World Fuel Services Corporation v. Nordems (Ship)

In In Rem Actions and Arrest, Maritime Liens, Mortgages & Priorities on (Updated )

This case probes the extent to which American maritime liens will be recognized by Canadian courts. Essentially, the issue was whether an American maritime lien would be recognized where bunkers were supplied to a ship under time charter outside of the United States or Canada and pursuant to a contract between the supplier and the time charterer. The bunker supply contract contained terms to the effect that: the bunkers were supplied on the faith and credit of the ship and her owners; the supplier was to have a lien over the vessel; and the supply contract was subject to U.S. law. The time charter party contract, on the other hand, contained the usual terms that the charterer was responsible for fuel and was prohibited from incurring liens. At first instance (2010 FC 332) the Judge held the charterer had no authority, express or implied, to bind the owners to the supply contract and that therefore there was no in personam liability on the part of the owners to support a claim in rem. In reaching this conclusion, the Judge noted that the presumption as to the authority of a time charterer under Canadian law is much weaker than under U.S. law. Under U.S. law the presumption can only be rebutted by showing the supplier had actual knowledge of lack of authority whereas under Canadian law less than actual knowledge is necessary. The Judge found that the supplier’s own terms and conditions referred to commercial ship registries such as Lloyds which identified the vessel’s owner and held that the supplier was therefore on notice and should have verified whether the charterer had authority. The Judge next considered whether American law applied to the transaction and looked at the various connecting factors. In doing so he noted that because the owners were not a party to the supply contract the U.S. choice of law clause in the contract was of less significance than otherwise. He ultimately found that the applicable law was the place of the supply of the bunkers, which was South Africa, and as South African law had not been pleaded or proven, he applied Canadian law. Although the Judge had held that U.S. law was not applicable to the transaction, he nevertheless continued to decide whether U.S. law would recognize a maritime lien under circumstances where bunkers were supplied to a time charterer of a non-American ship outside of a U.S. port. He reviewed the affidavits of American attorneys that had been put before him and the various U.S. authorities and ultimately concluded that U.S. law would not recognize a lien under the circumstances.

On appeal, the Federal Court of Appeal dealt first with the presumption and then with the applicable law. On the presumption issue the Appellate Court agreed with the Trial Judge that the presumption was weaker under Canadian law than under American law. The Court said that the relevant question under Canadian law is whether there was behaviour or conduct on the part of the shipowner that would lead a supplier to believe the charterer was authorized to contract on the owner’s behalf or on the credit of the ship. In the absence of any “holding out”, the owner is not liable. The Court further noted that there is a duty on the supplier to make inquiries. Applying these principles to the facts of the case the Court held that the supplier knew or ought to have known that the charterer was not the owner and ought to have made inquiries. The Court further found that there was no “holding out” by the owner. The Court then turned to the question of applicable law and specifically to the question of what weight should be given to the choice of law clause in the supply contract. The Court held that where the owner was not a party to the supply contract the choice of law clause should be given no weight. The Court further refused to interfere with the Trial Judge’s balancing of the various factors and dismissed the appeal. The Court of Appeal did not address the Trial Judge’s finding as to whether U.S. law would recognize a lien in the circumstances.