When Is A 'Contract For The Sale Of Goods' Not A Contract Of Sale Of Goods?

A recent decision in the English Commercial Court has potentially significant ramifications for the shipping and trading industry.

This decision will be of interest to:

Those involved in the fallout from the recent bankruptcy of OW Bunker A/S Parties entering into any contracts with the characteristics identified below who assume they are contracts of sale of goods to which the Sale of Goods Act 1979 (the Act) applies The court has determined the impact of retention of title clauses in contracts on credit terms and provided important guidance on deciding whether a contract for the supply of bunkers is a sale of goods contract.

Contracts for the supply of bunkers Participants in the shipping and trading industry will be familiar with the typical contract terms under which a supplier of bunkers contracts with a shipowner or operator. Such a contract often includes the following:

1. A retention of title (ROT) clause in favour of the supplier until payment

2. A provision that payment will be due a fixed number of days after delivery (or a credit period)

3. Express permission for the shipowner to consume the bunkers in the meanwhile as the vessel goes about its business

Parties entering into such contracts are aware that, due to the very nature of what is being supplied and the purpose of the bunkers, the subject matter of the contract (i.e. the bunkers) may well be consumed in whole or in part before payment is due.

The following question therefore arises: is this type of contract a contract of the sale of goods?

This is important because the Act, which as its name suggests only applies to contracts of the sale of goods, imposes certain requirements that must be satisfied before a seller can sue for the price of goods, as well as other important obligations such as the implied terms regarding title, description, quality and fitness for purpose and other rights. In many cases, the parties assume that the Act will apply, so avoiding the need for express clauses. This may now need re-evaluation.

The facts The dispute concerned a contract entered into between the owners of the vessel "Res Cogitans" and OW Bunker Malta Ltd (OWBM), a company within the OW Bunker group, for the supply of bunkers to the vessel.

The contract was governed by English law and included a retention of title clause. Payment was due to be made within 60 days of the date of delivery upon presentation of OWBM's invoice. OWBM's right to receive payment had been assigned to ING Bank NV.

As is common for such contracts, OWBM did not supply the bunkers itself but entered into a similar contract with another company (a subsidiary of OW Bunker A/S), which in turn placed an...