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PST v OW Bunker: CA confirms not a contract of sale

22nd Oct 2015

(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] EWCA Civ 1058

Robert Bright QC and Marcus Mander have again succeeded in proceedings arising out of the collapse of the OW Bunker group – this time with Clara Benn, in an expedited appeal to the Court of Appeal.

This represents the latest phase of the litigation arising out of the insolvency of the OW Bunker group, one of the world’s largest suppliers of marine fuels. The appellants, PST, are the owners of the “Res Cogitans”, one of the hundreds of vessels that received bunker stems arranged by OW companies in the days preceding the group’s collapse. Moore-Bick, Longmore and McCombe LJJ dismissed PST’s appeal against the decision of Males J, who held that the Sale of Goods Act 1979 did not apply to PST’s contract with the supplier, OW Malta. The judgment of Males J itself upheld the Award of an experienced panel of LMAA arbitrators, which had been to similar effect.

Robert Bright QC, Marcus Mander and Clara Benn act for ING, the assignee of many of the OW group companies, and in effect were arguing on behalf of OW Malta. The parties contracted on the OW group’s standard terms and conditions, which were governed by English law. As usual in the industry, the bunkers were purchased on credit, with payment in this case to take place 60 days after delivery. During the credit period PST were granted express permission to use the bunkers for the propulsion of the vessel, but title remained vested in OW Malta. It was therefore envisaged that a significant quantity of the bunkers would be burnt prior to payment.

The key issue was whether or not the contract – which described OW Malta as “the Seller” and PST as “the Buyer” – was a contract of sale of goods within the Act. The Court of Appeal found that, although the language of the contract was full of references to sale, the effect of the permission given to consume the bunkers coupled with the credit period was that the contract was not in essence a contract for the transfer of property in the bunkers, because some if not all of the bunkers would have ceased to exist by the date of payment (the date at which title would otherwise have passed). This meant that the contract did not fall within the definition in section 2(1) of the Sale of Goods Act 1979, and could not be shoehorned into the statutory regime.

The issue has now been decided in favour of OW/ING, and against PST, by three tribunals in a row. Each of these hearings has been expedited, in recognition of its very great significance. Moore-Bick LJ described the issue as “reasonably clear”, and it is to be hoped that the Court of Appeal decision will provide the certainty the market has been waiting for.

The judgment has important ramifications beyond bunker supplies and shipping. It affects all industries in which consumables are supplied on credit terms with title retained pending payment.

A copy of the judgment can be found here.

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