ING Bank has again succeeded in proceedings arising out of the collapse of OW Bunker, this time in an expedited appeal before the Court of Appeal.
The decision represents the latest phase in the litigation generated by the insolvency of the OW Bunker group, which until November last year was the world’s biggest supplier of marine fuels and Denmark’s third largest company by revenue. The appellants, PST, are the owners of the Res Cogitans, one of hundreds of vessels that received bunker stems (ie fuel used to operate ships) arranged by OW companies in the days preceding the group’s collapse. ING is the assignee of many of the OW companies, and was effectively arguing the case for PST’s contractual counterpart, OW Bunker Malta. In a judgment handed down on 22 October 2015, 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 (SOGA) did not apply to PST’s contract with OW Bunker Malta. The judgment of Males J itself upheld the award of an experienced panel of LMAA arbitrators, which had been to similar effect.
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 was granted express permission to use the bunkers for the propulsion of the vessel, but title remained vested in OW Bunker Malta. It was therefore envisaged that a significant quantity of the bunkers would be consumed prior to payment (in the event, the entire quantity had been consumed).
The key issue was whether or not the contract, which described OW Bunker Malta as “the Seller” and PST as “the Buyer”, was a contract of sale within the meaning of SOGA. If SOGA did apply, OW Bunker Malta would have been in breach of the implied condition in section 12(1), because it had not paid the party above it in the contractual chain and therefore did not have title to the bunkers on delivery. This would arguably have afforded PST a complete defence to the action for payment, either on the basis that the consideration for the transaction had totally failed (the consideration being the transfer of title), or because the contract had been terminated before the payment obligation arose.
The Court of Appeal found that, although the contract was couched in the language of 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. It was contemplated at the outset that 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), and therefore that it would be impossible to transfer property in at least a significant proportion of them. This meant that the contract could not be shoehorned into the definition in section 2(1) of SOGA.
The court also rejected the contention that it was an implied term of the contract that OW Bunker Malta had title to the bunkers at the time of delivery (in effect, an equivalent to the statutory implied term in section 12(1) of SOGA) and/or that OW Bunker Malta would comply with its obligations to the party above it in the chain by paying for the bunkers prior to the expiry of the relevant credit period. PST had bargained for the right to consume the bunkers before property had passed: so long as they obtained an effective licence to do so, which was binding on the various parties in the supply chain, the implied term(s) postulated by PST were both unnecessary and inappropriate.
The issue has now been decided in favour of OW/ING Bank, 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.
