Supreme Court

PST Energy 7 Shipping LLC and another v O W Bunker Malta Ltd and another

[2016] UKSC 23; [2016] WLR (D) 257

2016 March 22, 23; May 11

Lord Neuberger of Abbotsbury PSC, Lord Mance , Lord Clarke of Stone-cum-Ebony , Lord Hughes , Lord Toulson JJSC

Sale of goods — Property, whether passing — Retention of title — Contract for the supply of bunkers — Payment on credit terms with title passing only on payment — Owners entitled to use bunkers before payment for propulsion of vessel — Whether contract to which statutory provisions concerning sale of goods applying — Whether suppliers entitled to recover price of bunkers from owners — Sale of Goods Act 1979 (c 54), ss 2, 49

Ships’ names — Res Cogitans

Facts

The first supplier contracted with the shipowners to supply bunkers of fuel oil and gasoil for the propulsion of their vessel. The contract incorporated the first supplier’s standard terms of business, which provided for payment 60 days after delivery and contained both a retention of title clause under which property was not to pass to the owners until the bunkers had been paid for in full and a clause entitling the owners to use the bunkers to propel the vessel from the moment of delivery. A chain of further contracts for the supply of the bunkers was entered into, the actual delivery being made by a company at the port where the vessel was berthed. After the bunkers had been supplied the first supplier’s parent company, which was the second supplier in the chain, began proceedings for restructuring which constituted an event of default under a financing agreement between the group and its bank. The bank then asserted a right to recover as assignee the debt, if any, owed by the owners to the first supplier for the supply of the bunkers, and the third supplier asserted ownership of the bunkers for which it intended to seek payment from the owners. On the assumed facts, all of the bunkers had been consumed by the expiry of the 60-day period provided for in the first supplier’s terms. In arbitration proceedings the owners sought a declaration that they were not bound to pay either the first supplier or its bank for the bunkers supplied to the vessel, or alternatively damages for breach of contract, on the ground that the first supplier had been unable to pass title in the bunkers. The arbitrators held that the effect of the first supplier’s terms, in particular the retention of title clause combined with the owners’ right to use the bunkers for the propulsion of the vessel in advance of payment, had been that the first supplier had not undertaken to transfer property in the bunkers to the owners, and accordingly the contract was not “a contract of sale of goods” within the meaning of the Sale of Goods Act 1979 and therefore the first supplier could not claim the price of the bunkers under section 49(1) of that Act but was entitled to recover the sum due as a simple debt. The owners appealed and the first supplier and the bank cross-appealed. The judge affirmed the arbitrators’ decision, holding that the first supplier had not undertaken to transfer property in the bunkers because both parties had envisaged that some or all of them were likely to have been consumed in the propulsion of the vessel before payment became due, so that they would then cease to exist and it would become impossible to transfer property in them. The Court of Appeal dismissed the owners’ appeal.

On the owners’ appeal—

Held

Held, appeal dismissed. The first supplier’s contractual terms and the assumed facts, together with an admissible modicum of commercial awareness on the court’s part about how ships operated, demonstrated that the liberty to use bunkers for propulsion prior to payment was a vital and essential feature of the bunker supply business. In those circumstances, the first supplier’s contract with the owners could not be regarded as a straightforward agreement to transfer the property in the bunkers to the owners for a price. It was in substance an agreement with two aspects: (i) to permit consumption prior to any payment and without any property ever passing in the bunkers consumed, and (ii) if and so far as bunkers remained unconsumed, to transfer the property in the bunkers so remaining to the owners in return for the owners paying the price for all the bunkers, whether consumed before or remaining at the time of payment. The contract between the first supplier and the owners was not, therefore, one of sale within section 2 of the Sale of Goods Act 1979, but was sui generis. The first supplier’s only implied undertaking in relation to the bunkers which it permitted to be used for propulsion prior to payment was that it had the legal permission to give such permission and, in order to be so entitled, it merely needed to have, and had, acquired the right to authorise such use under the chain of contracts by virtue of which it had obtained the bunkers. Accordingly, the owners had no possible defence under section 49 to the first supplier’s claim to the agreed price (paras 26–28, 34, 37, 39, 59).

Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25, CA, Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339, HL(Sc), Forsythe International (UK) Ltd v Silver Shipping Co Ltd [1994] 1 WLR 1334 and Angara Maritime Ltd v Oceanconnect UK Ltd (No 2) [2011] 1 Lloyd’s Rep 61 considered.

Per curiam

Per curiam. Section 49 of the Sale of Goods Act 1979 is not a complete code of situations in which the price may be recoverable under a contract of sale and, had the contract between the first supplier and the owners been one of sale, the price would be recoverable by virtue of its express terms in the event which has occurred, namely the complete consumption of the bunkers supplied (paras 40, 42–58, 60).

Wilson (FG) (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365, CA disapproved.

Appeallate History

Decision of the Court of Appeal [2015] EWCA Civ 1058; [2016] 2 WLR 1072 affirmed.

Appearances

Jonathan Crow QC, Stephen Cogley QC, Julian Kenny QC and Liisa Lahti (instructed by Ince & Co LLP) for the owners.

Robert Bright QC, Marcus Mander and Clara Benn (instructed by Allen & Overy LLP) for the first supplier and the bank.

Reported by: Jill Sutherland, Barrister