April 30, 2016 Practice Points

Fifth Circuit Addresses Charterers’ Authority to Subject Vessel to Maritime Lien & Scope of Choice of Law Provision

By Phil Brickman

In World Fuel Services Singapore PTE, Ltd. v. M/V Bulk Juliana, 2016 WL 1295041 (5th Cir. 2016), the U.S. Fifth Circuit Court of Appeals addressed the issue of whether a vessel charterer can subject the vessel, in rem, to arrest to enforce a maritime lien for failure to pay invoices related to fuel oil bunkers, as well as the scope of a choice of law provision that invokes the U.S. General Maritime Law. In Bulk Juliana, World Fuel Services sought to recover a debt arising from a supply of fuel bunkers to the M/V Bulk Juliana that was owned by a U.S. company and chartered by a German company. An agreement was entered into between the vessel charterer and World Fuel outlining the terms of the fuel oil order. The agreement expressly invoked general maritime law of the United States to apply all transactions and disputes under the agreement, including maritime liens.

An order of bunkers was delivered to the vessel at the Port of Singapore by the vessel charterer. Payment for the bunkers was never received by World Fuel, and they filed a complaint in the Eastern District of Louisiana seeking the arrest of the vessel at the Port of New Orleans to recover the unpaid invoices. The vessel was subsequently arrested, and the vessel’s owner sought to vacate the arrest alleging that World Fuel had no right to a maritime lien under Singapore law, which is where the fuel bunkers were delivered. World Fuel argued that its maritime lien was valid because the agreement contained a choice of law provision designating the General Maritime of the United States as controlling all disputes. In the alternative, World Fuel argued that the U.S. choice of law provision would be applicable to the right to a maritime lien even if Singapore governed the formation of the contract. The vessel owners contended that Singapore law controlled the entire transaction and did not afford World Fuel the benefit of the U.S. maritime lien law. Furthermore, the phrase “general maritime law of the United States” was a term of art that only invoked U.S. maritime common law and not statutory law such as the Federal Maritime Lien Act.  

The district court held that while Singapore law governed the formation of the contract, the bunker confirmation incorporated the general maritime law of the United States; thus, World Fuel’s maritime lien for nonpayment of bunkers was valid and enforceable. The vessel owners appealed the district court’s ruling to the Fifth Federal Circuit.

In its opinion, the Fifth Federal Circuit addressed the following issues: (1) whether under Singapore law the bunker contract’s general terms validly incorporated U.S. maritime law; (2) whether the vessel charterer had the authority to bind the vessel in rem, even though the owner was not a party to the bunker contract; (3) whether the maritime lien was solely created by a contractual term; and (4) whether the choice of law using the term “general maritime law of the United States” included statutory law like the Federal Maritime Lien Act.

The parties did not dispute that Singapore law applied to the contract’s formation. The main dispute focused on whether the general terms of the agreement were validly incorporated into the contract. The fifth circuit concluded that the U.S. choice of law provision was validly incorporated into the contract and enforceable under Singapore law. The fifth circuit also affirmed the district court’s ruling that the vessel charterer had the authority to bind the vessel itself in rem by procuring the bunker fuel for the vessel, even though the owner was not a party to the bunker contract. The fifth circuit noted that under U.S. maritime law, it is fundamental that charterers and their agents are presumed to have the authority to bind a vessel by ordering necessaries, such as bunker fuel. As such, there was little dispute as to whether the charterer had the authority to bind the vessel when it ordered the bunker fuel.

The most interesting issue addressed by the appellate court was the scope of the choice of law provision and whether the term “general maritime law of the United States” was meant to incorporate statutory law like the Federal Maritime Lien Act. The vessel owners asserted that the provision simply incorporated maritime common law, which is the body of case authority related to U.S. maritime law. The district court concluded, and fifth circuit affirmed, that the phrase included the Federal Maritime Lien Act, because World Fuel clearly intended to invoke the statutory law relating to the enforcement of maritime liens. The contractual language repeatedly referred to maritime liens with regard to the enforcement of contractual terms to secure payment for fuel oil bunkers. To interpret the contract otherwise would not lead to a logical conclusion. Further, the fifth circuit looked to a district court opinion with the same factual scenario. In World Fuel Services Trading v. M/V HEBEI SHIJIAZHUANG, 12 F.Supp.3d 792 (E.D.Va. 2014), the court traced the history of U.S. maritime lien law and concluded that the general maritime law of the United States included the Federal Maritime Lien Act because the general maritime law must comply with Congress’s resolutions of issues that are decided through the enactment of statutes. The Fourth Circuit Court of Appeals later affirmed the district court and held that the general maritime law of the United States necessarily includes the Federal Maritime Lien Act. Thus, World Fuel has a right to a maritime lien under U.S. law, which included the right to enforce the lien using an in rem action against the vessel.

The significance of this matter is (1) that the Fifth Circuit Court of Appeals affirmed the charterers’ authority to bind the vessel in rem when ordering bunkers for the vessel and subjecting the vessel to a maritime lien for necessaries, and (2) that a choice of law provision invoking the general maritime law of the United States also includes federal statutory maritime law.

Phil Brickman is with Degan, Blanchard & Nash in New Orleans, Louisiana.


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