcy in Aalborg. The shares had already lost 42 percent of their value since the March IPO before trading halted.

The criminal aftermath took years. Danish prosecutors eventually charged Lars Møller, the former chief executive of Dynamic Oil Trading, with breach of trust exceeding DKK 800 million, roughly $122 million, in connection with the extension of credit outside his mandate. His lawyer maintained he bore no criminal liability. Prosecutors concluded there were no grounds to charge other members of group management. Reporting at the time identified Singapore trader Tankoil Marine Services as a counterparty, and it was later reported to have owed Dynamic Oil Trading $156 million at the time of the bankruptcy.

The immediate market consequence was chaos. Vessels had taken delivery of bunkers ordered through OW entities that were now insolvent. The physical suppliers who had actually pumped the fuel had not been paid. And both the insolvent estate and the unpaid physical supplier began pursuing the same shipowners for the same cargoes.

Why the Structure Created the Problem

The double payment exposure was not a fluke. It was the predictable consequence of how bunker supply chains are ordinarily built.

The chain in the Res Cogitans case is representative. The owners contracted with OW Bunker Malta. OW Bunker Malta had contracted with its parent, OW Bunker & Trading A/S. The parent had contracted with Rosneft Marine UK. Rosneft Marine UK's associate company, RN-Bunker Ltd, physically delivered the fuel to the vessel.

Four contracts, three of them invisible to the buyer. The owners had a contractual relationship with exactly one party in that chain, and it was not the party that put fuel in their tanks.

Each of those contracts contained a retention of title clause, meaning title to the bunkers did not pass at any link until payment was made at that link. When the middle of the chain went insolvent without paying, the physical supplier was left holding a claim, unpaid, having delivered fuel to a vessel it had no contract with. The vessel had received fuel it had contracted to pay for, but its counterparty had collapsed and its counterparty's assignee bank was demanding payment.

Both parties came after the shipowner because the shipowner was the only solvent party left with the fuel.

The Res Cogitans Decision

PST Energy 7 Shipping LLC and Product Shipping and Trading SA v OW Bunker Malta Ltd and ING Bank NV (The Res Cogitans) [2016] UKSC 23 moved from arbitration to the Supreme Court in under ten months, which tells you how urgently the market needed an answer. Judgment was handed down on May 11, 2016, by Lords Neuberger, Mance, Clarke, Hughes, and Toulson.

The facts were straightforward. The owners bought bunkers from OW Bunker Malta on the OWB 2013 Terms and Conditions of Sale. Those terms provided a 60 day credit period and included a retention of title clause under which title remained with OW Bunker Malta until payment in full, while expressly permitting the owners to consume the bunkers for propulsion during the credit period.

OW Bunker Malta never paid its own supplier up the chain. ING Bank, as assignee of OW's receivables, claimed the price from the owners. The owners resisted on the basis that OW Bunker Malta could never transfer title to the bunkers, and therefore could not satisfy the implied condition under section 12(1) of the Sale of Goods Act 1979 that a seller has the right to sell the goods.

The question the Supreme Court had to answer was more fundamental than that argument assumed. Was this a contract for the sale of goods at all?

It was not. Section 2(1) of the Act defines a contract of sale as one by which the seller transfers or agrees to transfer the property in goods for a money consideration. The court held that on these terms, in the real world, the parties knew and intended that the bunkers would be substantially or wholly consumed before the 60 day credit period expired and before title could ever pass. A contract structured around goods that both parties expect to be destroyed before ownership transfers is not a contract to transfer ownership.

In the Court of Appeal below, Moore-Bick LJ had described the essential nature of the arrangement as reasonably clear. Goods delivered to the owners as bailees with a license to consume them for the propulsion of the vessel, coupled with an agreement to sell whatever quantity remained at the date of payment.

The consequences followed directly. Because the Act did not apply, section 12(1) did not apply, and the owners could not rely on it. OW Bunker Malta's only implied undertaking was that it was entitled to give the owners permission to consume the bunkers before payment. It did not need to hold title to do that. It only needed the right to authorize consumption under the contractual chain above it, which the court held it had.

The owners were liable to pay.

There is also an obiter passage worth noting. Because the case had been fully argued and carried general significance, Lord Mance addressed section 49 of the Act and the Court of Appeal's decision in F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd, commonly called Caterpillar, which had held that section 49 was a complete code precluding any action for the price outside its terms. Lord Mance thought that was wrong. Nothing prevents parties from agreeing that the price falls due before property passes.

The U.S. Position on Maritime Liens

While the English courts were resolving who could claim the price, the U.S. courts were resolving who could arrest the ship, and the answer surprised the industry more.

Under the Commercial Instruments and Maritime Liens Act, 46 U.S.C. 31342, a supplier has a maritime lien enforceable in rem if it furnished necessaries, to a vessel, on the order of the owner or a person authorized by the owner. The lien arises by operation of law rather than by contract.

