PGPX LAB Course Pack 2020 Notes 2020-10-04 15 - 17 - 29

Notes in ‘PGPX LAB Course Pack 2020’
Notes in Document
'PGPX LAB Course Pack 2020':
Highlight: : The relevant part of the title retention clause reads like the below:
(PGPX LAB Course Pack 2020, p.66)
Highlight: : Rosneft Contract

Highlight: : The central question before the arbitrator, and later the courts, was whether
the contract was a contract of sale of goods. The arbitrator, applying the
definition of sale of goods concluded that the contract was not a sale of
goods. The ship owners challenged the award before the Commercial
Court.
Highlight: : The Sale of Goods Act, 1979 would apply to it. Within the Act, if a contract
does not provide on the transfer of ownership, the ownership would transfer
to the buyer when the bunker is delivered to the buyer.
Notes in Workspace:
Excerpt: Ownership Retention Terms in Sale Contracts Gone Astray: PST Energy 7 Shipping v O.W. Bunker
Malta Limited
Excerpt: In a seamless movement of goods, the seller was always at the risk of the buyer defaulting in paying
after getting the goods. The seller guarded against this by inserting a ‘title retention clause’ in the
contract.
Excerpt: The clause provides that the ownership in the goods would not transfer to the buyer till the seller is
fully paid.
Excerpt: In the event of default, the buyer retains the right to re-possess the goods. Exigencies of businesses
have taken the practices and terms further. Sale contracts protect the seller with a ‘title retention
clause’ and at the same time, facilitate the buyer by allowing him to use the goods before paying for
them.
Excerpt: the judgment of the United Kingdom Supreme Court in PST Energy 7 Shipping LLC, Product
Shipping and Trading S.A. v O.W. Bunker Malta Limited, ING Bank N.V.
Excerpt: A ship owner, PST Energy 7 Shipping LLC, procured fuel for the ship, and used it up
Excerpt: within the credit period without getting the ownership in the fuel. The ship owner ended up with two
claimants for the price, as the seller went insolvent and could not pay up the supply chain.
Excerpt: The OWBM Contract

Excerpt: PST Energy 7 Shipping LLC are the owners of the ship ‘Res Cogitans’.
Excerpt: PST Energy 7 Shipping LLC are the owners of the ship ‘Res Cogitans’.
Excerpt: On November 4, 2014, the ship was supplied 110 metric tons of gasoil and 1,000 metric tons of fuel
oil at the Russian port Tuapse, by a company, OW Bunker Malta Ltd.
Excerpt: The delivery happened under a contract the parties had entered into on October 31, 2014.
Excerpt: The shipping fuel is called ‘bunker’ in the shipping lingo.

Excerpt: The group has its general conditions of contract, Bunker Group's 2013 Terms and Conditions of sale
for Marine Bunkers on which the group companies supply bunker. We will call it the OWB terms.
Excerpt: The contract between the parties was on Bunker Group's 2013 Terms and Conditions of sale.
Excerpt: It was titled ‘Terms and Conditions of sale’ and the parties involved were described as ‘Seller’ and
‘Buyer’.
Excerpt: It was titled ‘Terms and Conditions of sale’ and the parties involved were described as ‘Seller’ and
‘Buyer’.
Excerpt: The contract was for the delivery of 110 metric tons of gasoil at the rate of US $848 per metric ton
and 1,000 metric tons of fuel oil at the rate of US $359 per metric ton.
Excerpt: The contract provided for it to be governed by English law with arbitration in London.
Excerpt: The contract also stated that the ship owners were to make their payment within 60 days from the
date of delivery of the bunkers.
Excerpt: The relevant part of the title retention clause reads like the below:
Excerpt: H. Title
Excerpt: H.1 Title in and to the Bunkers delivered and/or property rights in and to such Bunkers shall remain
vested in the Seller until full payment has been received by the Seller of all amounts due in
connection with the respective delivery. …
Excerpt: H.2 Until full payment of the full amount due to the Seller has been made … the Buyer agreed that it
is in possession of the Bunkers solely as Bailee for the Seller, and shall not be entitled to use the
Bunkers other than for
Excerpt: the propulsion of the Vessel, nor mix, blend, sell, encumber, pledge, alienate, or surrender the
Bunkers to any third party or other Vessel.
Excerpt: The clause prohibited re-sale of the bunkers or its conversion in any form. However, it gave express
permission to the buyer for consuming the bunkers for propulsion of the ship.
Excerpt: Rosneft Contract

