PST Energy 7 Shipping v OW Bunker Malta - The Res Cogitans

DMC/SandT/16/05

England

PST Energy 7 Shipping LLC & Product Shipping and Trading SA v OW Bunker Malta Limited & ING Bank NV, the “RES COGITANS”

Supreme Court; Lords Neuberger, Mance, Clarke, Hughes, Toulson; [2016] UKSC 23, 11 May 2016

Jonathan Crow QC, Stephen Cogley QC, Julian Kenny QC, and Liisa Lahti (instructed by Ince & Co LLP) for PST Energy 7 Shipping LLC & Product Shipping and Trading SA, Appellants/Owners

Robert Bright QC, Marcus Mander, and Clara Benn (instructed by Allen & Overy LLP) for OW Bunker Malta Limited & ING Bank NV, Respondents/Sellers

RETENTION OF TITLE CLAUSE; GOODS CONTEMPLATED TO BE CONSUMED BEFORE TITLE PASSED; SALE OF GOODS ACT 1979 INAPPLICABLE; COMMENTS ON POSITION IF SALE OF GOODS ACT 1979 APPLIED

Summary

This note is an update to the notes on the first instance decision (accessible from [[1]]) and the decision of the Court of Appeal (accessible from [[2]]) For the background, these notes should be read together.

The contract between the Sellers and the Owners was not a contract of sale, but a sui generis [of its own special type] contract. Significantly, it allowed Owners the right potentially to consume the bunkers for propulsion before paying for them.

Consequently, Owners could not escape paying for the bunkers by arguing that the Sellers had failed to transfer property in the bunkers to them, which property the Sellers did not have as they had not paid their own suppliers.

Such failure, in a contract of sale strictly speaking, was said by Owners to defeat a claim by Sellers for the price of goods delivered. Owners relied on FG Wilson v John Holt (the “Caterpillar” case – fn.1. Due to precedent it was not open to Sellers to contest this point in the Courts below.

This point was, however, open before the Supreme Court, which decided that – had the contract in this case been one of sale - Sellers would have had a good claim for the price notwithstanding that property had not passed as (a) risk had passed to the Owners, and (b) the contract allowed the bunkers to be destroyed by use for Owners’ commercial benefit.

Owners had failed both at first instance, and on appeal. It appears that largely the same arguments were raised at in the Court of Appeal and in the Supreme Court, though additionally before the Supreme Court there was argument on what the position would have been if the contract were a contract of sale (and on whether the “Caterpillar” case was rightly decided).

This note has been contributed by Justin Gan Boon Eng, solicitor (Hong Kong), advocate & solicitor (Singapore - non-practising)

Judgment

Lord Mance delivered a judgment with which the other Law Lords agreed.

Contract of Sale?

As in the lower Courts, the contract was held not to be a contract for the transfer of property in the bunkers (and so not a contract of sale). Instead, it was a contract for the delivery of bunkers that Owners could use immediately, but only had to pay for after the credit period had expired. Again, the critical factor was the contractual permission for Owners to use the bunkers for propulsion, before payment.

As a result, Owners’ arguments based on the “Caterpillar” case were inapplicable. (Broadly, that case was said to stand for the proposition that in a contract of sale, the fact that the seller could not pass property in the goods is a defence to an action for the price).

Separately, Lord Mance expressly disclaimed attempts (suggested in the Court of Appeal) to analyse the same contract differently in respect of (a) bunkers consumed before payment and (b) bunkers not consumed at the time of payment, as having “neither legal nor commercial sense”.

Lord Mance also indicated that while the contract was not a contract of sale in itself, it did contain implied terms as to description, quality, etc. similar to those implied into traditional contracts of sale. Such terms would apply equally to bunkers consumed before or after payment.

Owners’ alternative argument

Owners argued also that Sellers had an implied obligation to pay Sellers’ suppliers (and so obtain title to the bunkers sold). Lord Mance agreed with the Court of Appeal that such an implied term was unnecessary. It was sufficient under the contract for Sellers to have the right to give permission to consume the bunkers before payment.

What if the contract were a contract of sale?

Lord Mance then considered whether the “Caterpillar” case was rightly decided. In other words, whether Owners would have had a defence even if the contract were a contract of sale. This question was not open for consideration by the lower Courts.

Briefly, s.49(1) of the Sale of Goods Act 1979 provides that the seller of goods may bring an action for the price where it has transferred property in the goods but the buyer fails to pay – and, as interpreted by the Caterpillar case, that the converse applies and if property is not transferred the seller cannot sue for the price.

Examining the jurisprudence, Lord Mance concluded that there were situations where claims for the price were valid though property had not passed, that is, outside s.49. First, where a buyback agreement reserved title to A but allowed B to take possession and dispose of some of the goods, A could recover the price for all the goods if A was ready and willing to transfer title in the remaining goods to B. Second, where the goods were at buyer’s risk but property had not passed (and the goods were lost or destroyed).

Here, the contract provided that the bunkers remained Sellers’ property (a) but were at Owners’ risk and (b) could be destroyed by use for Owners’ commercial benefit. Lord Mance found this sufficiently similar to the cases where the price was payable because risk had passed though property had not, before the goods were lost.

So, even if the contract were a sale of goods contract, s.49 would not have barred Sellers’ claim against Owners. The Caterpillar case would have been overruled.

Interestingly, Lord Mance also:

(1) stated that there could be other situations where property has not passed but a claim for the price may be maintained. It appears to be suggested that one such situation might be where title is retained, risk passes, and there is physical delivery of the goods;

(2) suggested (without saying so) that the exception in s.49(2) may have applied in any event. This allows the price to be recovered without property passing, if “the price is payable on a day certain irrespective of delivery” – provided the seller is ready and able to deliver goods and property in them. Lord Mance noted that some judges had expressed the view that “price payable on a day certain” included a situation where the price was payable within 30 days of the invoice.

Footnote 1: F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232