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O W Bunker

14th Jul 2015

When is a sale not a sale? When it’s OW Bunker

(1) PST Energy 7 Shipping LLC (2) Product Shipping and Trading S.A. v (1) OW Bunker Malta Ltd (2) ING Bank N.V. [2015] EWHC 2022 (Comm)

Robert Bright QC and Marcus Mander have won twice over for ING in its proceedings against the PST shipowning group (“Owners”), in the first case arising out of the collapse of the OW Bunker group to reach the English Commercial Court. ING is the assignee of most of the OW group companies. The sudden demise of OW Bunker has convulsed the shipping market, with hundreds of vessels that received bunker stems arranged for them by OW now wondering whom, if anyone, they should pay – ING (as the assignee of OW) or the physical suppliers. Many market commentators took the view that claims made by ING/OW could not succeed in circumstances where OW itself never paid for or became the owner of the bunkers, under the Sale of Goods Act 1979 (“SOGA”). Robert Bright QC and Marcus Mander successfully argued that OW’s contracts with the Owners should not be treated as “contracts of sale”, with the result that SOGA does not apply to them at all. This argument has prevailed twice over, first in a commercial arbitration before LMAA arbitrators, and now again before Males J in the Commercial Court.

The standard terms on which nearly all the OW group’s business was conducted provided for English law. Many other bunker suppliers contract on similar terms which are also subject to English law. This is the first case to decide authoritatively and as a binding precedent what the effect of those standard terms is, as a matter of English law. It is likely to affect all the disputes involving OW (and potentially other bunker suppliers), whether being determined in England or elsewhere. It also has great significance for the position of physical suppliers, whose claims for payment must now be seen as very difficult in most cases.

The Owners brought a claim against OW Bunker Malta Ltd (“OWBM”) and ING (as OWBM’s assignee) seeking a declaration that they were not liable to make payment under a bunker supply contract entered into a few days before the OWB group collapsed. OWBM had sub-contracted the supply to its parent company, OW Bunker & Trading AS (“OWBAS”), which in turn sub-contracted the supply to Rosneft Marine (UK) Limited (“RMUK”), which then itself sub-contracted the supply to the physical supplier RN Bunker Ltd. RN Bunker Ltd was later paid by RMUK, but RMUK had not been paid by OWBAS, and OWBAS had not been paid by OWBM. The Owners’ main argument was that, because the OWBAS/RMUK, OWBAS/OWBM and OWBM/Owners contracts each contained retention of title clauses and payment had not been made, OWBM had never had property in the bunkers and thus could not pass property in them to the Owners. Owners relied on the Court of Appeal’s decision in Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365 they argued that OWBM was therefore unable to bring an action for the price under s.49(1) SOGA, and that s.49(2) did not apply.

ING argued that SOGA was irrelevant because the bunkers had been supplied on credit and for immediate consumption by the vessel. As a result, it had always been likely that by the time payment fell due it would no longer be possible for any property in some or all of the bunkers to be passed down the supply chain to the Owners, because some or all the bunkers would have been burned and so would no longer exist. If so, the contract could not be interpreted as one by which OWBM had promised to transfer the property in the bunkers to Owners in exchange for payment, and was therefore not one within the definition in s.2 SOGA with the result that SOGA did not apply. This argument was accepted by the arbitrators, who found that s.49 SOGA was inapplicable.

The Owners appealed, and ING cross-appealed in relation to an alternative argument that, if the arbitrators were wrong and SOGA was applicable, property passed down the supply chain as and when the bunkers were consumed by necessary implication, so that if s.49(1) SOGA applied it had been satisfied in any case. ING also argued that the case fell within s.49(2) SOGA in any case.

Following an expedited hearing, Males J. dismissed the Owners’ appeal. He held that the effect of a retention of title clause combined with the imminent destruction of the goods materially altered the nature of the contract and agreed with the arbitrators that, on analysis, the contract was not one of sale of goods. The contract was instead one by which OWBM had agreed to arrange for the delivery of the bunkers to the Owners’ vessel and to ensure that the true owner of the bunkers consented to them being burned pending payment. OWBM had successfully obtained such permission in circumstances where RMUK knew that the Owners would be consuming the bunkers before they were paid for (from which it also followed that RMUK could have no claim against the Owners in conversion).

In light of these conclusions Males J. concluded that it was unnecessary for him to decide ING’s cross-appeal and did not do so, but expressed the view (obiter) that, if SOGA applied, OWB’s standard payment terms satisfied s.49(2) SOGA.

The judgment will be of particular interest to other OWB customers as well as the wider bunker market, but is also an important decision in relation to the sale of goods generally and the ambit of SOGA.

To view the judgment please click here.

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