493. PST Energy 7 Shipping LLC v OW Bunker Malta Limited (the “Res Cogitans”) [2015] EWHC 2022 (Comm) ; [2015] EWCA Civ 1058; [2016] UKSC 23

Bunker supply contract – not a sale in terms of Sale of Goods Act – nevertheless enforceable

The Facts

Ship owners entered into a contract (termed a “sale”) with OW Bunker Malta for the supply of bunkers (110 metric tons of gasoil and 1000 metric tons of fuel oil), payment 60 days from date of delivery on OW Bunker Group’s 2013 terms, reserving ownership in the bunkers pending payment.

A chain of transactions followed. OWBM contracted with its Danish parent company, OW Bunker & Trading AS (OWBAS) on the same terms. OWBAS contracted with Rosneft Marine UK on Rosneft terms. Rosneft contracted with RN-Bunker, Russia (also on Rosneft terms) which delivered the bunkers to owners in Tuapse on the Black Sea.

OWBM’s right to payment from owners was assigned to its bankers.

Rosneft paid the ultimate supplier, RN-Bunker thereby acquiring title to such bunkers as had not already been consumed on owners’ vessel.

Insolvency of the OW Bunker Group supervened and Rosneft was the only supplier which had parted with money.

Rival claims for payment from owners were made by OWBM’s bank and Rosneft.

The bank instituted arbitration proceedings against owners for payment. Rosneft did not participate.

In jeopardy of paying twice, owners disputed the claim. In simple terms their argument was that because OWBM had not paid for the bunkers they never owned them. In consequence they could not deliver and so pass ownership and so qualify for payment in terms of the Sale of Goods Act.

Findings

David Farrington, Ian Kinnell QC and Bruce Harris made the following preliminary findings:

  • The bunker supply contract was not a contract of sale to which the Sale of Goods Act applied.
  • The bank’s claim to payment was a straightforward claim in debt which was not subject to any requirement as to the passing of property in the bunkers to the owners at time of payment.
  • Had the contract been subject to the Sale of Goods Act, the price was not payable:
  • because no term that property would pass at the moment of consumption could be implied;
  • OWBM could not pass title under section 25 of the Act;
  • the provision for payment to be made within a fixed period after delivery did not satisfy the requirement that “price is payable on a day certain”.

Males J, on appeal, upheld the arbitrators’ reasoning that supply of the bunkers coupled with failure to pass ownership because of the retention of ownership clause, removed the contract from the category of sale governed by the Sale of Goods Act. This did not, however, deprive the contract of its efficacy or the obligation on the owners to pay.

Moore-Bick, Longmore and McCombe LJJ upheld the judgment.

The UKSC, per Lord Mance (Lords Neuberger, Clarke, Hughes and Toulson concurring) dismissed a further appeal by the owners for the same reasons.

Points of interest

The UKSC held, obiter, that the Sale of Goods Act was not intended to be an exhaustive code, and that if the contract had been one of sale, the price would still have been payable.

The owners’ reasoning followed the pattern of pigeonholing facts and then artificially attributing consequences to the categorization, a recurring jurisprudential phenomenon.

 

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