We earlier commented on the issues concerned with retention of title clauses in the context of the sale of items expected to be consumed before the passing of title (“Retention of title – Dangers as well as benefits where goods are intended for consumption or onward sale by the buyer.“). One case referred to concerned the sale of bunkers for on board consumption. This case has now been considered by the Court of Appeal1 which has upheld the decision of the High Court and confirmed that such contracts are not contracts for the sale of goods within the scope of the Sale of Goods Act 1979.
Section 2(1) of the Sale of Goods Act 1979 provides:-
“A contract of sale of goods is 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.”
Section 49(1) relates to an action for the price and provides:-
“Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.”
In its judgment the Court of Appeal stated:
“Whatever label one attaches to the contract (and I see nothing incongruous in describing it in commercial terms as a contract for the sale of goods), its essential nature is in my view reasonably clear. It is a contract under which goods are to be delivered to the owners as bailees (i.e. custodians) with a licence to consume them for the propulsion of the vessel, coupled with an agreement to sell any quantity remaining at the date of payment, in return for a money consideration which in commercial terms can properly be described as the price.”
Such a contract was outside the scope of Sections 2 and 49 of the Sale of Goods Act 1979 and accordingly there could be no claim for the price under the terms of that statute.
The Court of Appeal accepted that there could be contracts which might be described in commercial terms as contracts for the sale of goods but are contracts to which the 1979 Act does not apply. The delivery of bunkers with a licence to consume them was just such a contract. Once the bunkers were delivered, the owners incurred an obligation to pay and were not released from that obligation by the fact that the sellers of the bunkers were unable to (and did not) transfer title before they were consumed.
This conclusion is relevant to contracts for the sale of consumable items e.g. fuel or raw materials. As stated previously if parties wish to have a deal that by its nature may fall outside the Sale of Goods Act (as in PST Energy v OW Bunkers) then it may be best to recognise this and spell out precisely the nature of the deal and detail when the price or other consideration is due for payment. It should be noted that if the various provisions in the Sale of Goods Act do not apply then these may need to be covered expressly in the contract.
1 PST Energy 7 Shipping LLC & Product Shipping & Trading S.A. v O.W. Bunker Malta Ltd & ING Bank N.V.  EWCA Civ 1058