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 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.

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.