A recent case has highlighted the issue of retention of title clauses not providing the protection to a seller as intended. Maurice Lynch, Associate, looks at Angara Maritime Limited v Oceanconnect UK Limited and the implications.
Angara Maritime Limited, the owner of the MV “Fesco Angara”, time chartered this vessel to Britannia Bulkers A/S in July 2008. The time charterparty contained a standard term providing that charterers on delivery, and owners on redelivery, shall take over and pay for all bunkers remaining on board the vessel.
In September 2008, Oceanconnect sold bunkers to the charterers Britannia. The contract contained a retention of title clause which provided that Oceanconnect retained title to the bunkers in the event Britannia did not pay for the bunkers. The bunkers were delivered in October 2008, and Britannia were invoiced for $177,305.59. Britannia failed to pay the invoice issued by Oceanconnect.
In late October 2008, due to financial difficulties, Britannia were forced to redeliver the MV “Fesco Angara” to Angara Maritime. Upon redelivery, Angara gave credit to Britannia of $235,705 being the value of the bunkers remaining on board at the time of redelivery.
Angara commenced proceedings in the High Court of Justice in England, seeking a declaration of non-liability for payment to Oceanconnect of an amount of $177,305.39, being the value of the bunkers supplied by Oceanconnect to the time charterer, Britannia. Oceanconnect counter claimed for conversion in the sum of $177,305.39.
- Whether Angara were liable in conversion, considering that Oceanconnect’s contract with Britannia contained a retention of title clause.
- Whether despite the retention of title clause, Angara could rely on Section 25(1) of the Sale of Goods Act 1979 (UK) which provides that where a person buys goods from a seller, and then delivers or transfers those goods to a person receiving them in good faith, and without notice of any lien or right of the seller in respect of those goods, the person to whom the goods are transferred or delivered will acquire good title to those goods.
- Whether Angara were liable for breach of their duties as bailee.
It was alleged by Oceanconnect that in circumstances where Oceanconnect retained title to the bunkers, Angara, as owners of the vessel, became bailee when the bunkers were delivered to the vessel, and had a duty as bailee to return the bunkers to Oceanconnect in the same good order and condition as received. It was further alleged that they breached this duty when they consumed the bunkers.
The High Court held Angara had no liability to Oceanconnect due to the operation of section 25(1) of the Sale of Goods Act 1979 (UK) which protects it from what would otherwise be a claim for conversion. There are equivalent provisions to section 25 of the UK Sale of Goods Act in Australian domestic legislation. These provisions are section 28 in the Sale of Goods Act 1923 (NSW), section 27 in the Sale of Goods Act 1896 (QLD), section 30 of the Goods Act 1958 (VIC) and section 25 of the Sale of Goods Act 1895 (SA).
The High Court outlined the test for determining whether section 25 is applicable. The test comprises the following 4 steps:
1. Did the person who bought the goods obtain possession with the consent of the seller?
Britannia, the purchaser under a contract of sale, obtained possession of the goods with the consent of the seller, Oceanconnect, at the time the bunkers were delivered to the MV “Fesco Angara”.
2. Was there delivery within the meaning of section 25? That is, delivery from the purchaser or a mercantile agent for the purchaser to another person.
The court held this requires a voluntary act by the buyers in possession and that as a question of fact, redelivery of a vessel by a charterer constitutes such an act.
3. Were the goods received in good faith without notice of any lien or right of the original sell in respect of the goods?
Considering the bunkers were purchased by Britannia, it was not possible for Angara to have any prior knowledge of Oceanconnect’s terms and conditions, in particular its retention of title clause. Accordingly, Angara received the bunkers in good faith, and without notice of Oceanconnect’s title to the goods because there was nothing to put Angara on enquiry of this title.
4. If the first 3 steps are satisfied, what is the meaning of the last portion of section 25 stating “has the same effect as if the person making delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner?
This portion of section 25 requires a person to be acting as if they were a mercantile agent. Here, the delivery of the bunkers was pursuant to a sale following the redelivery of the vessel under the charterparty. Accordingly, section 25 had been satisfied and Angarra acquired title to the bunkers upon redelivery of the vessel.
The court also held Oceanconnect had no claim in bailment against Angara because the delivery of the bunkers was to Britannia as bailee. The bunkers were held by Brittannia as bailee and by Angara as sub-bailee on terms. Angara were entitled to rely upon the terms of the contract between them and Britannia under which the sub-bailment of the bunkers took place, and Oceanconnect were to be taken as having consented to Britannia sub-bailing the bunkers on the terms of the charterparty which required Britannia to provide and pay for the fuel. Accordingly, these terms provided Angara with a full defence to Oceanconnect’s claim.
From a seller’s perspective, persons receiving goods in good faith from a buyer who has not paid for the goods when the contract contains a retention of title or lien clause, must be aware that for section 25, or the equivalent Australian sections to apply, the goods must be received by means of a voluntary act. Accordingly, if charterers had breached the contract, and owners obtained a court order for the redelivery of the vessel, and credited charterers for the value of the bunkers remaining on the vessel at the time of redelivery, there would not have been a voluntary act by the buyers in possession of the bunkers amounting to delivery. In these circumstances, it is arguable owners would not be able to rely upon section 25, or the equivalent sections in Australian legislation and would be liable for Oceanconnect’s claim.
This decision is also a reminder that when there is a sub- bailment on terms, the third party is subject to both the benefits and burdens of that contract. This is evident in the fact that Oceanconnect, although not party to the time charterparty, was caught by its provisions when it entered into a bailment contract with Britannia who then sub-bailed the bunkers to Angara.