Excerpt: It is common that the supply of bunkers happens through a chain of transactions.
Excerpt: OWBM, thus, had entered into a contract with its parent company OWBAS to buy the bunker.
OWBAS in turn had entered into a contract with a United Kingdom company, Rosneft Marine (UK)
Ltd (Rosneft). Rosneft had entered into a contract with its Russian subsidiary, RN-Bunker Ltd. to
buy the bunker. The Russian subsidiary came into the picture as the bunkers were to be supplied at
the Russian port. It is the Russian subsidiary, RN-Bunker Ltd., which had physically delivered the
bunkers to the ship.
Excerpt: The contract between OWBAS and Rosneft was on the standard contract terms of Rosneft.
Excerpt: It was also titled as a sale contract governed by English law subject to arbitration in London.
Excerpt: The contract gave a 30-day credit to the buyer and it too had a title retention clause. It declared:
‘Title to the Marine Fuels shall pass to the Buyer upon payment for the value of the Marine Fuels
delivered …’
Excerpt: The terms did not allow any use or conversion of the bunkers till the ownership transferred to the
buyer.
Excerpt: This was in contrast to the OWB terms which expressly allowed the use of the bunkers for
propulsion of the ship. Rosneft knew that it might be selling to a trader for resale and thus, did not
permit any conversion of the bunker or its use.
Excerpt: Insolvency of OWB and its effects

Excerpt: On 5 November 2014, OWBAS uncovered a major fraud committed by senior employees in a
Singaporean subsidiary of the company.
Excerpt: The group had also accumulated other losses. The total loss was estimated at about USD275 million.
The company, on 6 November, 2014, announced that it expected to be insolvent and was filing for
an in-court restructuring procedure. The group had a financing agreement with ING Bank NV.
Excerpt: The contract provided that the rights of OWBM to receive the money could be assigned to ING. The
ship owners had agreed to it. ING communicated to the ship owners that the price should be paid to
them.
Excerpt: Following the commencement of the insolvency proceedings, ING, acquired the right of OWBM to
recover the
Excerpt: debt from the ship owner.

Excerpt: In this while, RMUK too learnt of the insolvency. It realised that it might not receive payment from
OWBAS. The contract between RMUK and OWBAS, as stated earlier, had a title retention clause
with a 30-day credit period. By virtue of this, it continued to be the owner of the bunkers supplies to
the ship owners. On 17 November 2014, RMUK asserted to the ship owners that it remained the
owner of the bunkers and that the ship owners should pay them for it on the completion of the 30-
day credit period.
Excerpt: A part of the bunkers supplied got consumed by the 30th day and all of it by the 60th day. The ship
owners were in a quandary, with payment demands from two parties.
Excerpt: The ship owners had a contract with OWBM and not Rosneft. They could take only OWBM to
arbitration and not Rosneft. In early December 2014, the ship owners began arbitration proceedings
against OWBM and ING seeking a declaration that they were not bound to pay either of them for
the bunkers as OWBM had not passed the ownership in the goods.
Excerpt: [In a sale contract, the seller has a right to claim the price if the ownership has transferred. As the
property in the bunkers had not been passed to PST, it claimed that ING cannot raise a claim for the
price]
Excerpt: ING claimed payment of USD 443,800 as the sum due from
Excerpt: the owner.

