PST Energy 7 Shipping LLC and Another v O.W. Bunker Malta Ltd and Another "Res Cogitans"
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Males,Mr Justice Males |
| Judgment Date | 14 July 2015 |
| Neutral Citation | [2015] EWHC 2022 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2015 Folios 569 & 580 |
| Date | 14 July 2015 |
[2015] EWHC 2022 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Males
Case No: 2015 Folios 569 & 580
Mr Stephen Cogley QC and Mr Jeremy Richmond (instructed by Ince & Co LLP) for the Claimants
Mr Robert Bright QC and Mr Marcus Mander (instructed by Allen & Overy) for the Defendants
Hearing dates: 7–9 July 2015
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
As Longmore LJ observed in Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232, [2014] 1 WLR 2365 at [56], retention of title clauses bring dangers as well as benefits. They can also lead to what may be unforeseen results, as this section 69 appeal from maritime arbitrators illustrates. It involves the supply of bunkers to a vessel on terms which are typical of hundreds or even thousands of such transactions carried out every year. These include a chain of contracts each with a retention of title clause in favour of the supplier, a provision that payment will be due a fixed number of days after delivery, permission for the shipowner to consume the bunkers in the meanwhile as the vessel goes about its business, and awareness on the part of all concerned that the bunkers may well be wholly consumed before payment becomes due. The contract in issue in this case certainly looks like a contract of sale. Nevertheless the arbitrators have held that the effect of this combination of features is that it is not a contract to which the Sale of Goods Act 1979 applies. Conversely, if the appellant shipowners' argument is correct, the sellers will be unable to sue for the price as by the time payment becomes due, some or all of the bunkers will have been consumed with the result that property in them has ceased to exist and cannot be transferred to the shipowners, so that an action for the price under section 49 of the Act cannot be maintained.
In these circumstances this appeal has required an examination of the nature of a typical contract for the supply of bunkers, unfortunately against the background of the insolvency of the parent company of the OW Bunker group of companies, the world's largest seller and supplier of bunkers.
The facts
The hearing before the arbitrators proceeded on the basis of assumed facts which were agreed between the parties. In summary, these were as follows.
PST Energy 7 Shipping LLC is the owner and Product Shipping & Trading S.A. is the manager of the vessel "Res Cogitans". For present purposes it is unnecessary to distinguish between them and I shall refer to them together as the Owners. On 31 October 2014 the Owners placed an order for the supply of bunkers to the vessel with OW Bunker Malta Ltd ("OWBM"), a company which is part of the OW Bunker group, whose activities included the supply, sale and trading of bunkers worldwide. The order was confirmed by OWBM's Sales Order Confirmation of the same date, which named OWBM as "Seller" and gave a delivery date of 3 or 4 November 2014. It provided for delivery of 110 metric tons of gasoil at a price of US $848 per metric ton and 1,000 metric tons of fuel oil at a price of US $359 per metric ton; that the physical supplier of the bunkers would be "Rosneft"; that payment would be made within 60 days from the date of delivery upon presentation of OWBM's invoice; and that the transaction was to be subject to the OW Bunker Group's 2013 Terms and Conditions of sale for Marine Bunkers ("the OWB terms"). OWBM's right to payment was assigned to its bank, ING Bank N.V. ("ING"). Notice of that assignment was duly given.
OWBM did not itself supply the bunkers to the vessel. Instead it placed an order for their supply with its Danish parent company, OW Bunker & Trading A.S. ("OWBAS"). The contract between OWBM and OWBAS was also subject to the OWB terms. OWBAS in turn placed an order with Rosneft Marine (UK) Ltd ("Rosneft"), a United Kingdom company, while Rosneft placed an order with its Russian subsidiary, RN-Bunker Ltd. It was this last named company which physically supplied the bunkers to the vessel at Tuapse in the Black Sea on 4 November 2014. A chain of transactions such as this is common in the industry. It is well known in the industry that the terms of such transactions frequently include retention of title clauses.
The contract between OWBAS and Rosneft was also concluded on 31 October 2014 and was reconfirmed on 3 November 2014. It required payment to be made within 30 days of delivery and was subject to Rosneft's 2012 Marine Fuels Sales General Terms and Conditions ("the Rosneft terms"). So too was the contract between Rosneft and RN-Bunker.
The bunkers were duly delivered to the vessel on 4 November 2014.
