Shelter in the Storm: Interpleader Proceedings as Protection for Shipowners in the Wake of the O.W. Bunker Bankruptcy.

• Author: Xu, Jingchen

1. Introduction II. Interpleader and Anti-suit Injunctions III. Maritime Liens and the Personification Doctrine IV. Approaches in Different Juristictions A. United States B. United Kingdom C. Canada D. Singapore V. Analysis VI. Conclusion I. Introduction

   Interpleader is a specialized joinder mechanism designed to address situations where multiple parties have competing claims to the same piece of property or fund. (1) An interpleader action originates when the plaintiff holds property on behalf of another but does not know to whom the property should be transferred. Interpleader brings all affected persons into the same action so that one court may resolve their respective claims in a single action. (2) The purpose of interpleader is to avoid multiple lawsuits and to protect disinterested stakeholders from conflicting claims to property or a fund or from multiple recoveries against it. (3) A prerequisite for permitting interpleader is that two or more claimants must be "adverse" to each other. (4) Adversity does not exist where the claims asserted are not against the same fund or where the stakeholder may be liable to both claimants, such as where multiple claimants have independent claims. (5)

   A procedure unique to admiralty practice is an action in rem directly against the property, typically a vessel, that relates to the claim. An in rem action is an action against the arrested vessel itself, and any judgment is thus limited to the value thereof or the value of the bond or stipulation substituted for the vessel to obtain its release. (6) In an in rem admiralty proceeding, a person is not made a party defendant, but a vessel or other thing is seized and treated as the defendant, and a decision is sought against the vessel rather than its owner. The underlying principle behind this approach is the doctrine of personification, which is based on the fiction that the vessel has a legal "personality" and, as such, is subject to suit directly. The vessel itself can be held liable for the torts it has committed and for the contracts it has breached. But an in rem action is not available in all admiralty disputes because the arrest procedure is authorized only to enforce a maritime lien or as otherwise permitted by statute. (7)

   After the business collapse of O.W. Bunker & Trading A/S (O.W. Bunker), courts around the world have encountered the issue of whether jurisdiction exists over in rem interpleader actions. O.W. Bunker was one of the world's largest marine fuel traders. (8) While owners and charterers ("the vessel owners") would contract for bunkers (marine fuel) from O.W. Bunker or its subsidiaries, O.W. Bunker rarely supplied the fuel directly to the vessels. Instead, O.W. Bunker acted only as an intermediary by sub-contracting with third-party fuel suppliers (physical suppliers) to deliver the bunkers to the vessels. (9) There was no direct contract between the physical suppliers and the vessel owners. In addition, certain O.W. Bunker entities assigned their rights in the fuel supply contracts as security to ING Bank N.V. (ING), under an Omnibus Security Agreement.

   When O.W. Bunker suddenly collapsed, amidst internal fraud and risk management losses, and filed for bankruptcy in Denmark on November 7, 2014, many of its subsidiaries and affiliates sought bankruptcy protection by filing petitions all over the world. (10) Because there were no contracts between physical suppliers and vessel owners, physical suppliers could only seek to recover payment from O.W. Bunker. Fearing that any payment collected by the upstream O.W. entities would become part of a bankruptcy estate from which the physical suppliers might never recover. (11) they attempted to enforce maritime liens against the vessels, regardless of whether the vessel owners had already paid the amounts owed to O.W. Bunker. (12) ING, as assignee of O.W. Bunker, also claimed an interest in the payments due from the vessel owners. (13) Since the vessel owners faced the potential of multiple claims for payment, it initiated interpleader actions against these parties to avoid the potential risks of vessel arrest and double payment.

   This article analyzes the availability of interpleader actions for vessel owners from an international perspective and highlights apparent conflicts among bankruptcy law, maritime law, and the law and procedure governing interpleader relief. (14) The primary question addressed is: when one claimant proceeds against the vessel in rem while another claimant proceeds against the vessel owner in personam, is an interpleader proceeding available to protect the vessel owner from potential double payment? In other words, are the in rem and in personam claims adverse claims arising out of a single obligation such that interpleader relief is available? For vessel owners caught up in the O.W. Bunker collapse, the answer is crucial because it will determine whether vessel owners can use interpleader actions to protect themselves from multiple payments as well as the risk of ship arrest. For the physical suppliers and O.W. Bunker, the answer will determine whether the suppliers may surmount the doctrine of privity of contract by means of an rem action to secure payment.

