Title Troubles - Commingled And Blended Petroleum

The transfer of title in petroleum products may not always be as straightforward as a supplier and buyer might hope. Petroleum is fungible in nature, and so can be freely mixed with other products possessing the same characteristics, with the result that it is not possible to distinguish the original components within the greater whole. The legal treatment of mixed petroleum products belonging to two or more individuals is always an issue when gas is transported in a multi-shipper pipeline, but is also relevant in LNG trading and gas storage. Express contractual provision can be made for situations in which petroleum is mixed with third party stocks (whether intentionally or otherwise), but where a transaction involves the buying or selling of part of a larger bulk of goods and that bulk consists of mixed goods owned by multiple parties, the various ownership claims to those goods may not always be clear, despite what has been agreed between the parties.

This article will consider how English law rules relating to title transfer have distinguished between commingled and blended petroleum quantities. It will go on to consider how terms implied by the Sale of Goods Act 1979 (as amended) (the "1979 Act") apply to petroleum supply contracts, as well as in the context of underground gas storage.

Ownership of mixed goods

The difficulties that can arise with multiple ownership claims over mixed fungible goods were first contemplated under Roman law. The doctrine of confusio concerned the mixing of liquids, which by their nature could not be readily separated after mixing (thereby preventing identification of the original constituent parts of the greater whole). On the basis that separation of the original goods was impossible, cases of confusio were deemed to give rise to co-ownership of the mixed bulk. This applied, for example, to wine. By contrast, commixtio concerned the mixing of solids, which were capable of retaining their physical identities after mixing. This characteristic allowed them to be physically separated and returned to their original owners. This applied, for example, to grain. In The Ypatianna1, the mixing of crude oil was held to be a case of confusio on the basis that, "for practical purposes", the mixture could not be separated.

Other matters that have been considered in relevant case law include whether a distinction should be drawn between consensual (i.e. expressly authorised under the supply contract) or accidental and non-consensual mixing. This distinction aimed to penalise the party responsible for the wrongful mixing and to protect the innocent party, and to this end the English courts have indicated that any doubt as to the quantity of a party's goods is likely to be resolved in favour of the innocent party.2 Additionally, where the respective contributions cannot be determined, the court may order that the entire bulk is to be held in equal shares3, as opposed to the less equitable alternative of ordering that ownership of the entire bulk rests with the supplier (which is unlikely to give effect to the parties' commercial objectives).

These early distinctions have helped to shape the legal position in relation to mixed goods today. Separability is no longer considered the deciding factor in determining title to mixed goods (as was applied under Roman law). Rather, what must be determined is whether the respective contributions of multiple owners of a mixed bulk can be identified.

Commingled and blended goods

Transfer of title rules under English law differ depending on the manner and extent to which goods belonging to two or more persons are mixed together. Case law has drawn a distinction between the mixing of goods falling within the following categories:

commingled goods - involves the mixing of homogenous goods, which maintain their identity after mixing. The specific goods themselves remain unaltered but it is impossible to identify the precise components within the greater bulk; and

blended goods - involves the mixing of heterogeneous goods...