Supreme Court Ruling on the "RES COGITANS" - OW Bunkers

May 2016

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021 OWB Decision

Over 18 months after the collapse of the OW Bunker Group, the UK Supreme Court handed down its judgment in the OW Bunkers “test case”, the “RES COGITANS”, on 11 May 2016.  In a decision widely anticipated by the global shipping industry, the Owners’ appeal was dismissed in favour of OW Bunkers/ING who remain entitled to payment for the bunkers stemmed from Owners.

Issues before the Supreme Court

Further to the Court of Appeal judgment handed down in October 2015, the Owners sought leave to appeal to the Supreme Court on the following issues:-

 1) Was the contract a contract for sale within the meaning of section 2(1) of the Sale of Goods Act 1979?

 2) If not, was the contract subject to an implied term that OW Bunkers would perform or had performed its obligations to its supplier, in particular by paying for the bunkers timeously?

 3) An addition point not argued before the Court of Appeal was also put to the Supreme Court for their consideration: was the Court of Appeal decision in F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365 (referred to as “Caterpillar”) wrong and should be overruled?

Judgment

The Supreme Court had little difficulty in upholding the decision of the Court of Appeal, with Lord Mance providing the following reasoning in respect of each issue:-

1) OW Bunkers’ contract with the Owners cannot be considered a straightforward agreement to transfer property in the bunkers to the Owners for a price. Rather, it was an agreement with two aspects: (a) to permit consumption of bunkers prior to payment without any property passing and (b) in so far as bunkers remained unconsumed, to transfer property in said bunkers in return for paying the full price for all the bunkers.  The contract is, therefore, a “sui generis” (unique) transaction and not a contract of sale.

2) The only implied undertaking OW Bunkers needed to give was that they had the legal entitlement to give permission for the bunkers to be used. OW Bunkers did not need to have or acquire title to the bunkers, they only needed to have acquired the right to authorise use of the bunkers under the preceding chain of contracts.  There was consequently no implied term as to OW Bunkers’ obligations to its supplier in terms of punctual payment or otherwise.

3) Although it was held that the contract was not a contract of sale, the Supreme Court discussed whether the Court of Appeal in Caterpillar was correct in concluding that where goods are delivered under a contract of sale, but title is reserved pending payment of the price, the seller cannot enforce payment of the price. It was considered that, had the contract been one of sale, the Supreme Court would likely have overruled Caterpillar as section 49 of the Sale of Goods Act is not a complete code of situations where the price may be recoverable.  In the present case, the price was recoverable due to its express terms in the event the bunkers were consumed entirely.

Conclusions

The Supreme Court has confirmed in no uncertain terms that the Owners have no defence to OW Bunkers’ claim to the agreed price, and the Owners have no further recourse to appeal in the UK.

Whilst finally clarifying the nature and consequences of the bunker contracts in question, the decision will offer little comfort to Owners and Charterers who will undoubtedly face renewed demands for payment by OW Bunkers/ING, but are still exposed to the threat of vessel arrests and claims by unpaid physical suppliers.  There remain legal challenges in multiple jurisdictions, many of which have reached contrasting decisions, and the Supreme Court decision is therefore unlikely to bring an end to the saga.

For earlier articles discussing the OW issues see OW Bunkers - A Global Perspective 

   

Article by Emily McCulloch,

Syndicate Manager   
emliy.mcculloch@simsl.com