Vol 13 (2016) - Issue 4

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Res Cogitans: A Sale Is Not Always a Sale, Says the Supreme Court

On 11 May 2016, the Supreme Court handed down its much-anticipated judgment in the case of PST Energy 7 Shipping LLC & Product Shipping and Trading S.A. v OW Bunker Malta Ltd & ING Bank N.V. [2016] UKSC 23 (the 'Res Cogitans'). The Supreme Court unanimously rejected the appeal of PST Energy (Owners) from the decision of the Court of Appeal – see [2015] EWCA Civ 1058 – that bunker supply contracts, in which marine fuels (bunkers) are sold upon credit terms, with the seller retaining title until payment and the parties contemplating that the goods will (or are likely to) be consensually consumed prior to the time at which property is meant to pass under the contract, are not contracts for the sale of goods within the meaning of s.2(1) of the British Sale of Goods Act 1979 (SOGA 1979).
The Supreme Court went further, however. It rejected the Court of Appeal’s conclusion that a bunker supply contract would or might be a contract of sale to the extent that, at the expiry of the relevant credit period, any bunkers remained unconsumed. It also held that, even if the contract had been a contract of sale, the shipowner would still have been liable for an action on the price, notwithstanding s.49 SOGA 1979.

Background
The facts are well-known and have been rehearsed in a number of forums. There would be little profit in setting them out at length here. Those seeking a detailed narrative are referred to the article entitled 'Sale or No Sale? An Update on O.W. Bunkers', which appeared in an earlier issue of this journal (and in the Quadrant Chambers Special Edition of this journal), and of which the present writer was a co-author together with Stephen Cogley Q.C. (who appeared for the Owners at all stages of the litigation).
On 4 November 2014, OW Bunker Malta Ltd (OWBM) supplied bunkers to the vessel Res Cogitans, pursuant to a contract under the OW Bunker Group’s standard terms (the OWB Terms). OWBM acquired the bunkers from its Danish parent company, OW Bunkers & Trading A/S (OWBAS). In December 2013, OWBAS had entered into a revolving credit facility with a syndicated loan, as security for which it assigned and charged all its rights to intercompany and third party receivables to ING Bank N.V. (ING), the lead bank and security agent. OWBAS did not supply the bunkers directly, but obtained them from another bunker supplier, Rosneft Marine (UK) Ltd (RMUK). RMUK in its turn acquired the bunkers from one of its associated companies, RN-Bunker Ltd (RNB), which was the actual physical supplier.
The contracts between the Owners and OWBM and between OWBM and OWBAS were on the OWB Terms. These provided for payment 60 days after delivery and included a retention of title clause under which property in the bunkers was not to pass until the bunkers had been paid for in full. They also contained an express bailment clause, to the effect that until payment of the full amount due to the seller, the purchaser would hold the bunkers solely as bailee for the seller, and would not be entitled to use them for any purpose other than propulsion of the vessel.
In November 2014, the OW Bunker Group became insolvent and defaulted on its obligations to ING. The result was that, whilst RMUK paid RNB, it was not paid by OWBAS, which in turn was not paid by OWBM. The Owners were content to pay for the fuel delivered. However, there were competing claims for payment of the price of the bunkers from RMUK and ING (the latter as OWBM’s assignee).