Physical suppliers had long assumed they satisfied all three. In Valero Marketing & Supply Co. v. M/V ALMI SUN, 2016 WL 475905 (E.D. La. Feb. 8, 2016), the court held otherwise. An agent for the owner of the ALMI SUN had ordered 200 metric tons from OW Malta. OW Malta bought from OW USA. OW USA bought from Valero. Valero delivered the fuel and was never paid.

The first two elements were not in dispute. The third defeated the claim. Valero had not supplied on the order of the owner or an authorized person. It had supplied on the order of OW USA. The court rejected the argument that the owner's and master's knowledge that a domestic supplier would deliver, and notification that it would be Valero, amounted to ratification of the selection.

The court acknowledged the awkwardness of the result. It agreed that CIMLA is generally intended to protect domestic suppliers like Valero, and noted that OW Bunker Malta, as a foreign company, could never itself have held a maritime lien. It held that this was not a basis to disregard the statutory requirement.

The same conclusion followed across the country. O'Rourke Marine Services v. M/V COSCO HAIFA in the Southern District of New York, Bunker Holdings in the Western District of Washington, ING Bank N.V. v. M/V Clipper Iyo in the Southern District of Texas, and Barcliff, LLC v. M/V DEEP BLUE in the Southern District of Alabama. The Second Circuit confirmed that physical suppliers do not hold maritime liens in these arrangements. The Fifth Circuit affirmed Valero on June 19, 2018, and the Eleventh Circuit reached the same conclusion in Barcliff.

The other half of the picture completed the reversal. In January 2017, Judge Valerie Caproni in the Southern District of New York issued an order in four test cases on a full evidentiary record confirming that OW Bunker did hold enforceable maritime liens. First, because OW had accepted the order for bunkers directly from vessel interests, and second, because the first two CIMLA elements do not require the contracting supplier to physically deliver the fuel itself. ING Bank, as OW's assignee, could therefore enforce those liens.

So the entity that never touched the fuel held the lien. The entity that pumped it did not.

Faced with competing claims from both directions, many vessel owners filed interpleader actions, depositing the value of the fuel into the registry of the court and asking the court to determine who was entitled to it. That mechanism became the practical route to avoiding double payment, and appellate courts upheld interpleader jurisdiction on the basis that the in rem lien claims and the in personam contract claims were inextricably intertwined.

One question was left open and is worth flagging. The assignment of OW's maritime liens to ING was governed by English law, which does not itself give rise to a U.S. maritime lien, and whether the liens were validly assigned has not been definitively settled.

What This Means for Buyers Today

The structure that produced OW Bunker still exists. Nothing in the litigation changed how bunkers are bought and sold. It only clarified who bears the loss when the chain breaks.

Know who you are actually contracting with. The single most useful question before a stem is whether your counterparty is the physical supplier or a reseller who will subcontract delivery. Those are different risk propositions. Contracting with a trader means your payment obligation runs to an entity whose balance sheet you have not examined, and whose own payment obligations up the chain you cannot see.

Understand what a retention of title clause does and does not do. After Res Cogitans, a ROT clause in a bunker supply contract does not give the buyer a defense to payment on the basis that the seller could not pass title. The clause protects the seller's position in the chain. It does not protect yours.

Recognize that title and payment obligations are separate questions. The owners in Res Cogitans paid for fuel that had been supplied to them by a party who never owned it and never paid for it. That was the correct legal outcome under English law, and it will be the outcome again.

Consider the lien exposure independently. Your contractual counterparty's insolvency does not extinguish a maritime lien over your vessel. Under U.S. law, the contracting supplier holds the lien and may assign it, which means the party arresting your vessel may be a bank you have never dealt with.

Look at your charter party. Where charterers order and pay for bunkers under a time charter, the owner still faces the lien exposure on the vessel. Whether the charter party addresses that risk, and whether it requires the charterer to indemnify the owner for liens arising from bunker purchases, is worth confirming before the situation is live rather than after.

Watch the credit signals. OW Bunker was publicly listed, audited, and eight months past a successful IPO when it collapsed. The market's ability to assess a bunker counterparty's financial condition from the outside is limited, which is an argument for reducing the number of intermediaries between you and the fuel rather than for screening intermediaries more diligently.

The Broader Point

The most useful lesson from OW Bunker is not about any particular clause. It is about what happens to risk in a chain of contracts where each link is protected against the link below it and nobody is protected against the middle collapsing.

The buyer sat at the end of that chain with the fuel in the tanks, a contract with an insolvent counterparty, a bank claiming the price, a physical supplier claiming a lien, and no ability to see the arrangements between them. Every party in the chain had drafted carefully to protect its own position. The cumulative effect of all that careful drafting was that the party furthest from the transaction and least able to assess it carried the loss.

That structure has not changed. What changed is that the industry now knows how it fails.