OW Bunkers — common sense prevails, and a few answers given

The appeal in the OW Bunkers case, previously noted in this blog, was dismissed today by the UK Supreme Court. To recap (and simplify), what happened was that OW contracted to supply, and supplied, bunkers to a vessel in a Russian port. The bunkers were supplied on 60-day credit and reservation of title terms, and it was expected that by the time the 60 days were up they would have been consumed. OW had obtained the bunkers from Rosneft, again on reservation of title terms. OW then became insolvent. Rosneft argued that the shipowners owed them the value of the bunkers, since OW had never had any title to them and hance had had none to pass to the shipowners. At the same time OW, or rather its bank as assignee of its claims, sought payment under OW’s supply contract with the shipowners. The shipowners, wishing to guard against having to pay twice, said they didn’t have to pay OW because of s.12 of the Sale of Goods Act and also because, whatever the contract between them and OW said, s.49 of the same Act precluded a claim for the price of goods to which no property had passed except in the limited circumstances of s.49(2). Males J and the CA disagreed. The contract between OW and the owners was not, they said, a contract of sale, since the parties envisaged that no property in the fuel would ever pass (since it would have been consumed by the time the price became payable). Thus ss.12 and 49 did not apply.

The Supreme Court essentially agreed. The contract between OW and the owners was sui generis, a licence to use followed by an agreement to pass title to any bunkers left after 60 days. It followed that ss.12 and 49 were irrelevant. The only implied term related to title was a promise by OW that the shipowners would have a valid licence to burn the bunkers. But Lord Mance (who gave the only judgment) also went on to say that even if the contract had been for the sale of goods the result would have been the same because s.49 did not preclude agreements to make the price payable outside the circumstances it mentioned, as was the case here. The section was not, he said, a complete code: in so far as F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365 said it was, it was wrong.

So the owners had to pay OW. What of Rosneft’s claim? Nothing definite was said of that, but reading between the lines the SC seems to indicate that it might well fail on the basis that by selling the bunkers to OW on the terms they did, Rosneft had acquiesced in their consumption.

Overall, this seems the sensible  result (though there is still something odd about the idea that sales for consumption morph into something else as soon as you introduce a reservation of title clause).

One further thought. One simple piece of legislation would have avoided all this, and also a great many other problems related to reservation of title. What about a provision that no reservation of title clause can be asserted against a third party obtaining, using or consuming goods in the ordinary course of business, whether or not the latter knows of the clause concerned? If we want to encourage the retention of English law as the system of choice for supply contracts of this sort, we need to keep ahead of the game. Does anyone in the Dept for Business, Innovation and Skills follow this blog, and if not might someone point it out to them?

Shot by both sides? Interpleader proceedings in the OWB saga.

 

The bankruptcy of OW Bunkers in November 2014 has led to many shipowners facing competing claims for the supply of bunkers from ING as assignee of OWB and from physical bunker suppliers. In Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, http://law.justia.com/cases/federal/appellate-courts/ca2/15-97/15-97-2016-02-24.html, an interpleader was filed on behalf of shipowners and an injunction obtained preventing the imminent arrests of three of vessels by U.S. Oil Trading LLC, the physical supplier of bunkers. The Second Circuit has now rejected U.S. Oil Trading’s appeal. This contrasts with the position in Singapore last year where the Court of Appeal denied interpleader proceedings in similar circumstances. It reasoned that the suppliers’ in rem claims did not compete with ING’s contractual, in personam, claims. In the UK the shipping world awaits with bated breath the decision of the Supreme Court on whether the Sale of Goods Act applies to contracts for the supply of bunkers.

Some improving TV?

A note for 1030 tomorrow and 1100 Wednesday. For those who want a degree of pre-Easter wind-down the Supreme Court is hearing the OW bunkers case (PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2015] EWCA Civ 1058; [2016] 1 Lloyd’s Rep. 228). Watch the excitement live on https://www.supremecourt.uk/live/court-02.html. To remind you, the sexy issue is whether a contract to sell goods (here fuel oil) for immediate consumption on reservation of title terms is a contract for the sale of goods or something else; but there’s a good deal besides. Starring Mance, Clarke, Sumption, Hughes and Toulson: a very decent cast!

Thanks to the guys at the HFW blog for the tip.