OW Bunker: Latest Court Ruling Means Unconsumed Bunkers are Now a Factor in "Who to Pay" Disputes

The latest ruling means that OW Bunker trustees have now won three out three court battles over the matter

The English Court of Appeal Thursday has upheld a decision siding with the trustees of OW Bunker over who should receive payment for bunkers sold by the failed fuel supplier around the time of its bankruptcy, the Standard Club has noted.

However the latest judgment appears to have brought further complexity to an already difficult situation, and means that the volume of unconsumed bunkers at the expiry of the OW Bunker contract credit period is now a factor in any future judgements. 

The latest ruling means that OW Bunker trustees have now won three out three court battles over the matter, which are being watched closely by multiple parties locked in similar court cases around the world, the outcome of which could ultimately see ship owners paying twice for the same bunkers.

This particular case involves PST Energy 7 Shipping LLC (PST Shipping) and its vessel Res Cogitans, who had contracted with OW Bunker Malta Ltd (OWBM) for bunkers that were physically delivered by a subsidiary of Rosneft Marine (UK) Ltd (Rosneft).

PST Shipping argued that as OWBM had not paid Rosneft for the bunkers, OWBM was in no position to transfer property and title in the bunkers to the shipowner and claim payment for them.

Under the Sale of Goods Act (SOGA) the buyer must be paying for title to the goods, but the court upheld that the language in the supply contract between the two parties meant that PST Shipping was only paying OWBM for a lawful right to consume those bunkers.

As OWBM was deemed to have successfully obtained the necessary permission from Rosneft for the bunkers to be consumed, there was no breach of contract by OWBM and thus, they were entitled to be paid.

While Rosneft can not now make a claim against PST Shipping under English law, the double payment scenario exists because Rosneft can arrest the vessel and pursue payment in other jurisdictions.

Hybrid Contract

The Standard Club notes that the latest judgment "leaves matters particularly uncertain" with respect to the bunkers that were left unconsumed at the expiry of the OW Bunker contract credit period.

"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," it said.

While each case will be considered on its individual merits, Standard Club says that the latest judgement means that "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." 

In September, Ship & Bunker reported that the outcome of the appeal court would likely determine whether many lawsuits would continue to be pursued.