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 (see “Retention of title – Dangers as well as benefits where goods are intended for consumption or onward sale by the buyer.” and “Retention of title – Appeal of PST Energy. v O.W. Bunker“). The UK Supreme Court has now given judgment in the O.W. Bunker case1.
The case concerned the supply of bunkers (fuel oil) to a ship. The bunker supply agreement included a retention of title (“ROT”) clause whereby (a) title to the bunkers delivered should remain vested in the seller (the bunker suppliers) until full payment had been received by the seller of all amounts due in connection with the respective delivery and (b) pending payment the buyers (the vessel owners) should be in possession of the bunkers solely as bailees (custodians) for the seller but with a right to consume them for the propulsion of the vessel.
Subsequently the bunker suppliers applied to the court in Denmark to restructure. The vessel owners never paid for the bunkers that had in the interim been entirely consumed.
The vessel owners defended a claim for the price of the bunkers on the grounds that under the wording of Section 49(1) of the Sale of Goods Act 1979 the right to bring an action for the price was conditional on the title to the goods having passed. In the present case the bunkers were consumed before title could pass in accordance with the ROT provisions and thus there was no right to claim the price.
The Supreme Court Judgment
The judgment contains two points that are of wider interest:
- The nature of the contract
The Supreme Court concluded that the bunker supply contract in this case was not by its nature a contract for the sale of goods within the scope of the Sale of Goods Act 1979. Rather it was in substance an agreement with two aspects:
first, to permit consumption prior to any payment and without any property ever passing in the bunkers consumed; and,
second, but only if and so far as bunkers remained unconsumed, to transfer the property in the bunkers so remaining to the vessel owners in return for the vessel owners paying the price.
Accordingly the contract was sui generis (of its own kind i.e. unique) and thus outside the scope of the Sale of Goods Act. Accordingly the owners could not rely on Section 49 of the Sale of Goods Act to defend the claim for the price of the bunkers.
- The position if the contract had been one of sale – Can claims for the price of goods be made other than under Section 49 of the Sale of Goods Act?
The Supreme Court also stated that if this contract had been a contract of sale subject to the Sale of Goods Act then it would have held that Section 49 is not a complete code of situations in which the price may be recoverable under a contract of sale, and that in the present case the price was recoverable by virtue of its express terms in the event which has occurred i.e. the complete consumption of the bunkers supplied. In arriving at this conclusion it overrules the decision of the Court of Appeal in Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd2 to the effect that a claim for the price could only be made under Section 49 (see “Retention of title – Dangers as well as benefits where goods are intended for consumption or onward sale by the buyer.“).
This decision reinforces the earlier conclusion that ROT provisions should be considered carefully when included in contracts for the supply of goods where consumption or onward sale is contemplated. This case illustrates how such ROT provisions may have serious unintended consequences.
1PST Energy 7 Shipping LLC & Anor v OW Bunker Malta Ltd & Anor  UKSC 23
2 Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd  EWCA Civ 1232