Retention of title considered amidst OW Bunkers fallout

When is a sale of goods not a sale of goods? The recent Court of Appeal case of PT Energy Shipping v OW Bunker Malta Ltd and ING [2015] has analysed the requirements of the Sale of Goods Act 1979 (the “Act”) in the context of a chain of contracts for the supply of shipping fuel (bunkers) with important consequences for purchasers, sellers and receivables finance providers.

The Court of Appeal upheld the High Court’s decision of July this year that the supply of bunkers on the basis of the standard form contracts used was not a sale of goods for the purposes of the Act. The combined effect of a retention of title clause with the expressly permitted use of the fuel before payment was to be made meant that title to the goods would never pass to the purchaser. The purchasing shipowner had contended that the Act applied to its contract as a sale of goods and that, as title had not passed, the payment obligation was not enforceable against them. The decision of the Court was that the supply contract did not qualify as a sales contract to which the Act applied. This meant that the supplier (and its bank as assignee of the receivable) did have a claim for the unpaid debt. For the shipowner, this meant that it could potentially have a liability to pay both its original contracting party and the actual physical supplier that made the delivery under a claim made in a different jurisdiction.

Understanding the effect of retention of title clauses in the specific context of the contract involved is therefore an important consideration for buyers and sellers and their finance providers.

The Facts

The shipowner, P, entered into a contract with OW Bunker Malta Limited, O, for the supply of bunkers. The delivery date was to be the 3-4 November 2014. The physical supplier of the bunkers was listed as ‘Rosneft’ and that payment was to be made within 60 days from the date of delivery upon presentation of O’s invoice. The transaction was subject to the OW Bunker Group’s 2013 Terms and Conditions of sale for Marine Bunkers (‘OW terms’). O’s right to payment was assigned to its bank ING Bank N.V.

O did not supply the bunkers directly to the vessel but placed an order with its parent company, OW Bunkers & Trading A.S., ‘OWBAS’, again subject to OW terms. The parent company then placed an order with Rosneft Marine (UK) Limited, ‘R’. R contracted with its Russian subsidiary, RN-Bunker Limited, ‘RN’, who physically supplied the vessel. The contract between OW Bunkers & Trading O.S. and R, and the following contract between R and RN required payment 30 days after delivery and were subject to R’s standard terms and conditions.

Both general terms and conditions included a retention of title clause. The contract between OW entities also contained an express clause that gave permission for P to use the fuel.

RN physically supplied the bunkers on 4 November 2014. Payment was therefore due from OWBAS to R by 4 December 2014 (30 days after delivery) and from P to ING (as O’s assignee) on 3 January 2015 (60 days after delivery). R paid RN for the bunkers on 18 November 2014.

After the delivery date, O’s parent company announced it expected to be made insolvent. This made payment from O to R unlikely and therefore R demanded payment from P directly. ING also claimed payment from P of the sum due under the contract in its capacity as assignee.

The Decision

A contract for the sale of goods is defined in Section 2(1) of the Act as ‘a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price’.

To qualify for the purposes of the Act, four conditions must be satisfied. First, the contract must be for “goods”. Second, one party, the seller, must undertake an obligation to transfer the property in the goods (i.e. good title to them) to the other party, the buyer. Third, there must be money consideration payable by the buyer to the seller. Fourth, there must be a link between the transfer of title and the money consideration, such that the consideration for the payment is the transfer of title to the buyer as distinct from some other benefit: in other words, what the buyer is paying for is title to the goods.

Alternatively, it was O (and ING’s) argument that the contract was one in which the Act did not apply, and as such the monies due under the contract were due from P, regardless of the fact that O never acquired title of the bunkers.

Although at first glance these did appear to be drafted as contracts of sale, it was decided that the construction of the series of contracts meant that the combined effect of (1) the retention of title clause, (2) the period of credit before payment fell due, (3) the permission given to the Owners to consume the bunkers, and (4) the fact that some of all of the bunkers supplied were likely to be consumed before the expiry of the credit period with the consequence that property would therein would cease to exist, means that the parties must be taken to have understood that it was likely that title would never be transferred to Owners.

It was therefore found that O did not contract to transfer title in the goods, which may never have occurred prior to consumption, but rather contracted to obtain the permission for the bunkers to be consumed to propel the vessel. The Court construed the contractual arrangement as a hybrid situation where P was licensed to consume the bunkers immediately after supply, whilst a contract of sale existed for an implied transfer of title under the Act in relation to any residual bunkers which may have been left on board the vessel unconsumed when the credit period expired and payment was done. As such, there was no breach of contract on O’s part. O’s claim was therefore a straightforward claim in debt.

It should be noted that the case is part specific to the chain of contracts involved and is expected to be considered further by the Supreme Court.

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