The case for mediating bunker disputes

DISPUTES and claims involving the quality of fuel delivered to oceangoing vessels have, it seems, become a nasty but accepted risk for all those concerned with owning, chartering and managing ships.

An interested person could attend at least three bunker conferences around the world every year on the subject of poor quality marine fuel. And it could be argued that, after more than twenty years of conferences, training programmes, books and even videos on bunkers, those involved with buying and selling marine fuels have never been as well-educated on the pitfalls as they are today. But has that changed the incident rate of problem fuel deliveries or reduced the number of cases which come before arbitrators or judges?

It seems that although the selection and appointment of experts for arbitration is given a great deal of thought, this does not always apply to the appointment of surveyors at the time of the incident ... All too often vital evidence is not secured due to the wrong person being appointed to visit the ship.

Statistics provided by the leading testing agencies for bunker fuel samples show that about one in every ten fuel deliveries made to ships has at least one quality characteristic outside the norm for that type of fuel.

Some of these deviations in quality are minor and would not be expected to be a problem for the receiving ship. But the statistics also show that, for roughly every 120 fuels delivered to ships, one is likely to have a serious quality aspect which could directly cause engine damage, or ship delays, and therefore claims. Now, if we estimate that about 120,000 marine fuel deliveries take place around the world each year, there is a potential for 1,000 disputes or claims every year.

It is estimated that something like seventy per cent of fuels delivered to ships are bought by a charterer, under the conditions of a charter party. Most litigation from these disputes tends to end up in London or New York, but some takes place in the Far East, and perhaps a lower number in other parts of Europe. If a shipowner buys fuel directly from a supplier, the terms and conditions of sale may dictate that any dispute be settled under the law of the land of the supplier. The shipowner could then be fighting a battle in just about any country in the world which has a bunker port.

One could further speculate that about one third of charter party bunker disputes would find their way into the UK legal system - something like 250 each year . If we assume that roughly 25 per cent of cases would settle before the hearing, there is a potential for say 200 cases a year to go to court or to arbitration somewhere within the UK legal framework.

Is fuel quality getting worse?

The statistics tend to show that the incidence of quality problems has not really changed over the last fifteen years or so. There are some unusual cases, but the majority of claims are associated with old chestnuts such as high water content, instability, high viscosity and high levels of aluminum and silicon.

From time to time, new contaminants are detected. This was the case in 1997 when a small number of fuel deliveries were found to contain polypropylene fibres. These very small fibres caused serious problems on board ships. Filters became blocked to such an extent that the ship's engine was starved of fuel. This problem seems to have gone away for the time being, probably due to careful scanning by fuel suppliers.

Prior to the polypropylene problem, there were a number of instances where fuels were contaminated with waste chemicals. Again, this problem seems to have abated over the last few years.

But something that continues to give rise to disputes is the presence of used lubricants in bunkers. There are a small number of suppliers, mainly in the United States, who blend small amounts of used automotive lubricants into residual fuel stocks.

There is no legislation against this practice, and the International Fuel Quality Standard does not specifically rule it out as a blend component. Some fuel buyers state clearly that their purchases must not contain used lubricants. But if one of their ships was to receive a fuel with a detectable amount of used lubricant they would have to decide on appropriate action. There is no strong evidence that small amounts of used lubricants lead to engine problems, and demanding de-bunkering may not be seen as reasonable in mitigation.

Representative sampling remains the key issue

Every bunker quality dispute will centre around samples taken during and after delivery. Although everybody accepts that the best evidence of a poor fuel delivery is a sample taken continuously throughout the entire bunkering process, less than forty per cent of supplies are sampled and tested under the quality programmes offered by the major testing companies. Even shipowners regularly using these services find that it is still difficult to win a case when other parties introduce different samples allegedly also taken at the time of delivery.

Some ports, such as Singapore, have introduced bunkering procedures which clearly state how and where samples should be taken but, even with these in place, disputes continue to arise where the supplier and receiver produce samples showing very different quality.

Getting the facts

From the expert's point of view, it is very frustrating to be appointed to a case some years after the event and to find that sample evidence and basic facts are not available - for example, such simple, vital information as which tanks contained the problem fuel, how much was consumed, and whether fuels of different supplies were co-mingled.

It seems that, although the selection and appointment of experts for arbitration is given a great deal of thought, this does not always apply to the appointment of surveyors at the time of the incident. The person appointed to gather evidence in a bunker claim should have a background which includes marine engineering, fuel technology, chemistry and experience of sampling ships' tanks and fuel systems.

All too often, vital evidence is not secured due to the wrong person being appointed to visit the ship. Owners and their insurers should not be tempted to save money at this vital stage. They may live to regret it when they lose the case later due to lack of evidence.

A strong case for mediation

Bunker disputes which end in long arbitration are not only costly. They also involve a huge amount of management time on the part of both claimant and defendant. Experts often have a good feeling for the likely outcome of cases they are involved with, and are sometimes puzzled that certain cases are not settled before costs spiral out of all proportion to the claim.

There will always be a need for legal advice and expert opinion, but perhaps more satisfaction would come from settlement through mediation. Although the incidence of bunker disputes is unlikely to fall in the new millennium, perhaps we will see a positive move towards mediation before - or instead of - arbitration.