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

Thursday March 24, 2016

The so-called OW Bunker UK test case involves PST Energy 7 Shipping LLC (PST Shipping), who contracted with the now bankrupt OW Bunker Malta (OWBM) for bunkers that were physically delivered to its vessel Res Cogitans by a subsidiary of Rosneft Marine (UK) Ltd (Rosneft).

This took place around the time of the bankruptcy of OW Bunker.

No money has yet changed hands for the bunkers: OW Bunker has not paid Rosneft, and is now bankrupt; PST Shipping has not paid OW Bunker, not least of which because there is a question mark over who they should pay - the physical supplier, or OWBM as the intermediary.

Three lower courts have ruled in favour of OW Bunker / ING, and most critically finding that the Sale of Goods Act 1979 (SoGA) did not cover contracts signed with OW Bunker.

This means that as things stand, the bunker buyer is liable to pay ING (as OW Bunker's assignee) as a contractual debt, with the physical supplier able to claim for payment for the actual bunkers, effectively leaving the buyer to pay for the same bunkers twice.

With PST Shipping having been granted leave to appeal, the case is being heard this week by five Lords at the UK Supreme Court.

PST Shipping is seeking either a declaration that they are not responsible for payment for the bunkers supplied under the contract with OWBM, or damages for breach of contract, arguing that OWBM had been incapable of passing them the title to the bunkers.

The hearing concluded on Wednesday, and industry watchers say it could take weeks or even months for the justices to arrive at a conclusion.

With an unknown number of other buyers around the world in the same position, potentially numbering into the hundreds, their decision could have far reaching consequences for the industry.

A win for ING / OWBM could mean PST Shipping and all buyers who are in a similar position are open to paying twice for the same bunkers - ING under a contractual debt, and the physical supplier for the actual bunkers.

That would presumably not be particularly good news for the physical suppliers either, as it would leave them out of pocket until further action was taken, which comes at a time of historic financial hardship for some ship owners such as those in Dry Bulk.

However, a win for PST Shipping would, in the absence of alternative action, leave ING unable to collect on the debt it sees as owning to it through OW Bunker, something which could then have implications on the relationships between other banks and traders.