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Bunker supply contracts: incorporation, variation and assignment

18.07.2019 Maritime

Antonia Jackson

Antonia Jackson Partner

Cockett Marine Oil v. ING Bank and another (Ziemia Cieszynska and Manifesto) [2019] EWHC 1533 (Comm)

In an unsuccessful appeal from two arbitration awards, on the grounds that the Tribunal had no jurisdiction, the Court has considered the incorporation and variation of standard terms in the context of bunker supply contracts.

The background facts 

The claim was for amounts due in connection with the supply of bunkers. In relation to: (a) the Ziemia Cieszynska, Cockett Marine purchased bunkers from OW Bunker Malta, who in turn purchased the bunkers from Eko Marine Fuels (“Eko”); and (b) the Manifesto, Cockett Marine purchased bunkers from OW Bunker Middle East, who in turn purchased the bunkers from GS Caltex. 

In the arbitration, the Tribunal had held that it had jurisdiction over the dispute because the relevant bunker supply contracts incorporated a London arbitration clause. 

The Court was asked to consider the following issues: 

  1. In respect of both sales, whether the OW Bunker Group’s (“OWBG”) 2013 set of standard terms and conditions (“2013 STCs”) were expressly incorporated into the contracts of sale, thereby incorporating the London arbitration clause; 
  2. In respect of the Manifesto sale only, whether the 2013 STCs were incorporated by way of course of dealing; and
  3. In respect of both sales, if the 2013 STCs were incorporated:
    • Whether any of the 2013 STCs were varied so as to exclude the London arbitration clause because the actual or physical supplier of the bunkers insisted that its terms (which did not include a London arbitration clause) governed the contracts between the relevant OWBG entity and the relevant Cockett entity; and 
    • Whether Cockett Marine could challenge the finding that there was a valid assignment of OWBG’s claim to ING Bank. 

The Commercial Court decision 

The first issue – express incorporation of the 2013 STCs 

In 2013, OWBG altered their terms and conditions so as to provide for English law and London arbitration. The Court accepted, as a finding of fact, that the 2013 STCs had been brought to the attention of Cockett Marine. 

In respect of the Ziemia, a dispute arose as to when the contract was concluded and whether the 2013 STCs were incorporated. Cockett Marine argued that the contract was concluded by an email stating “we confirm our order”. While the Court agreed that these words were capable of amounting to acceptance, it noted that Cockett Marine had subsequently added additional terms and requested a copy of OWBG’s terms and conditions. This strongly suggested that Cockett Marine did not consider that the parties had already concluded a binding agreement. The Court referred to the situation whereby parties continue to negotiate after they appear to have reached agreement and where, in these circumstances, the Court may look at the entire course of the negotiation to decide whether an apparently unqualified acceptance does in fact amount to a binding agreement. 

The Court also held that OW Malta’s response confirming the order “as per the attached Sales Order Confirmation” (“SOC”) was not an unqualified acceptance of the nomination. While it was expressed as a confirmation of an order, the SOC added additional terms and was, therefore, strictly speaking a counter-offer. The counter-offer (which referred to the 2013 STCs incorporating the London arbitration clause) was subsequently accepted by Cockett Marine’s conduct of accepting the bunkers. 

In respect of the Manifesto, the Court found that while the parties’ exchanges relating to the agreement of the quotation did not mention the 2013 STCs, the subsequent exchange of nominations and SOC requesting a copy of the 2013 STCs did. The Court held that the exchanges must be considered together and objectively, and ruled that the standard terms were incorporated. 

Accordingly, the Court found in both instances that the London jurisdiction and arbitration clause was incorporated and that the Tribunal had jurisdiction to hear the dispute. 

The second issue – incorporation of the 2013 STCs by course of dealing 

Although it did not strictly need to deal with the point, the Court considered whether the 2013 STCs could have been incorporated by way of course of dealing. In respect of the Manifesto, there had been nine previous trades and, in each SOC, the SOC provided that the sale and delivery were subject to the 2013 STCs, providing a hyperlink to the terms themselves. The Court held that a reasonable person viewing those trades would conclude that the 2013 STCs were to govern the parties’ relationship. Furthermore the Court ruled that the reference without objection to the 2013 STCs in each of the previous nine trades was sufficient to indicate acceptance of those terms. 

The third issue – whether any of the 2013 STCs had been varied 

Clause L4 of the 2013 STCs provided that “where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions”, the 2013 STCs shall be varied accordingly. The question was therefore whether any of the terms had been varied. 

The Court held that the purpose of Clause L4 was that, where bunkers are supplied by a third party and the third party insists that the buyer is also bound by the third party’s terms, OWBG’s terms and conditions would be varied accordingly. The Court rejected the argument that clause L4 was intended to enable OWBG’s position to be back-to-back with the third party’s terms and conditions. Rather, the commercial objective of Clause L4 was to provide a mechanism by which OWBG could give effect to something that its third party supplier might insist on. In respect of the Ziemia, Eko’s terms did not insist that OW Malta must also be bound by Eko’s terms and there was no variation. Similarly in respect of the Manifesto, GS Caltex’s terms did not amount to an insistence that their terms should apply not only to the buyer from it, i.e. OW Middle East, but also to OWB’s buyer and again there was no variation. 

The final issue – whether there was a valid assignment of OWBG’s rights to ING Bank 

Finally, the Court found that there was a valid assignment to ING of OWBG’s rights under the bunker supply contract. The Supreme Court ruling in Res Cogitans [2016] had been relied on to argue that OWBG’s supply contracts were not contracts for the sale of goods within the meaning of the Sale of Goods Act 1979 and that, therefore, the assignment could not have been effective because it applied only to “Supply Contracts” “relating to the sale of oil products traded by the [OW] Group”. The Court disagreed and held that the parties to the agreement had assumed that OWBG’s supply contracts were contracts of sale and that they had intended that the security provisions of the contract applied to them. There being a valid assignment in favour of ING, there was a valid arbitration agreement between ING and Cockett Marine and as such, the arbitrators had jurisdiction to make an award in favour of ING. 

Comment 

This case is a helpful reminder that when considering the conclusion of a contract, the Court will look at the entire course of the negotiations objectively and a seemingly unqualified acceptance, upon closer examination, may just be another step in the negotiations. Given this, best practice for commercial entities seeking to trade on the basis of their standard terms and conditions may be to refer expressly to those terms and conditions and to attach a copy to all relevant correspondence. Banks seeking to enforce their rights by way of assignment should be comforted by this decision, as the Court has confirmed it that will look at the intentions of the security provisions when considering their application.

This article was co-authored by Hope Wilkins, first year trainee solicitor at Ince

Article authors:

Antonia Jackson