OW Bunker Test Case: Wrongly Assumed Facts, Credit Periods, Cross Claims, Intent of the Original Bargain all Matters for Consideration

Industry watchers expect that the five justices presiding over the test case could take weeks or even months to arrive at a conclusion.

Three lower courts that found in favour of OW Bunker / ING Bank (ING) in the so-called OW Bunker UK test case, all made their decision based on assumed fact - rather than establishing what the facts actually were - and with "half an eye on what they assumed the consequences might be."

That was the view put forward last Tuesday by Jonathan Crow QC, arguing for the appellants PST Energy 7 Shipping LLC (PST Shipping), in a lively morning session at the UK Supreme Court where the final appeal in the case was being heard.

• READ MORE: In a Nutshell: What is the "Res Cogitans" OW Bunker UK Test Case and Why is it Important »

In setting out his argument before the five justices, Crow said that the main point before them was whether or not the Sale of Goods Act 1979 (SoGA) applies to the contract between PST Shipping and OW Bunker Malta (OWBM), with three lower courts having found that it does not.

Lord Mance was quick to point out that, "the main question is surely if you have to pay for the goods," prompting another Lord to remark, "It's the only question anyone's interested in!"

"If the sale of goods act applies and says you don't have to pay for the goods, isn't the law a bit odd?" said Lord Mance, before asking Crow whether there was anything that his client wanted as part of the contract with OWBM that they did not get.

"What we wanted was not to be pursued twice for the same stem," Crow replied.

This prompted Lord Mance to suggest that if this was the case, then perhaps Crow was taking the wrong course of action.

Cross Claim

"If you're at risk of having to pay twice your remedy is a cross claim in the arbitration saying to the suppliers that they're in breach of contract in not allowing you to burn these bunkers free of a third party claim. That's what you were interested in, using the bunkers free of incumbrance," he said.

"If they fail to deliver you bunkers free of third party claims then there's a cross claim and no doubt the arbitrators would give a stay and you wouldn't have to pay the price. The two would practically be set off," he added, while also acknowledging that an anti-set off clause would mean that strictly speaking the two could not technically be set off.

"What is the problem? You haven't cross claimed."

Crow, evidently unimpressed with Lord Mance's line of argument remarked: "Your lordship is addressing me as if I'm advising the client before proceedings have been issued as to which way they ought to be going. The point, that is in front of you, is the question of whether or not the sale of goods act does apply to this contact.

"That is the point of law on which permission to appeal has been granted, and that is what we are here to make submissions on."

The Original Bargain

Crow said the key to answering the question of whether the SoGA applied was in the intent of the original contract, and whether that intent was as a contract of sale.

He argued that it must, as when the original bargain that was struck progressed into a sale, that original contract was the only one that then governed the sale.

Lord Mance countered by saying he could not see why there could be an agreement for a potential sale, that only then became a sale at a later date upon certain conditions being met.

Lord Toulson noted the passing of title to the goods was a key factor in this determination: "The core argument from the other side starts from the same starting point that it's an essential ingredient of the sale as defined in the act, the property in the goods should pass to the buyer, and then their argument is that it was not part of the bargain struck between the parties that property in the goods should necessarily pass to the owners because they have the right to consume the goods before title has ever passed."

"That is the critical point, that the contract gave that right. To what extent anyone thought it would be exercised doesn't really effect the characterisation of the contract.

"They go on to say, because that was the nature of the contract - that it was NOT an essential part of it that the goods should pass - ergo it's not to be characterised as a contract of sale within the act.

"Seems to me though what we have to do is look at the contract and see for this purpose was this a contract under which it was an essential term that property should pass, therefore, a Sale of Goods Act contract, or was it a contract of a different kind under which it was not an essential ingredient that property should pass, ergo not characterised as a contract of sale."

Credit Periods, Assumed Facts

Additional complexities also arose from the fact that different credit periods were extended by Rosneft as the physical supplier, and OWBM, which were 30 and 60 days respectively, and that "if bunkers were being burnt after the 30 day credit period that could certainly give rise to a claim by [the physical supplier]."

Crow noted that there were any number of reasons why the bunkers that were part of the contract may or may not have been burned at any particular point in time, such as environmental regulations dictating exactly what bunkers could and could not be burned.

Indeed, while it was likely that there was at least some consumption, it was possible that not even partial consumption would have taken place in the credit period.

The fact that the lower court decisions were based on the belief that there would be complete consumption in the credit period was, in Crow's view, one of a number of shortcomings in the previous rulings, as the arbitrators were asked only to address some preliminary issues of law on the basis of certain assumed facts.

"The arbitrators haven't actually found what the facts are yet," he said, adding that one of those assumed facts was that the bunkers were all consumed before the 60 day credit period expired.

"On further investigation it turns out that that is in fact not the case.

"One of the things that went wrong in the courts below, as I hope to show you, is that the courts below approached the question of classification in or out of the act with half an eye on what they assumed the consequences might be, and that in our submission has distorted their analysis of the anterior question as to whether the act does apply."

The hearing concluded last Wednesday, and industry watchers expect that the five justices presiding over the matter could take weeks or even months to arrive at a conclusion.