PST Energy 7 Shipping & Product Shipping and Trading v OW Bunker Malta & ING Bank the Res Cognitans
PST Energy 7 Shipping LLC & Product Shipping and Trading SA v OW Bunker Malta Limited & ING Bank NV, the “RES COGITANS”
English High Court; Males J;  EWHC 2022 (Comm), 14 July 2015
Stephen Cogley QC and Jeremy Richmond (instructed by Ince & Co LLP) for PST Energy 7 Shipping & Product Shipping and Trading, Claimants / Owners
Robert Bright QC and Marcus Mander (instructed by Allen & Overy) for OW Bunker Malta & ING Bank, Defendants / Sellers
ARBITRATION ACT 1996 S.69 APPEAL: BUNKER SUPPLY CONTRACT ON CREDIT TERMS: RETENTION OF TITLE CLAUSE: PARTIES CONTEMPLATED BUNKERS WOULD LIKELY BE CONSUMED BEFORE PAYMENT MADE AND TITLE PASSED: WHETHER SALE OF GOODS ACT 1979 APPLICABLE: WHETHER REQUIREMENTS OF S.49 MET
Sellers and Owners agreed to a bunker sale on credit terms, the contract containing a retention of title clause and an acknowledgment that the bunkers might be consumed before payment. To the parties’ knowledge, the bunkers were likely to be consumed, before payment was made, with the result that there would be no title or property in the bunkers to pass at the time of payment.
That bunker sale was therefore not a contract for the transfer of property in the goods and so fell outside the definition of “contract of sale” in the Sale of Goods Act 1979 (the “Act”). Therefore, the Sellers were not obliged to comply with the requirements of s.49 of the Act in order to maintain an action for the price.
Consequently, the unpaid Sellers could sue for payment as a debt, even where the Sellers failed to pass property in the bunkers to the Owners. Nor were Sellers subject to an implied term requiring them either to have the right to sell the bunkers and pass the property in them, or to obtain such a right by the date property in the bunkers was to pass on payment for them.
This note has been contributed by Justin Gan Boon Eng, LLB (Hons) NUS, Advocate & Solicitor, Singapore (non-practising); Solicitor, Hong Kong
Owners ordered bunkers for the “Res Cognitans” from Sellers, OW Bunker Malta Ltd (fn.1) , on 60 days’ credit and subject to the OW Bunker Group’s 2013 standard terms (“OWB Terms”). The OWB Terms contained a retention of title clause but expressly acknowledged that Owners were entitled to use the bunkers “for the propulsion of the Vessel” before full payment was made.
OW Bunker Malta Ltd then ordered the bunkers from its parent company on the OWB Terms, which in turn ordered the bunkers from Rosneft Marine (UK) Ltd (“Rosneft”) on 30 days’ credit and subject to Rosneft’s standard terms. The Rosneft standard terms contained a retention of title clause but not the acknowledgment contained in the OWB Terms.
Rosneft then ordered the bunkers from the physical supplier, which delivered the bunkers to Owners on 4 November 2014. Shortly thereafter the OW Bunker Group collapsed. Rosneft paid the physical supplier. No other “buyer” in the chain made payment.
All parties knew that the bunkers might well be consumed before payment – whereupon there would be no bunkers and no title or property in the bunkers capable of transfer on payment of the price.
Sellers successfully pursued a claim in arbitration against Owners for payment for the bunkers in the amount of USD443,800. Owners appealed (and Sellers cross-appealed) on questions of law. Mr Justice Males dismissed Owners’ appeal.
It is understood that Owners intend to appeal further.
Owners argued, in defence, that as Sellers had not paid Rosneft, Rosneft retained property in the bunkers. Consequently Sellers had no property in the bunkers to pass to Owners. As a result, Owners argued:
1. The contract did not fulfil either of the requirements of s.49 of the Act (Fn,2) for a claim for the price. (It was common ground that a claim for the price of goods sold must be brought under s.49.) S.49 required that either (a) Sellers pass property in the bunkers to Owners, or (b) the price claimed be “payable on a day certain irrespective of delivery”.
2. The Sellers had breached a term implied in contracts of sale under s.12 of the Act that they had the right to sell the goods or would have such a right at the date property was to pass.
