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TESTING THE LIMITS OF INTERPRETATION

Lloyd's Maritime and Commercial Law Quarterly

TESTING THE LIMITS OF INTERPRETATION Liron Shmilovits * The Res Cogitans PST Energy 7 Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans) 1 was a contest between two arguably incredible propositions. On one side, the appellant shipowners submitted, by an ingenious argument, that they did not have to pay for bunker fuel which they had ordered, received and consumed. On the other side, the respondent oil suppliers countered that the Sale of Goods Act 1979 (“SGA”) did not apply to the supply contract. The Court of Appeal opted for the least implausible outcome, holding that the supply contract was not a contract for the sale of goods, and so the shipowners did have to pay for the fuel. In policy terms, the court’s reasoning challenges recent orthodoxy on contractual interpretation. The facts The respondent (the “Supplier”) contracted to supply oil to the appellant shipowners (the “Owners”) for a fixed price of US$443,800, payable within 60 days of delivery. The contract included a retention-of-title clause, whereby property in the oil would not pass until it was fully paid for. As security, this clause had little bite. The Owners were permitted by the contract to use the oil for the propulsion of the vessel, with the likely result that the security would be extinguished before the payment fell due. This fact would prove fateful. As per industry custom, the contract was the final link in a chain of supply contracts. The Supplier had bought the oil from its parent company, which had in turn purchased it from a company called Rosneft. The contract between Rosneft and the Supplier’s parent also contained a retention-of-title clause. The oil was delivered and, as expected, consumed before the expiration of the 60-day credit period. When payment day arrived, no payment from the Owners was forthcoming. Instead, the Owners commenced arbitration proceedings against the Supplier, seeking a declaration that they had no liability. The ingenious argument The Owners’ case was rooted in the consumable nature of the goods. It was argued that, because the oil had already been consumed by payment day, the retention-of-title clause meant that the property in the oil had never passed to the Owners. Since the Supplier had failed to pass title to the property, the Owners boldly contended, the Supplier had no action for the price under SGA, s.49(1). This sub-section provides that, in general, 2 “the seller may maintain an action … for the price of the goods” only if “the property in the goods has passed to the buyer”. Property never passed; ergo liability for the price never arose. 1. [2015] EWCA Civ 1058. 2. SGA, s.49 has two limbs, the second of which (in s.49(2)) is considered in the final paragraph of this Comment (“Day certain”). CASE AND COMMENT 21

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