ING Bank has now won for the second time in proceedings against the PST shipowning group, in what is the first case arising out of the collapse of the OW Bunker group to reach the English Commercial Court, namely PST Energy 7 Shipping LLC and Product Shipping and Trading SA v OW Bunker Malta Ltd and ING Bank NV.
The sudden demise of OW Bunker has convulsed the shipping market, with hundreds of customers that received bunker stems (ie fuel oil for use by ships) arranged for their vessels by OW Bunker now wondering who, if anyone, they should pay. Should they pay ING, as financing bank and assignee of OW Bunker’s supply contracts? Or should they pay the unpaid physical suppliers of bunkers delivered by OW Bunker companies in the days before the group’s insolvency? Many of the physical suppliers are now asserting that the customers must pay them directly, in reliance on retention of title clauses in their contracts with OW Bunker by which, they say, they remain the owners of the fuel supplied. Many market participants and commentators took the view that claims made by ING/OW Bunker could not succeed in circumstances where OW Bunker itself never paid for or became the owner of the bunkers under the Sale of Goods Act 1979 (SOGA), in light of the Court of Appeal’s recent decision in Caterpillar (NI) Ltd (formerly known as FG Wilson (Engineering) Ltd) v John Holt & Company (Liverpool).
However, ING argued that OW Bunker’s contracts with PST should not be treated as “contracts of sale”, with the result that SOGA does not apply to them at all. This argument has prevailed twice, first in a commercial arbitration before LMAA arbitrators, and now again before Males J in the Commercial Court.
The standard terms on which nearly all the OW Bunker group’s business was conducted are governed by English law. Many other bunker suppliers contract on similar terms. This is the first case to decide authoritatively, and as a binding precedent, what the effect of those standard terms is as a matter of English law. It is likely to affect all the disputes involving OW Bunker (and potentially other bunker suppliers), whether being determined in England or elsewhere. It also has great significance for the position of physical suppliers, whose claims for payment must now be seen as very difficult in most cases.
PST brought a claim against OW Bunker Malta and ING (as OW Bunker Malta’s assignee) seeking a declaration that it was not liable to make payment under a bunker supply contract entered into immediately before the OW Bunker group collapsed. OW Bunker Malta had sub-contracted the supply to its parent company, OW Bunker & Trading AS, which in turn sub-contracted the supply to Rosneft Marine (UK) Limited, which then itself sub-contracted the supply to the physical supplier RN Bunker Ltd. RN Bunker Ltd was later paid by Rosneft, but Rosneft had not been paid by OW Bunker & Trading AS, and OW Bunker & Trading AS had not been paid by OW Bunker Malta. PST’s main argument was that, because the OW Bunker & Trading AS/Rosneft, OW Bunker & Trading AS/OW Bunker Malta and OW Bunker Malta/PST contracts each contained retention of title clauses and payment had not been made, OW Bunker Malta had never had property in the bunkers and thus could not pass property in them to PST. Relying on the Court of Appeal’s decision in Caterpillar, PST argued that OW Bunker Malta was, therefore, unable to bring an action for the price under section 49(1) of SOGA, and that section 49(2) did not apply.
ING argued that SOGA was irrelevant because the bunkers had been supplied on credit and for immediate consumption by the vessel. As a result, it had always been likely that by the time payment fell due it would no longer be possible for any property in some or all of the bunkers to be passed down the supply chain to PST, because some or all of the bunkers would have been burned and would no longer exist. If so, the contract could not be interpreted as one by which OW Bunker Malta had promised to transfer the property in the bunkers to PST in exchange for payment, and did not, therefore, fall within the definition in section 2 of SOGA. As a result, SOGA did not apply, and the decision in Caterpillar was irrelevant. This argument was accepted by the arbitrators.
PST appealed and ING cross-appealed in relation to an alternative argument that, if the arbitrators were wrong and SOGA was applicable, property passed down the supply chain as and when the bunkers were consumed by necessary implication, so that if section 49(1) of SOGA applied, it had been satisfied. ING also argued that the case fell within section 49(2) of SOGA in any case.
Following an expedited hearing, Males J dismissed PST’s appeal. He held that the effect of a retention of title clause combined with the imminent destruction of the goods materially altered the nature of the contract. He agreed with the arbitrators that, on analysis, the contract was not one of sale of goods. The contract was instead one by which OW Bunker Malta had agreed to arrange for the delivery of the bunkers to PST’s vessel, and to ensure that the true owner of the bunkers consented to them being burned pending payment. OW Bunker Malta had successfully obtained such permission in circumstances where Rosneft knew that PST would be consuming the bunkers before they were paid for (from which it also followed that Rosneft could have no claim against PST in conversion).
In light of these conclusions, Males J concluded that it was unnecessary for him to decide ING’s cross-appeal and did not do so, but expressed the view (obiter) that, if SOGA applied, OW Bunker’s standard payment terms satisfied section 49(2) of SOGA.
The judgment will certainly be of interest to other OW Bunker customers, as well as to the wider bunker market, but it is also an important decision in relation to the sale of goods generally and the ambit of SOGA. Males J’s view as to the scope of section 49(2) of SOGA may also herald a solution to some of the problems posed by the use of retention of title clauses in light of the Court of Appeal’s decision in Caterpillar.
