October 2016 Credit Management magazine

OPINION
BUNKER
MENTALITY
Although contractual retention-of-title clauses can give credit managers
some comfort that debts are secure, they do not fit every situation.
Peter Walker explains why with the case of Res Cogitans.
WHEN the tanker Res Cogitans refuelled,
the judges of the Supreme Court
needed more than philosophy and the
Sale of Goods Act 1979 to sort out the
subsequent confusion.
Res Cogitans, a thinking thing: part of the mentalsubstance
theory of the philosopher Descartes in his
Principia Philosophiae, but it was also the name of a
ship giving thinking lawyers some problems in the
courts. In PST 7 Shipping LLC v OW Bunker Malta Ltd
[2016] 2 WLR 1193, Lord Mance in the Supreme Court
summarised: ‘Despite the significance of her name in
Cartesian philosophy, the vessel Res Cogitans depends
on bunkers.’ On the same theme he referred to ‘a
degree of metaphysical complexity to commonplace
facts’.
The facts were important because they included
an insolvency, and they required interpretation in the
light of the Sale of Goods Act 1979. But, firstly, there
were the bunkers variously of gas oil and fuel oil to be
loaded on the Res Cogitans, and they were intended for
the propulsion of the vessel. In this first contract, the
price was to be some US$416,000 to be paid 60 days
after delivery. There were subsequent contracts for the
supply of bunkers for delivery at various ports.
The supplier of the bunkers had obtained them
from its parent company, which became a member of
an insolvent group of companies. That supplier had
obtained the bunkers from another company, which
itself had purchased them from an associate in the
Russian port of Tuapse on Russia’s Black Sea coast. The
parent company applied to a court for restructuring.
In this complicated situation there appeared a bank
claiming as an assignee of any claim that the supplier
may have had against its parent company.
There were therefore many contracts up to and
including the supply of the bunkers to the Res Cogitans.
The latter sale agreement was governed by English
law. Delivery was complete when the bunkers reached
the hoses, etc. provided by the seller onto the barge
or shore tank, etc. Of more importance to the seller’s
credit managers was that property rights were reserved
to the seller. The buyer possessed the bunkers as bailee,
and was not entitled to use them other than for propulsion
of the vessel. A bailee holds goods for a bailor, such
goods to be returned to the bailor, or until the purpose of
the bailment has been achieved. In this instance the buyer
was not entitled therefore to sell, etc., the bunkers to any
third party until it had been paid. Lord Mance concluded
that this was subject to the ship owners’ right to use them
for the vessel itself.
The seller too had bought the bunkers, and the
supplier was concerned about getting the price. It
insisted that the seller was a bailee until payment, but
recognised that the fuel could be mixed with other fuel
oil. In that case the title to the mixture was limited to the
portion representing the contractual quantity. According
to Lord Mance the supplier was aware that the oil was
to be resold at a profit. Other sellers in the supply chain
agreed to sell the bunkers in accordance with the contract
just mentioned between the seller and its supplier.
The owners of the vessel
commenced arbitration
proceedings, because they
claimed that there was no
liability to pay either the
supplier or the bank.
26 October 2016 www.cicm.com
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