UK: Bunker Suppliers Exposed to the Financial Difficulties of their Buyers

Suppliers of bunkers would be well advised to give shipowners early notice of any claim to goods after the High Court found that a shipowner acquired good title to bunkers purchased from its charterer, which was in possession of, but had not actually paid for, the bunkers.

The High Court considered the application of section 25(1) of the Sale of Goods Act 1979 to a shipowner's purchase of bunkers from its charterer. Section 25(1) provides that a buyer obtains good title to goods purchased in good faith and without notice of any rights of the original seller.

The owner of the "FESCO ANGARA", Angara Maritime Ltd, applied for a declaration that it was not liable to the defendant, Oceanconnect UK Ltd, for bunkers that had been purchased from its charterer, Britannia. Oceanconnect had supplied bunkers to Britannia pursuant to an agreement which contained a retention of title clause in favour of Oceanconnect. Britannia got into financial difficulties and did not pay for the bunkers. It made early redelivery of a number of vessels, including the "FESCO ANGARA", to Angara.

Under the charterparty, Angara was required, on redelivery of the vessel, to take over and pay the charterer for all bunkers remaining on board. Oceanconnect argued that the obligation to pay for the bunkers did not apply where there was premature termination of the charterparty. Accordingly, section 25(1) did not apply as there had been no contractual redelivery of the vessel to Angara, so that there was no delivery of the bunkers.

The Court applied the test in Forsythe International (UK) Ltd v Silver Shipping Co Ltd and Petroglobe International Ltd (The "SAETTA") (1994), which provides a method for determining claims under section 25(1). The Court concluded that, despite the retention of title clause, Angara acquired good title to the bunkers.

The evidence clearly showed there had been a delivery of the bunkers by Britannia to Angara. Notwithstanding the charterparty, the fact remained that Britannia and Angara had agreed to redelivery, with Angara taking over the bunkers. The purchase was in good faith and without notice of any adverse right. Accordingly, what would otherwise have been a good claim in conversion (i.e. wrongfully assuming the right to goods which belong to another) failed.

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