PST Energy 7 Shipping LLC Product Shipping & Trading S.A. v O.W. Bunker Malta Ltd & Ors

A contract’s legal character depends on the obligations actually undertaken, not on labels such as sale or buyer. Where goods are supplied on credit under a retention-of-title clause, but the recipient may consume them before payment and consumption is likely, the bargain may be delivery as bailee with a licence to use the goods, coupled with sale of any residue at payment. Transfer of title in the consumed goods is then not the essential consideration, so its failure does not discharge the payment obligation. The incidents of the Sale of Goods Act 1979 may nevertheless apply at common law where consistent with the bargain. Failure to transfer title in residue is a breach, but ordinarily does not justify treating the contract as discharged unless it amounts to a total failure of consideration.

OW Bunker Malta supplied bunkers to a vessel on terms retaining title until full payment while permitting immediate consumption for propulsion. After financial difficulties arose within the supply chain, the owners disputed their liability to pay, arguing that the agreement was a sale of goods and that title had not passed.

The arbitrators held that the agreement was not a sale of goods within the Sale of Goods Act 1979, but that the supplier could recover the sum due as a simple debt. Males J affirmed that decision in [2015] EWHC 2022 (Comm). The Court of Appeal considered whether the agreement was a statutory sale and whether failure to transfer title released the owners from payment.

Appeal dismissed. The Court of Appeal unanimously held that OW Bunker Malta’s inability to transfer title in bunkers already consumed did not release the owners from their obligation to pay.

1. Character of the contract. The court must identify the obligations actually undertaken and must not rely on commercial labels or remake the agreement through interpretation. The caution in Arnold v Britton [2015] UKSC 36 was accepted.
2. Essential bargain. The relevant features were the retention-of-title clause, the 60-day credit period, the express licence to consume the bunkers for propulsion, and the likelihood that they would be consumed before payment. Their combined effect showed that transfer of title in the whole quantity was not the essential subject matter. The contract was delivery as bailee with a licence to consume, coupled with sale of any residue remaining at payment.
3. Title and payment. The agreement might not be a contract of sale under section 2(1) of the Sale of Goods Act 1979, but the Act’s incidents could apply at common law where consistent with the bargain. Section 12’s implied condition applied to any residue. Failure to transfer title in consumed goods was not a total failure of consideration. A failure concerning residue would ordinarily be a breach without discharging the contract. The principle that property in consumed goods cannot later be transferred was supported by Borden (UK) Ltd v Scottish Timber Products Ltd [1981] 1 Ch. 25.
4. Implied term and remaining issues. There was no need or justification for an implied term requiring the supplier to have paid its upstream supplier. The judge had, strictly speaking, decided unnecessarily whether the consumption licence bound the supply chain. The Court expressed no view on that issue because full argument had not been heard, leaving future conduct of the appeal for further submissions.

1. Court of Appeal (Civil Division). In [2015] EWCA Civ 1058, the appeal was dismissed to the extent that failure to transfer title did not release the owners from payment.
2. High Court of Justice, Queen’s Bench Division, Commercial Court. Males J affirmed the arbitrators’ interim award in [2015] EWHC 2022 (Comm).
3. Arbitration. The tribunal held that the agreement was not a contract of sale within the Sale of Goods Act 1979 and that the supplier could recover the sum due as a simple debt.