PST Energy 7 Shipping LLC and another v O W Bunker Malta Limited and another

A bunker-supply agreement permitting consumption before payment, while reserving title until payment, is not necessarily a contract of sale. Where the agreement contemplates that consumed bunkers will never become the buyer’s property, and imposes one price for all bunkers, it may be a sui generis contract outside the Sale of Goods Act 1979.

The supplier need only possess the legal right to authorise consumption. It need not own the consumed bunkers. No term requiring payment of suppliers higher in the contractual chain will be implied without necessity.

Further, section 49 is not an exhaustive code governing recovery of the price under a contract of sale. A price may be recoverable outside its express cases where goods remain the seller’s property but are at the buyer’s risk and are consumed for the buyer’s benefit under the contract.

The Owners ordered marine bunkers from OW Bunker Malta Ltd on terms allowing payment within 60 days. Title was reserved until payment, but the Owners could consume the bunkers for the vessel’s propulsion. The bunkers were obtained through a contractual supply chain and were ultimately consumed without payment to OWBM.

Arbitrators held that the agreement was a sui generis contract outside the Sale of Goods Act 1979 and that OWBM was entitled to the agreed sum as a contractual debt. Males J dismissed the Owners’ appeal. The Court of Appeal dismissed a further appeal in [2015] EWCA Civ 1058.

The central issues before the Supreme Court were whether the agreement was a contract of sale within section 2(1), and, if it was not, whether it contained an implied term requiring OWBM to perform or procure performance of obligations higher in the supply chain.

1. Appeal dismissed unanimously. Lord Mance delivered the judgment, with which Lord Neuberger, Lord Clarke, Lord Hughes and Lord Toulson agreed. The bunker agreement was a sui generis contract rather than a contract of sale within section 2 of the Sale of Goods Act 1979. Its essential features were the Owners’ right to consume bunkers before payment without acquiring property in them, and OWBM’s obligation to transfer title only in any bunkers remaining when payment was made. The single agreement and single price could not sensibly be divided according to whether particular bunkers survived until payment. (Paras [26]–[37])

2. The agreement’s form and terminology did not determine its legal character. The right to consume during the credit period was a vital commercial feature. Sections 2(3) and 2(6) did not turn the whole agreement into a conditional sale because property was never intended to pass in bunkers consumed before payment. The Court of Appeal’s analysis of the contract as a sale to the extent of any surviving bunkers was rejected. (Paras [26]–[31])

3. No term requiring OWBM or another group company to pay its supplier timeously was implied. For bunkers consumed before payment, OWBM’s implied undertaking was only that it had the legal entitlement, derived through the contractual chain, to authorise their consumption. Ownership was unnecessary for that purpose. On the assumed facts, no challenge was made to OWBM’s entitlement to confer that right. The Owners therefore had no defence to the agreed price. (Paras [38]–[39], [59])

4. Obiter, section 49 is not a complete code of every circumstance in which a seller may recover the price under a contract of sale. Courts should remain cautious about recognising claims outside section 49, and the limits were left open. Nevertheless, where delivered goods remain the seller’s property but are at the buyer’s risk and the buyer is contractually entitled to consume them for its commercial benefit, the agreed price may be recovered. (Paras [40]–[58])

5. Accordingly, had the agreement been a contract of sale, the Court would have overruled F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365 on the completeness of section 49. Complete authorised consumption would have entitled OWBM to recover the agreed price under the express terms. (Paras [57]–[60])

1. United Kingdom Supreme Court: The Owners’ appeal was dismissed unanimously. The Court held that the agreement was sui generis and outside the Sale of Goods Act 1979. [2016] UKSC 23

2. Court of Appeal: The Owners’ appeal was dismissed. The court substantially agreed with Males J, while suggesting that the agreement was a contract of sale to the extent of bunkers remaining when payment was made. [2015] EWCA Civ 1058

3. High Court: Males J dismissed the Owners’ appeal from the arbitral award. He held that the agreement was outside the statutory sale-of-goods regime and included an undertaking that the Owners would have the lawful right to use the bunkers.

4. Arbitration: The tribunal determined preliminary issues on agreed facts and held that OWBM and ING were entitled to payment under a contractual claim outside the statutory remedies for sale of goods.