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AVIN INTL. BUNKERS SUPPLY, S.A. v. WELLRUN MGMT.

May 3, 1985

AVIN INTERNATIONAL BUNKERS SUPPLY, S.A., Plaintiff, against WELLRUN MANAGEMENT, WELLRUN MARINE TRANSPORT S.A. LTD., WELLRUN MARITIME S.A. LTD., WELLRUN SHIPPING COMPANY, LTD., BAILEE MARINE S.A., KINYARD ENTERPRISE CO., LTD., FRITZ STEAMSHIP CORP. and ORIENT LEASING (ASIA) LTD., Defendants -and- BRIDGE OIL LIMITED, Plaintiff, -against- WELLRUN MANAGEMENT INC. S.A., WELLRUN MARINE TRANSPORT S.A. LTD., WELLRUN MARITIME S.A. LTD., WELLRUN SHIPPING COMPANY, LTD., BAILEE MARINE S.A., KINYARD ENTERPRISE CO., LTD., FRITZ STEAMSHIP CORP. and ORIENT LEASING (ASIA) LTD., Defendants


The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, D.J.

Plaintiffs, Avin International Bunkers Supply, S.A. ("Avin") and Bridge Oil Limited ("Bridge"), bring these consolidated actions to recover for payments allegedly due for fuel and diesel oil supplied to the M/V Bailee, a vessel owned by defendant, Fritz Steamship Corporation ("Fritz"), and its affiliate, orient Leasing (Asia) Ltd. ("OLA"). *fn1" OLA and Fritz move for summary judgment pursuant to Rule 56, Fed. R. Civ. P., claiming it is not they, but the bareboat charterers of the vessel, defendants Bailee Marine S.A. and its associated entities (collectively referred to as the "Wellrun Group"), who are responsible for any bunkers supplied to the M/V Bailee. In addition, defendants OLA and Fritz move to vacate an attachment of insurance proceeds arising from the loss of the vessel.

BACKGROUND

 On June 14, 1982, Fritz purchased the M/V Bailee with funds advanced from OLA, and simultaneously leased it for a term of 48 months to Bailee Marine pursuant to a "Bareboat Lease Agreement." The profitability of this lease arrangement was questionable form the start. Bailee Marine duly paid the first and second rent installments, but thereafter defaulted on its obligations, never making any full rental payments during the year and one half of the vessel's operation.

 Bailee's default resulted in a series of financial actions by the parties to secure their respective interests while maintaining the vessel in operation. In August of 1982, the Wellrun Group sought a one-year moratorium on its rental obligations. Although OLA and Fritz considered repossessing the vessel, they decided not to do so because of its limited scrap value and because its then operating revenues exceeded its costs. They agreed to renegotiate, but to secure its interest, and "[i]n order to resist arrest of the chartered ship[ ] by a third party," *fn2" OLA placed an "in house" mortgage on the vessel by agreement with Fritz dated October 20, 1982 *fn3" Thereafter, Bailee only partially fulfilled the terms of the renegotiated contract, and a second renegotiation followed, pursuant to which Bailee made no payments at all.

 During the course of renegotiations, Bailee Marine submitted to OLA budget information, voyage accountings, cargo bookings, and financial statements. Based on this information, OLA and Fritz became aware that Bailee was unable to pay for the vessel's supplies. Accordingly, OLA entered into an arrangement with Nordic Asia Limited ("Nordic"), which owned other vessels in the Wellrun Group that also were experiencing financial difficulties, whereby Nordic paid for the supplies by advancing necessary sums to Bailee Marine, in return for which Nordic collected the freights earned by the vessel.

 Avin and Bridge allege that on October 4, 1983 and August 13, 1983, respectively, they furnished fuel to the M/V Bailee pursuant to contracts with the Wellrun Group. On November 22, 1983, the vessel sank. Plaintiffs now assert claims against OLA and Fritz in personam for sums due on the contracts to supply fuel to the vessel, based on theories of express or implied contract, unjust enrichment, and estoppel.

 DISCUSSION

 In support of their motion for summary judgment, defendants contend that plaintiffs must look to the bareboat charterer, Bailee Marine, for recovery of debts arising from supplies furnished to the vessel; that neither OLA nor Fritz contracted to purchase the fuel supplied by Avin or Bridge; and that they never took any actions or derived any unjust benefit which would entitle plaintiffs to equitable relief. In essence, defendants contend that the bareboat charter agreement with Bailee Marine insulates them from in personam liability. Plaintiffs respond that defendants' conduct was inconsistent with and impliedly modified the bareboat lease arrangement so that the relationship between Fritz and OLA, on the one hand, and Bailee, on the other, was at the time the fuel was supplied that of owner/operator, and not that of registered owner/bareboat charterer.

 "It has long been the maritime law that the owners of a vessel are not personally liable for goods or services furnished to the vessel on order of a bare boat charterer of the vessel." *fn4" A bareboat charterer is the "owner pro hac vice " of the vessel, and as such bears all in personam liabilities arising out of the ship's operation. *fn5" "The vessel, so far as third persons are concerned, is his vessel." *fn6"

 The vital distinction between a bareboat charter (also termed a demise), and other charter parties, is the exclusive control of the vessel by the charterer. To create a bareboat charter or a demise of the vessel, the owner must completely and exclusively relinquish possession, command, and navigation to the demise. *fn7" It is "tantamount to, though just short of, an outright transfer of ownership." *fn8"

 In support of their motion, defendants rely primarily upon the charter itself. On its face and by its terms, the charter party is a bareboat lease of the vessel vesting control in Bailee Marine. It expressly provides that "[t]he Vessel shall during the Lease Period be in the full possession and at the disposal for all purposes of the Lessee and under its complete control in every respect"; and further, that the responsibility to victual, navigate, man, supply, fuel, repair, and provide insurance coverage for the vessel was Bailee's "at its own expense." However, the agreement by itself doe not satisfy defendants' burden on this motion. The question whether a demise has been effected sufficient to insulate a registered owner from liability to third parties is a factual one which depends upon all the circumstances of the case, including not only the terms of the contract, but also the conduct of the parties under the arrangement. *fn9" The parties to a charter may not "by the choice of a label determine . . . questions of responsibility to third persons." *fn10" While a "charter may describe the duties of the parties and provide for the shifting of risks between them . . . in general, control entails responsibility. . . ." *fn11"

 Because a demise insulates a registered owner from liability vis-a-vis third parties, "the party attempting to show that the owner of the vessel has been relieved" of his legal obligations "must bear the heavy burden of establishing the facts which prove his point." *fn12" "We start . . . with the general presumption that the owner does not mean to put his vessels into the possess of the charterer." *fn13" As the Supreme Court has stated:

 
[A]nything short of . . . a complete transfer is a time or voyage charter party or not a charter party at all. . . . A]ssuming . . . a demise . . . would isolate the owner from liability, the owner has the burden of showing such a charter. This burden is heavy, for courts are reluctant to find a demise when the dealings between the parties are consistent ...

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