Sellers argued that their contract with Owners was not a contract of sale and fell outside the Act – so the s.49 requirements were irrelevant.
Mr Justice Males agreed that while the Sellers-Owners contract certainly appeared to be a contract of sale, it was not, for the following reasons:
(1) The Act by ss.2 and 61 defines “contract of sale” as “a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration…”
(2) A seller undertakes an obligation to transfer property in the goods to a buyer and the buyer’s payment is linked to that transfer – that is, in a “contract of sale”, the transfer of title in the goods to the buyer constitutes the consideration for the buyer’s payment.
(3) Whether this is the case is determined by reference to the situation at the time the contract in question was entered into.
(4) The (a) credit terms, (b) retention of title clause, (c) acknowledgement that the bunkers could be consumed before payment (in the OWB Terms), and (d) the likelihood that the bunkers might well be consumed before payment – all meant it was unlikely that property in the bunkers was intended to pass from Sellers to Owners in return for the price.
(5) Instead, what Owners were to pay for was an immediate right to consume the bunkers. The acknowledgement in the OWB Terms (which was read as express permission to consume the bunkers) was held to include not only permission from Sellers, but also confirmation that Sellers would be in a position to give such permission to Owners on behalf of other up-stream suppliers. That permission should also defend Owners against claims by up-stream suppliers.
(6) The up-stream suppliers (here, Rosneft) had given such permission. This was because Rosneft knew and accepted that the bunkers would be on-sold on terms allowing immediate consumption (without payment first).
As for Owners’ alleged implied term that Sellers must have had the right to sell the goods and pass the property in them, or would have such a right at the date property was to pass, this was inconsistent with the terms of the Owners-Sellers contract. Sellers were to provide only an immediate right to consume the bunkers, and not to pass property in the bunkers.
Alternatively, Sellers argued that even if the contract were a contract of sale:
(1) They, as “buyer in possession” (the Act, s.25(1)(fn.3)) could pass good title to the bunkers.
This was rejected. Delivery of goods by a “buyer in possession” does not pass title where the “buyer in possession” does not purport to pass title via that delivery.
(2) Payment was on credit terms, i.e. payment had to be made within a fixed period after delivery. That would be sufficiently “certain” to satisfy s.49(2) of the Act, namely that the price claimed is “payable on a day certain irrespective of delivery”, supporting a s.49 action for the price of goods sold.
Albeit obiter (by the way) and not in the strongest terms, Mr Justice Males agreed with this proposition. In so doing, he disagreed with certain first instance decisions which had indicated that “certain” required “a time specified in the contract not depending on a future or contingent event.”
1. The speedy judgment in the "Res Cogitans" provides (subject to appeal) certainty for OW’s administrators and financiers. However, little has changed for a party that purchased bunkers from OW entities on the OWB Terms, which has to pay its contractual OW counter-party and also faces a claim from its physical supplier.
Whether and how well the “permission to consume” under the OWB Terms operates as a defence in other jurisdictions, especially if the physical supplier is found to enjoy a maritime lien, remains to be seen.
2. Parties contracting for bunker stems on terms without an express “permission to consume”, such as the Rosneft standard terms, may wonder if their bunker contract still qualifies as a “contract of sale”.
(a) Bunkers are commonly purchased on credit and subject to retention of title clauses. It would probably be un-commercial to suggest that a shipowner would have bunkers stemmed but agree not to consume those bunkers, in the vessel’s tanks, until after payment. So, “permission to consume” may well be implied in any event – see paragraph 50 of the judgment – “the contract with the Owners would authorize them, expressly or by necessary implication, to consume the bunkers immediately” (emphasis added).
(b) But even if the contract remains a “contract of sale”, a claim for the price may be maintained – via Section 49(2) of the Act - as payment being required a fixed period after delivery (on credit terms) was considered in the “Res Cogitans” (albeit obiter) as a price “payable on a day certain irrespective of delivery”.
Fn.1 The right to payment was assigned by OW Bunker Malta to ING Bank NV, and notice of assignment was duly given to the debtor. For the purposes of this note, OW Bunker Malta and ING Bank NV are one and the same.
Fn.2 S.49. Action for price.
(1) Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.
(2) Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract….
Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.