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Web alert: OW Bunker 'test' case - The Court of Appeal hands down its latest judgment (22 October 2015)

News & Insights 21 October 2015

The Court of Appeal has earlier today handed down its decision on the Res Cogitans matter, which was heard on an expedited basis by the English court.

The Court of Appeal has earlier today handed down its decision on the Res Cogitans [1] matter, which was heard on an expedited basis by the English court.

The background to the Res Cogitans case, and indeed the wider OW Bunker insolvency, has been comprehensively covered by the club and all our previous publications on the subject can be found here. Our web alert of the 15 July 2015 contains an easy synopsis of the Res Cogitans case and the High Court decision, which was appealed (and has now been determined) by the English Court of Appeal.

The Court of Appeal has upheld the High Court decision of the 14 July 2015, that an OW Bunker Malta Ltd (OWBM) contract for the sale of fuel, which had a 60 day credit period and a retention of title (ROT) clause, coupled with an express right to consume the fuel during the credit period, was not a contract of sale within the Sale of Goods Act 1979 (SOGA).

Instead, the Court of Appeal seems to be of the view that this bunker supply contract is a sort of ‘hybrid’ contract which, whilst on the one hand, gives a mere licence to an owner/operator to burn the fuel so supplied immediately after supply, on the other is also a contract of sale (with an implied condition as to title under SOGA) for any bunkers remaining on board the ship at the time payment eventually falls due.

With regard to SOGA and its application to any residue of bunkers remaining at the time of payment, the Court of Appeal goes on to provide, however, that whilst a failure to pass title in the residual fuel would involve a breach of contract (here, say, by OWBM), it would not be one which would entitle an owner/operator to treat the contract as discharged (and so wouldn’t have to pay, say, OWBM for the fuel) unless it represented such a large proportion of the total quantity delivered it could be said that there has been a total failure of consideration.

This latest Court of Appeal judgment leaves matters particularly uncertain. Ultimately each case involving OW Bunkers and unpaid fuel will need, as ever, to be considered on its individual merits, taking into consideration the facts, local law and parties involved. ​ It will now also be important to look in each individual case at how much residue of bunkers remained unconsumed at the expiry of the OW contract credit period, before deciding how to proceed.

Pending any decision from the English Supreme Court (and an appeal to the Supreme Court is expected), it is important to realise that the Res Cogitans decision will not necessarily affect all OWB/ING claims. It should not be forgotten that the decision was based on a number of assumed facts, which may not apply to other claims. For example, it may not be the case (or be possible to show) that all parties accepted that bunkers or lubes were supplied for consumption before the expiry of the credit period(s). Linked to this, or alternatively, the intermediate supply contracts may be on materially different terms regarding say, payment, risk and/or title. They may also be subject to a foreign law. It is therefore always good practice to obtain all intermediate sale contracts wherever possible, in case there are points of difference between the claim(s) in hand and the (assumed) facts in the Res Cogitans decision.

We will continue to watch developments on the OW Bunkers fiasco with interest and will issue further publications and guidance wherever possible. In the meantime members should not hesitate to contact the authors, or their usual club contact for further information.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support. Essentially, the club wants to ensure that the actions proposed are appropriate, proportionate and financially viable.

[1] PST Energy 7 Shipping LLC v (1) OW Bunker Malta Ltd (2) ING Bank N.V. [2015] EWCA Civ 1058

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