EMEA News
Court Decision Over "Typical" Bunker Supply Contract Leaves Shipowners at Risk of Paying Twice
Wikborg, Rein & Co. (Wikborg Rein) says an English High Court decision that the supply of bunkers is not a sale contract falling within the country's Sale of Goods Act has left shipowners at risk of paying for the same bunkers twice.
In the recent case of PST Energy 7 Shipping LLC (PST Shipping) against OW Bunker Malta Ltd (OWBM), OWBM had the supply contract with PST Shipping, and then contracted Rosneft Marine (UK) Ltd. (Rosneft) to physically supply the bunkers.
No payment was made by the owner to OWBM prior the bankruptcy of its parent company, and no payment has been made to Rosneft.
PST Shipping argued that it should not have to pay OWBM since OWBM never paid Rosneft for the bunkers, meaning that as per the Sale of Goods Act, OWBM could not then transfer ownership of them (and thus liability for paying for them) to PST Shipping.
Indeed, the danger for the shipowner was if it paid OWBM, Rosneft would still have a valid claim for payment from PST Shipping, in effect leaving them open to paying for the same bunkers twice.
OWBM argued that its claim was for a contractual debt, which does not fall under the Sale of Goods Act and does not need them to demonstrate it could pass property in the bunkers to PST Shipping at the time of payment.
Title to the Bunkers
Key to the court's decision was its finding that under the supply contract the owner is not paying for title to the bunkers being supplied, but for a lawful right to consume those bunkers.
Under the Sale of Goods Act the buyer must be paying for title to the goods, as such it does not apply to such a case such as this.
OWBM was therefore deemed to be entitled to payment as it had secured permission from Rosneft for PST Shipping to consume the bunkers, and thus fulfilled its contractual obligations.
The decision is important, says Wikborg Rein, as the court recognised that the contract terms in this case are "typical of hundreds or even thousands of such transactions carried out every year."
The fact that Rosneft granted permission to OWBM for the bunkers to be consumed without payment also means that, under English law, Rosneft can not then make a claim against the owner.
However a double payment scenario is still possible as Rosneft could arrest the vessel and pursue payment in other jurisdictions, with Wikborg Rein saying the Court argued that exposure to foreign claims that carry the possibility of arrest is "one of the trading risks which shipowners run."
The decision has been appealed and will be dealt with on an expedited basis.
In July, it was reported that vessel owners had been given a second chance to appeal a ruling in favour of O.W. Bunker & Trading A/S (OW Bunker) and ING Bank N.V. (ING), who earlier that month had won the first test case in a London arbitration over who a vessel should pay for bunkers in the wake of OW Bunker's collapse last year.
