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On appeal from: [2015] EWCA Civ 1058

The Supreme Court has unanimously dismissed the appellants’ appeal, in a case concerning the correct interpretation of a contract for the supply of marine fuel.

The first respondent OWB Malta contracted to supply marine fuel (“the bunkers”) to a vessel in Russia, owned by the appellants. The contract incorporated standard terms of business, including a clause requiring payment 60 days after delivery and a clause retaining ownership of the bunkers supplied until payment had been made. The contract also permitted the vessel to use the bunkers supplied from the moment of delivery.

The bunkers had been obtained by the first respondent through its parent company, which had in turn obtained it from another company. The parent company announced that it was applying to the Denmark courts for restructuring, which caused it to default under an agreement with ING Bank, the second respondent. Thus ING bank acquired the rights against the appellants.

While the bunkers were supplied, and used in the vessel’s propulsion, the appellants failed to make payment. The first respondent also failed to pay the company that had supplied the bunker to it. The supplier company thus asserted that it remained owner of the bunkers, and demanded payment from the appellants.

The appellants commenced arbitration against the respondents, seeking a declaration that they were not bound to pay for the bunkers, or seeking damages for breach of contract as the first respondent had not been able to pass the title to them, owing to the Sales of Goods Act 1979, ss 2(1) and 49. The arbitrators held that the contract had not contained an undertaking to transfer property under the contract, as the contract was not one for the sale of goods under the Sale of Goods Act 1979, s 2(1). The appellants were liable to pay the respondents.

The Supreme Court was asked to decide if it was correct to conclude that the contract did not qualify under s 2(1). Alternatively, it was asked to consider if there was an implied condition in the contract that the first respondent would pay its suppliers timeously.

Lord Mance gave the main judgment. He concluded that because bunker supplies are for use prior to payment, it was not a straightforward property transfer agreement under s 2. The agreement was unique as it provided for the consumption of the bunkers without the fuel’s title transferring to the appellants. In addition, it then required the transfer of the title of the remaining bunkers, once payment was made. The court considered that no contract of sale would actually exist if all bunkers were consumed before payment, as there would be no property remaining with a title to transfer.

There was no implied term regarding payment. The only implied undertaking was that the first respondent had the legal entitlement to give permission for the bunkers to be used.

For judgment, please download: [2016] UKSC 23
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court website (22 Mar 2016 morning session), (22 Mar 2016 afternoon session), (23 Mar 2016 morning session)