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OW Bunker – 7KBW team triumphs again in landmark Supreme Court decision

11th May 2016

The Supreme Court has this morning handed down its judgment in the “Res Cogitans” (PST Energy 7 Shipping LLC and another v OW Bunker Malta Ltd and another [2016] UKSC 23). The judgment marks a resounding success for the respondents, OW Bunker Malta Ltd (“OW Malta”) and ING Bank NV (“ING”), who were represented by Robert Bright Q.C., Marcus Mander, and Clara Benn, all of 7KBW.

The Supreme Court hearing was the fourth occasion in under a year that this case had come before a tribunal. The fact that the proceedings were expedited at every stage is testament to the case’s importance, both as a ‘test’ case in relation to bunker stems and more widely as a precedent for disputes involving retention of title or ‘Romalpa’ clauses.

The facts were simple: in November 2014, bunkers (marine fuel) were supplied to the vessel “Res Cogitans”, which was owned and managed by the appellants (“Owners”). The bunkers had been ordered from OW Malta, under a contract on the OW Group’s standard terms. Owners were given a 60-day credit period, prior to which they were permitted to use the bunkers only for the propulsion of the vessel. The contract also provided that title to the bunkers would remain vested in OW Malta until full payment had been received.

OW Malta had itself ordered the bunkers from OW Bunker & Trading A/S (“OWBAS”), which had obtained them from Rosneft Marine (UK) Ltd (“RMUK”), which had in turn obtained them from RN-Bunker Ltd, the party that made the actual delivery. On 6 November 2014, OWBAS announced its insolvency.

By contrast with the facts, the issues raised by the “Res Cogitans” litigation were appropriately metaphysical. Owners sought a declaration that they were not liable to pay for the bunkers on the grounds that, because OW Malta had never paid OWBAS (and OWBAS, in insolvency, had never paid RMUK), OW Malta had not acquired title to the bunkers, and was therefore in breach of the implied condition as to title in section 12 of the Sale of Goods Act 1979. In any event, Owners said that there could be no claim for the price, since property had not passed and the price was not payable on a day certain, and no action lay outside of section 49 of the Act (as confirmed by the Court of Appeal in the case known as “Caterpillar”, F G Wilson (Engineering Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365).

The respondents countered these objections by arguing the contract was not subject to the Sale of Goods Act at all, since it was not a contract by which OW Malta agreed to transfer property in goods in consideration for a price. On the contrary, everyone expected and intended that the fuel would be consumed prior to payment, such that there would be nothing (or next to nothing) left in which to pass title.

Lord Mance – with whom Lord Neuberger, Lord Clarke, Lord Toulson and Lord Hughes agreed – held that the contract was sui generis, and not one of sale. What mattered to the Owners was that they should have permission to consume the bunkers prior to payment; they did not need to acquire title to them. Although OW Malta would have been obliged to transfer property in any bunkers remaining at the end of the credit period, the contract was not properly analysed as one of sale even to this extent, because the price was payable for the bunkers as a whole and the agreement could not therefore be treated as divisible. In this regard, the Supreme Court took a different view from the Court of Appeal, expressly rejecting the hybrid analysis favoured by Moore-Bick LJ in paragraph 33 of his judgment.

The Supreme Court also made new law in relation to the circumstances in which an action for the price of goods will lie. As an alternative ground for upholding the Court of Appeal’s decision, the respondents invited the Court to overrule the decision in Caterpillar insofar as it established that section 49 of the Sale of Goods Act constituted a complete code of situations in which the price is recoverable under a contract of sale. Lord Mance confirmed that, had it been necessary to do so, he would have overruled Caterpillar, and held that OW Malta could recover the price by virtue of the express terms of the contract. He also indicated that it might well be appropriate to take a liberal approach to the words “day certain” in s. 49(2). Furthermore, he suggested that even if a claim for the contract price had not been available, his view was that OW Malta would have been able to claim damages, on the basis that a claim for damages for non-payment of money can and should be readily accommodated in modern law.

In short, the 7KBW team representing the respondents succeeded on all the major arguments that they advanced, in what is the most significant case on the Sale of Goods Act in many years.

To view the judgment, please click here.

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