Excerpt: ING contended that the contract was not a contract of sale of goods and the Act did not apply to it.
Excerpt: Within the contract terms, it was a simple obligation of the owner to pay the amount to ING. On the
expiry of the 60 day credit period, the amount became due and the owners must pay ING.
Excerpt: Commercial Court

Excerpt: … The ship owners argued that the contract was titled as a sale contract and described the parties as
buyer and seller. It contained terms which use the language of sale of goods. Further, all the cases of
bunkers trading had been recognised by the courts as a sale of goods. Thus, the contract was a
contract of sale of goods.
Excerpt: The court proceeded to examine the substance of the contract. A contract for supply of bunkers
without a retention clause is clearly a contract of sale of goods.
Excerpt: In this case, a permission to consume before payment is meaningless as the buyer has become the
owner and he is free to do what he likes with the goods.
Excerpt: The present problem arises ‘only because of the combination of a retention of title clause and the
imminent consumption or destruction of the goods.’
Excerpt: The court noted

Excerpt: … the whole object of a sale is to transfer property from one person to another. In the present case,
however, the combination of features listed above means that it cannot have been the object of the
contract to transfer property from OWBM to the Owners: both parties knew that this was unlikely
ever to happen. Even if it did, because some bunkers remained unconsumed after 60 days, that was
not fundamental to the transaction.
Excerpt: The Commercial Court concluded: In those circumstances it is difficult to conclude, in my

judgment, that OWBM undertook an obligation to transfer the property in the bunkers to the Owners.
There is no good reason why it should undertake an obligation which both parties knew that it was
unlikely to be able to perform. It is equally difficult to conclude that what the Owners were paying
for was the transfer of title to them, when both parties knew that this was unlikely ever to happen. It
stands to reason that what the Owners were paying for was not a title which they were never going to
get but something else.
Excerpt: The court noted: The first question is ‘What have the parties undertaken to do?’
Excerpt: The court noted the substance of the contract: The critical terms, in my view, are to be found in the
agreement for 60 days credit and in clauses which provide that property in the bunkers is not to pass
until they have been paid for in full but that the owners have the right to use them for the propulsion
of the vessel from the moment of delivery. In so far as the commercial context has any bearing on
the interpretation of these provisions, it is to be found in the fact that the parties contemplated that a
large part, if not all, of the bunkers would or might be consumed within 60 days of delivery and as a
result would cease to exist. … the extended period of credit for which the contract provided made it
more than usually likely that the majority of the bunkers would have been consumed by the time
payment became due. …The court was clear that it was not a contract of sale of goods. It was to be
governed by the common law principles of contract law. …
Excerpt: Court of Appeal The dispute came before the Court of Appeal. The court emphasised that while the
contract was cast as a contract for the sale of goods, one has to go with the rights and obligations the
parties have taken in the contract
Excerpt: Supreme Court The dispute came in appeal before the Supreme Court.
Excerpt: Thus, the contract was not a ‘straightforward agreement to transfer the property’ in the bunkers to
the owners for a price.
Excerpt: The court noted: 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 owners in return for the owners paying the price. But in this latter
connection it is to be noted that the price does not here refer to the price of the bunkers in respect of
which property was passing, it refers to the price payable for all the bunkers, whether consumed
before or remaining at the time of its payment.
Excerpt: [The Supreme Court concluded that the contract was not a sale of goods contract and PST was
required to pay to OWB. There was much discussion before the courts as to what should such a
contract be called. The conclusion was what matters is the substance of the contract not what one
calls it.]

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Notes in ‘PGPX LAB Course Pack 2020’

Highlight: : Rosneft Contract

Excerpt: The OWBM Contract

Excerpt: The shipping fuel is called ‘bunker’ in the shipping lingo.

Excerpt: Rosneft Contract

Excerpt: Insolvency of OWB and its effects

Excerpt: debt from the ship owner.

Excerpt: the owner.

Excerpt: Commercial Court

Excerpt: The court noted

Excerpt: The Commercial Court concluded: In those circumstances it is difficult to conclude, in my

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