UK Supreme Court Rules in Favour of ING in "Res Cogitans" OW Bunker Test Case

Wednesday May 11, 2016

In the final hearing of the so-called "Res Cogitans" OW Bunker UK test case, the UK Supreme Court today has unanimously found in favour of OW Bunker / ING Bank, dismissing the appeal by ship owners PST Energy 7 Shipping LLC (PST Energy).

With three lower courts also all ruling against the bunker buyer, Justices Lord Neuberger, Lord Mance, Lord Clarke, Lord Hughes, and Lord Toulson heard the final appeal last March.

Today's verdict has crucially upheld that the Sale of Goods Act 1979 (SoGA) did not cover contracts signed with OW Bunker, but rather the contract with OW Bunker simply gave entitlement to use the bunkers, and required them to be paid for.

"Bunker suppliers know that bunkers are for use prior to payment. [OW Bunker's] contract with the Owners therefore cannot be regarded as a straightforward agreement to transfer the property in the bunkers to the Owners for a price," the Lords wrote in a summary of their judgment.

"Even if the contract were to be analysed as a contract of sale, in that it contemplated the transfer of property in any bunkers unused at the date of payment, [OW Bunker] could not owe any obligation to transfer property in bunkers consumed before payment. It would cease to be a contract of sale if and when all such bunkers were consumed before payment."

With PST Shipping having now seemingly nowhere else to turn, what today's verdict ultimately means is that precedent has been set in the UK that in such cases the bunker buyer must pay ING Bank (as assignee of the now defunct OW Bunker) the cost for the entire bunker bill - even though as Jonathan Crow QC pointed out during the hearing, that had OW Bunker not gone bankrupt, OW Bunker would have have only ever seen "perhaps 1 percent" of those monies.

The physical suppliers - who presumably will remain unpaid by ING - are left to take their own action to recover the cost of the actual bunkers, leaving the bunker buyer open to effectively paying twice for the same bunkers.

The U.K. Defence Club called the outcome "disappointing."

"Although a disappointing outcome, the U.K. Defence Club, which has supported its member throughout this case, has been committed to resolving this extremely important point for this member and for the industry generally," it said.

"Given the outcome of this case, members and other operators will need to carefully review their bunker contracts in order to protect themselves from such situations arising in the future."

Read More: In a Nutshell: What is the "Res Cogitans" OW Bunker UK Test Case and Why is it Important