Rights to consume bunkers before payment when neither as a Bailee nor as an Owner

PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] UKSC 23

Background

Last year, in the case of PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] UKSC 23, the Supreme Court had to determine a dispute between OWBM, a bunker supplier whose parent company had gone in to liquidation and the bunker purchaser, PST Energy (Owners). The contract contained a retention of title clause permitting the purchaser to consume the bunkers during the credit period. The dispute was whether a contract for the supply of bunkers between OWBM and the Owners was a contract of sale of goods under s.2 of the Sale of Goods Act 1979.

Under SOGA, a contract of sale of goods is "a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price". If the contract fell under SOGA, the question was therefore whether or not the bunker supplier could claim against the ship owners for the agreed price under s.49 of SOGA, which stipulates that "where, under a contract of sale, the property in the goods has passed to the buyer … the seller may maintain against him for the price of the goods".

Decision

The Supreme Court upheld the decision of both the Commercial Court and the Court of Appeal and ruled this was not a contract for the sale of good under SOGA. In their Judgment the contract in dispute could not be a straightforward agreement to transfer the property in the bunkers to the owners for a price. It was instead an agreement to permit consumption prior to payment and without any property ever passing in the bunkers consumed. They concluded that the agreement for supply of bunkers was not a contract of sale of goods and endeavoured to justify the Owners' payment obligation on alternative grounds. (The full judgment can be found a PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] UKSC 23; [2016] A.C. 1034 (SC).) Their Lordships also made important obiter comments that s.49 was not a complete code of situations in which the price could be recoverable. This section would have been no bar to a claim by the seller for payment of the agreed price

Comment

Comments had been made at the time of the decision that it is potentially uncommercial decision. It seems to be inconsistent with both the commercial purposes of the transaction and the intentions of the parties as reasonably understood from the wording of the contract. Some also commented that it seemingly went against the supposed wide definition of a contract for the sale of goods under SOGA.