On 7 November 2014 OW Bunker A/S was made the subject of a bankruptcy order by the Probate Court in Aalborg, Denmark, and on 12 November 2014, its South African subsidiary, O W Bunkers South Africa (Pty) Ltd, applied for provisional liquidation that was subsequently confirmed. Since that time the Freight, Demurrage & Defence Department has handled a large number of new claims from Members regarding demands from inter alia individual suppliers of bunkers, all demanding payment for the same bunker stems. Owner/Charterer Members faced the risk of having to pay twice for the same bunkers.
The OW Bunker Group 2013 "Terms and Conditions of sale for Marine Bunkers" provide for English law and London arbitration. A number of the suppliers, however, claimed the right to payment on based on local law, which, in some cases, grants a maritime lien-type status against the Vessel which they can enforce by arresting or detaining the Vessel.
On 14 July 2015, the Admiralty, Commercial and London Mercantile Court ruled, in the case of PST Energy Shipping and Product Shipping and Trading SA v. OW Bunker Malta and ING Bank SA (Res Cogitans), that OW and their assignees ING Bank N.V. were entitled to payment for bunkers supplied, even in circumstances where OW did not own property in the bunkers. The court found that the standard form bunker supply contracts are not contracts for the sale of goods within the scope of the Sale of Goods Act 1979 ("SOGA"). Section 2(1) of SOGA defines a contract of sale of goods as"a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price".
The Court acknowledged that the contract between the parties was drafted as a contract of sale with many terms appropriate to such contracts (including terms for the passing of title in the bunkers), however, the Court concluded that an analysis of the obligations undertaken by the parties, and in particular the operation of the Retention of Title ("ROT") clause, led to the conclusion that the bunker supplier had not undertaken an obligation to transfer property in the bunkers to the Owners, and thus the requirements of s2(1) of SOGA would never be satisfied.
The Court stated that the parties must have known it was likely that title in the bunkers would never be transferred from the Seller to the Buyer due to:
- The ROT clause in the bunker supply contract;
- The fact that some / all of the bunkers supplied were likely to be consumed before the expiry of the credit period (property in such bunkers would then cease to exist);
- The permission given to the Buyer to consume the bunkers during such credit period; and
- The period of credit given to the Buyer before payment falls due;
Owners of theRES COGITANS have applied for permission to appeal the arbitration award.
In terms of South African law, the decision of English courts subsequent to 1 November 1983 (Colonial Courts Act) will be applicable insofar as they expound, with retrospective effect, on existing law. Our courts will, however, have regard to choice of law provisions in contracts. Where the supply contract does not stipulate the law to be applied (which is rare), then the proper law of contract must be determined in accordance with the applicable rules of private international law.
The court's surprising decision carries many consequences for the maritime and other industries due to the fact that:
- The vast majority of bunker supply contracts (as well as other contracts for maritime supplies) are similarly structured to the OW Bunker Terms & Conditions;
- It raises an ownership issue /question where ships are bunkered by charterers prior to redelivery under time charters and such bunkers are to be sold by the charterers to the owners on redelivery and then sold on by the owners to their next charterers; and
- Parties think they are entering into a sale and purchase contract, but the court is saying it is the same as a licence for the use the bunkers, meaning that the purchaser of bunkers does not have the statutory protection afforded to buyers under SOGA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.