Thus payment from OWBAS to Rosneft in the sum of US $416,000 was due by 4 December 2014 at the latest (i.e. 30 days after delivery) while payment from the Owners to ING was due by 3 January 2015 (60 days after delivery), OWBM's invoice dated 4 November 2014 in the sum of US $443,800 having been presented to the Owners on 23 December 2014. Neither payment has been made, although Rosneft paid RN-Bunker on 18 November 2014. As explained below, this means that on that date Rosneft acquired title to whatever quantity of the bunkers had not yet been consumed by the vessel.
On or about 5 November 2014 OWBAS uncovered a major fraud committed by senior employees in a Singaporean subsidiary, as well as apparent losses relating to unsupervised OTC trading. Preliminary estimates suggested a total loss of about US $275 million. On 6 November 2014 OWBAS announced that it expected to be insolvent and was filing for commencement of an in-court restructuring procedure at the probate court in Aalborg. Rosneft's prospect of obtaining payment from OWBAS is therefore not promising. OWBM is not currently in insolvency proceedings.
ING now claims payment of the sum due under the contract between OWBM and the Owners in its capacity as assignee of OWBM's rights under that contract. In that capacity it stands, in effect, in the shoes of OWBM and its claim is subject to whatever defences would have been available to the Owners if the claim had been brought by OWBM. Rosneft has also demanded payment for the bunkers from the Owners and has asserted that it retains property in them. However, it was not a party to the arbitration and is not a party to this appeal. The Owners deny liability to OWBM or ING. Their position is that they do not object to paying for the bunkers, but do not want to have to pay both ING and Rosneft. I am told that as a result of the insolvency of the OWB group there are hundreds of pending arbitrations in which the same or very similar issues arise.
The contract between OWBM and the Owners
The OWB terms, which are widely used in the industry, are expressly governed by English law and provide for arbitration in London. In addition to their title ("Terms and Conditions of sale") and their description of the parties as "Seller" and "Buyer", they contain numerous indications that the contract for which they provide was understood by the parties to be a contract of sale. They include a term dealing with title to the bunkers as follows:
"H. TITLE
H.1 Title in and to the Bunkers delivered and/or property rights in and to such Bunkers shall remain vested in the Seller until full payment has been received by the Seller of all amounts due in connection with the respective delivery. The provisions in this section are without prejudice to such other rights as the Seller may have under the laws of the governing jurisdiction against the Buyer or the Vessel in the event of non-payment.
H.2 Until full payment of the full amount due to the Seller has been made and subject to Article G.14 hereof, the Buyer agreed that it is in possession of the Bunkers solely as Bailee for the Seller, and shall not be entitled to use the Bunkers other than for the propulsion of the Vessel, nor mix, blend, sell, encumber, pledge, alienate, or surrender the Bunkers to any third party or other Vessel.
H.3 In case of non or short payment for the Bunkers by the Buyer, the Seller is entitled (but not obliged) to repossess the Bunkers without prior juridical intervention, without prejudice to all other rights or remedies available to the Seller.
H.4 In the event that the Bunkers have been mixed with other bunkers on board the Vessel, the Seller shall have the right to trace its proprietary interest in the Bunkers into the mixed bunkers and/or a right of lien to such part of the mixed bunkers as corresponds to the quantity or net value of the Bunkers delivered.
H.5 The provisions of this Chapter H do not prejudice or in any way limit the Seller's right to arrest/attach the Vessel and/or sister ship and/or any sister or associate ship and/or other assets of the Buyer (or the Owner of the Vessel or any other party liable), wherever situated in the world, without prior notice.
H.6 Where, notwithstanding these conditions, title in and to the Bunkers delivered has passed to the Buyer and/or any third party before full payment has been made to the Seller, the Buyer shall grant a pledge over such Bunkers to the Seller. The Buyer shall furthermore grant a pledge over any other Bunkers present in the respective Vessel, including any mixtures of the delivered Bunkers and other bunkers. Such pledge will be deemed to have been given for any and all claims, of whatever origin and of whatever...
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Case Note
...the Suppliers, the Bank and OW are free to commence action against the Purchasers. 68 See PST Energy 7 Shipping LLC v OW Bunker Malta Ltd[2015] EWHC 2022 (“Res Cogitans (HC)”) and PST Energy 7 Shipping LLC v OW Bunker Malta LtdUNK[2015] EWCA Civ 1058 (“Res Cogitans (CA)”) where the English ......