   Part II of this article presents an historical background of interpleader proceedings, while Part III provides brief introductions to maritime liens and the personification doctrine. Part IV takes a closer look at rules and decisions from different jurisdictions, such as the United States, the United Kingdom, Canada, and Singapore. Part V analyzes court jurisdiction over interpleader actions and the equity of a less restrictive application of the personification doctrine. Finally, Part VI concludes that interpleader proceedings offer an important procedural step to protect ship owners from double payments for the same necessaries.

2. INTERPLEADER AND ANTI-SUIT INJUNCTIONS

   Interpleader is an equitable proceeding for the determination of adverse claims by rival claimants to the same property or fund held by a third person as a stakeholder. It is a joinder device by which all of those who claim or may claim some interest in a particular fund, known as the "stake," may be joined in one action and there assert and litigate their claims against the fund. A party who is confronted with conflicting claims to a fund in his or her possession and who does not claim any interest in that fund may initiate the interpleader action against the various claimants. (15) Interpleader is based on the theory that adverse claimants should litigate among themselves without involving the disinterested stakeholder who has offered to deliver or has delivered the property to the court or has deposited money in the court's registry. The party faced with the competing claims obtains a discharge of liability to the competing claimants by interpleading the funds. (16)

   Because interpleader actions are remedial in nature, the governing rules and statutes are to be liberally construed to prevent stakeholders from being subject to multiple liabilities, as well as to protect them from the expense of multiple lawsuits. (17) Interpleader proceedings originated in courts of equity. Thus, the trend, both with regard to statutory revision and judicial interpretation, has been directed toward increasing the availability of interpleader actions and eliminating those technical restraints on the device that are not founded on adequate policy considerations. (18) If the court determines that interpleader is proper, the stakeholder is discharged from liability with respect to the stake, and the claimants are left to resolve their competing claims. (19)

   Once an interpleader action is commenced, the court may issue an order to restrict all claimants from starting or continuing any action that would affect the stake, enter a permanent injunction, and discharge the stakeholder from liability. (20) The injunction ensures that the litigation is actually confined to a single forum. It furthers equitable interests by consolidating all claims into one proceeding and preventing a claimant from racing to judgment in another forum. (21)

3. MARITIME LIENS AND THE PERSONIFICATION DOCTRINE

   A maritime lien is a secured right peculiar to maritime law. A lien is a charge on property for the payment of a debt, and a maritime lien is a special property right in a vessel given to a creditor by law as security for a debt or claim arising from some service rendered to the ship to facilitate her use in navigation or from an injury caused by the vessel in navigable water. (22)

   The basic purpose of the maritime lien is to provide security for a claim while permitting the ship to proceed on her way in order to earn the freight or hire necessary to pay off the claim. (23) The admiralty system relies on the vessel, which can be arrested and used to recoup the debt and which is understood by all ship's creditors, especially financiers, as the primary source of security. Maritime liens are internationally recognized and they are created by operation of law rather than by contract. (24)

   Under U.S. law, maritime liens are based on the fiction of a "personified" vessel. Under the personification doctrine, a vessel is held liable for its torts and for contractual obligations undertaken on its behalf to facilitate the accomplishment of its mission. (25) To enforce maritime liens, an in rem action can be initiated against the arrested vessel. Any judgment is thus limited to the value of the vessel, or the value of the bond or stipulation substituted for the vessel to obtain its release. (26) In an in rem admiralty proceeding, a person is not made a party defendant, but a vessel or other thing is seized and treated as the defendant, and a decision is sought against the res rather than its owner. A judgment in an in rem admiralty action is said to be good "against all the world." (27)

   The personification doctrine can be traced back to the English...