PST Energy 7 Shipping LLC v OW Bunker Malta Ltd & Ors [2015] EWCA Civ 1058

For education purposes only.

Sale of Goods – Bunker Contract – Transfer of title – Retention of title clause under which property was not to pass to the vessel’s owners or managers until the bunkers had been paid for in full – Liability of the owners to pay for services and to pay for physical bunker – SOGA 79.

Shipowner bought bunker from OWBM which obtained it through its parent company OWBAS from Russian supplier RMUK via supply chain with end supplier being RMUK affiliated company located in Tuapse, where bunkering took place on 4 November 2014. Terms of the contract between the owners and OWBM provided for payment 60 days after delivery and included a retention of title clause under which property was not to pass to the vessel's owners or managers until the bunkers had been paid for in full. The contract also expressly provided that from the moment of delivery the vessel was entitled to use the bunkers for the purposes of propulsion. On 6 November 2014 OWBAS applied for restructuring and in view of this fact RMUK, having become aware that it might not receive payment from OWBAS, asserted that it remained the owner of the bunkers and indicated that it would seek payment from the owners of the vessel. The owners paid neither to OWBM nor to RMUK fearing that both sides have equally valid claim for such payment.

- -

Having on hands payment request for the bunker supplied to the vessel at Tuapse from RMUK, the owners commenced arbitration proceeding between them and OWBM in December 2014, seeking a declaration that they were not bound to pay OWBM for the same bunker, or, in the alternative, damages for breach of contract, on the grounds that OWBM had been unable to pass title in the bunkers to them. The Tribunal held that following the letter of contract OWBM did not undertake to transfer property in the bunkers to the owners and that therefore the contract was not one for the sale of goods within the meaning of the Sale of Goods Act. As a result, OWBM could not recover the price of the goods under section 49 of the Act, but was entitled to recover the sum due as a simple debt.

The owners appealed raising the question whether the contract between themselves and OWBM was a contract for the sale of goods, and therefore subject to the Sale of Goods Act 1979, and if not, whether it was an implied term of the contract that OWBM would be able to pass title in the bunkers to them at the time when they were delivered or consumed. Positive answer to either of this questions would allow the owners to assert that passing of title for the bunker was from OWBM side and not MRUK, thus extinguishing one of the two payment claims. The judge held that the true nature of the parties' bargain was that OWBM would deliver or arrange for delivery of the bunkers, which the Owners would be immediately entitled to use for the propulsion of the vessel, i.e. that owner have to pay to OWBM for services provided irrespective from question whether it passed the title for the bunkers supplied or not.

The owners appealed asking the Court of Appeal whether OWBM was bound to transfer title in the contract goods. The owners argued that authorities tend to support their submission that the courts have consistently regarded a contract for the sale of goods which contains a retention of title clause as a contract of sale falling within the scope of the Sale of Goods Act 1979, even in cases where the buyer is given a licence to use or dispose of the goods before he has paid for them. Therefore the contract in the present case was properly to be understood as an agreement to sell the full contract quantity of bunkers on terms that property was to pass on payment, even if they had been consumed in whole or in part by the time payment fell due.

The Court of Appeal rejected this argument on the ground that in case on hands it was no longer possible to transfer property in goods once they have ceased to exist, i.e. consumed during 60 days of credit period. The Court agreed with the judge at first instance that irrespective of nature of contract its essence was that the owners agreed to pay for services provided by OWBM. Moor-Bick LJ in his leading judgement said at para 33:

Whatever label one attaches to the contract (and I see nothing incongruous in describing it in commercial terms as a contract for the sale of goods), its essential nature is in my view reasonably clear. It is a contract under which goods are to be delivered to the owners as bailees with a licence to consume them for the propulsion of the vessel, coupled with an agreement to sell any quantity remaining at the date of payment, in return for a money consideration which in commercial terms can properly be described as the price. That may not satisfy the definition of a contract of sale of goods in section 2(1) of the Sale of Goods Act, but there is no reason why the incidents of a contract of sale of goods for which the Act provides should not apply equally to such a contract at common law, save to the extent that they are inconsistent with the parties' agreement. The difficulties in the present case stem entirely from the owners' attempt to establish that the consideration for the payment of the price was the transfer of property in the whole of the goods to which the contract related, despite the fact that that does not correspond to the express terms of the contract relating to the use of the goods and the passing of title. The commercial background and the terms of the contract make it clear that what the owners contracted for was not the transfer of property in the whole of the bunkers, but the delivery of a quantity of bunkers which they had an immediate right to use but for which they would not have to pay until the period of credit expired.

Thus the appeal was dismissed but only to the extent of holding that the failure of OWBM to transfer title in the bunkers does not release the owners from their obligation to pay for them.

Moor-Bik LJ also noted that the owners' case before the arbitrators was that they were not liable to pay OWBM because the contract was one for the sale of goods and property in the goods had not passed to them. The owners did not advance the alternative argument that, if the nature of the contract was that for which OWBM contended, they were not liable to pay because they had not been authorised to consume the bunkers in a manner which bound RMUK and other suppliers in the chain. Whether they should be allowed to do so at this stage is probably a matter that ought to have been left to the arbitrators.

The owners therefore remain to be exposed to possibility to pay twice for the same bunker, first under contract for services with OWMB, as the Court of Appeal held they have to pay, and secondly for physical bunker provided by RMUK.

No comments available on this case report.

Share this article on:

Leave your questions and comments here

Although author encourages visitors to leave their comments using this form, but if you unable or unwilling to use it for any reason you can forward your mail to to contact with him.