The Court of Appeal’s decision rattles the British Shipping Industry

18 Feb 2016

3 min read

On the 22nd of October 2015, the British Court of Appeal through PST Energy & shipping LLC v. OW Bunker Malta Ltd delivered a landmark judgement concerning contract of supplies relating to bunkering. In essence, the Court of Appeal held that a contract that supplies bunkers on credit term basis, and which includes a retention of title clause favouring the party selling the bunkers but with an approval given by the said seller to the purchaser to make use of the bunkers, may not be deemed to constitute a sale of goods under the United Kingdom’s Sale of Goods Act of 1979 which governs contract law and commercial law.

This case revolves around a supply of bunkers which where indirectly provided for by OW Bunker Malta Limited, however the latter company had contracted with OW Bunker AS which in turn contracted with Rosneft Marine. Eventually Rosneft Marine entered into a contract with RN-Bunker who actually made the delivery to the concerned vessel. Notably, the contract entered into by Rosneft and OW Bunker AS contained a clause relating to retention and a credit term of thirty days, however this contract did not permit the vessel to utilise the bunkers. Eventually, OW Bunker declared itself bankrupt and therefore this fact alone resulted in deliveries being left unpaid.

Unsurprisingly, the principle of double jeopardy lies at the core of this case, since the vessel’s owners are faced with the possibility of having to pay both the seller and the supplier. In fact, a number of entities within the shipping industry, mainly ship owners and insurers reacted negatively to this judgement, particularly with respect to the issue of double jeopardy and also due to the judgement’s uncommercial nature.

Ultimately, the Court of Appeal held that while the contract related to the sale of goods, the fact alone that the contract included a credit period, a retention of title clause and the right to make use of the bunkers supplies meant that the transfer of title was not central to the contract itself. Undeniably, the contract in contemplation was deemed to be a contract relating to delivery of bunkers, which happened to include a right to use the delivered bunkers.

The Court of Appeal dismissed the owner’s appeal and upheld the Commercial Court’s decision which was delivered on the 14th of July 2015. Notably the Court of Appeal stated that although the contract does not have the characteristics of a contract of sale, the owners cannot escape from their obligation of paying for utilising such bunkers. It seems that this case will not be laid to rest any time soon. Undoubtedly this decision may be challenged in front of the Supreme Court in the near future.

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