PST Energy 7 Shipping v OW Bunker Malta & ING Bank - the RES COGITANS
PST Energy 7 Shipping LLC & Product Shipping and Trading SA v OW Bunker Malta Limited & ING Bank NV, the “RES COGITANS”
Court of Appeal; Moore-Bick, Longmore, McCombe LJJ;  EWCA Civ 1058, 22 October 2015
Stephen Cogley QC, Jeremy Richmond, and Liisa Lahti (instructed by Ince & Co LLP) for PST Energy 7 Shipping, Appellants/Owners
Robert Bright QC, Marcus Mander, and Clara Benn (instructed by Allen & Overy) for OW Bunker Malta Limited & ING Bank NV, Respondents/Sellers
ARBITRATION ACT 1996 SECTION 69 APPEAL: SUPPLY OF BUNKERS: RETENTION OF TITLE CLAUSE: CONTEMPLATED THAT GOODS WOULD BE CONSUMED BEFORE TITLE PASSED: NO PASSING OF PROPERTY INTENDED: SALE OF GOODS ACT 1979 INAPPLICABLE
Note:this judgment has now been upheld by the Supreme Court []
In upholding the decision at first instance, the Court of Appeal held that a contract between the Sellers and the Owners for the supply of bunkers was not a contract of sale but rather a contract for the right to use the bunkers. Consequently Owners could not escape paying for the bunkers by arguing that the Sellers had failed to transfer property in the bunkers (which property Sellers did not have as Sellers had not paid their own suppliers). Had the contract been a contract of sale strictly speaking, the failure to pass the property in the bunkers would have constituted a total failure of consideration from the Sellers, entitling the Owners to refuse payment.
This note has been contributed by Justin Gan Boon Eng, LLB (Hons) NUS, Advocate & Solicitor, Singapore (non-practising); Solicitor, Hong Kong
This note is an update to the note on the first instance decision - accessible from []
For the background, both notes should be read together.
Owners failed at both first instance, and on appeal. It appears that largely the same arguments were raised at both stages.
Moore-Bick LJ delivered the leading judgment.
Notwithstanding that the contract between the Sellers and the Owners appeared to be a contract of sale (or was commercially described as such), the critical exercise was to identify the obligations actually undertaken by the parties.
If the Sellers had undertaken to transfer property in the bunkers, but had failed to do so at the agreed time, that would have constituted a total failure of consideration, with the result that the Sellers would be unable to claim for the price.
Considering the commercial background and contract terms, the contract was not for the transfer of property in the bunkers, but for the delivery of bunkers that Owners could use immediately, for which they only had to pay after the credit period had expired. The critical factors in the Court reaching this decision were:
(1) The clause allowing Owners to use the bunkers for propulsion from the moment of delivery.
(2) The sale being on credit terms.
(3) The retention of title clause.
(4) The fact that part or all of the bunkers were likely to be consumed (and so cease to exist) before the credit period expired – there could be no transfer of property in non-existent consumed bunkers.
As a result, the Sellers’ failure to transfer property in the bunkers before they were consumed did not excuse the Owners from having to pay for the bunkers received. In the alternative, if the contract were not a contract of sale, Owners argued for an implied condition that the Sellers would comply with the obligation to pay the Sellers’ supplier within the relevant credit period. Such an implied condition was found unnecessary.