PST Energy 7 Shipping LLC & Anor v OW Bunker Malta Ltd & Anor (Res Cogitans)

A bunker supply contract is not necessarily a contract of sale merely because it uses sale terminology and contains a retention of title clause. The court must construe the parties’ obligations at the contract date. Where the parties contemplate that goods will probably be consumed before payment, and the buyer is licensed to consume them, the seller may not have undertaken to transfer property in the goods and the buyer may not be paying for title. The contract may instead be a contract for delivery and lawful use of the goods. A straightforward debt claim may then be available without satisfying the statutory requirements for an action for the price under the Sale of Goods Act 1979.

The owners and manager of the vessel Res Cogitans ordered bunkers from OW Bunker Malta Ltd on 60 days’ credit. OW Bunker Malta obtained the bunkers through a chain of contracts containing retention of title provisions. The bunkers were delivered and consumed before payment became due. OW Bunker Malta assigned its payment claim to ING Bank N.V., while the intermediate supplier asserted that it retained title.

The maritime arbitrators held that the contract was not a contract of sale governed by the Sale of Goods Act 1979 and that ING had a debt claim. The owners brought a section 69 appeal. ING brought a contingent cross-appeal concerning the statutory claim for the price and damages.

1. The owners’ section 69 appeal was dismissed. The bunker supply contract was not a contract of sale within section 2 of the Sale of Goods Act 1979. ING therefore had a straightforward claim in debt, not subject to a requirement that property in the bunkers had passed to the owners at the time of payment.

2. The classification depended on construction of the contract as at its date, including matters within the parties’ contemplation. A contract of sale required goods, an obligation to transfer property, money consideration, and a link between the consideration and the transfer of title. The retention of title clause, credit period, permission to consume, and anticipated consumption before payment showed that transfer of title was unlikely and was not fundamental to the bargain.

3. The true consideration was delivery, together with an immediate lawful right to consume the bunkers for the vessel’s propulsion. The supplier was contractually required to be in a position to confer that permission. Failure to obtain permission from the true owner would amount to a total failure of consideration, but the court found that Rosneft had authorised consumption by the owners. There was consequently no breach by OW Bunker Malta.

4. Consumption extinguished property in the bunkers. The possibility of claims under another system of law or of arrest in another jurisdiction did not alter the English-law analysis.

5. No term equivalent to section 12 requiring transfer of title, or warranty of quiet possession, was to be implied. The contractual permission to consume provided the relevant protection.

6. On the contingent cross-appeal, the court stated obiter that a fixed period for payment after delivery would satisfy section 49(2). However, an implied term that property passed on consumption would contradict the express retention of title clause, section 25 could not operate because OW Bunker Malta did not purport to transfer title, and section 50 did not apply because the owners had accepted and consumed the bunkers.

The judgment itself states that the owners brought a section 69 appeal from an arbitration award dated 16 April 2015. The arbitrators held that the contract was outside the Sale of Goods Act 1979 and that ING had a debt claim. The High Court dismissed the owners’ appeal. ING’s contingent cross-appeal did not arise, although the court expressed brief alternative conclusions.