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"The timing of performance is determined according to the local time at the place where the payment obligation is to be performed."
The decision clarifies how payment deadlines should be assessed where banking days are defined by reference to multiple jurisdictions. Songa confirms that, absent clear wording to the contrary, the timing of performance is determined according to the local time at the place where the payment obligation is to be performed.
Factual background
Under the memorandum of agreement (“MOA”), the sellers agreed to sell MT “Songa Coral” to the buyers for US$25m.
The payment provisions at clause 3 provided that:
- 10% deposit was due to be paid to the escrow account at Nordea Bank in Norway;
- 90% balance of the purchase price was due to be paid into the escrow account one Banking Day before the expected date of delivery, held to the buyers’ order;
- NOR would be given; and
- the deposit and the balance of the purchase price must be released from escrow to the sellers no later than three Banking Days after NOR.
Banking Days was defined in the MOA as the days banks were open in certain listed locations:
“‘Banking Days’ are days on which banks are open both in the country of the currency stipulated for the Purchase Price in Clause 1 (Purchase Price) and in the place of closing stipulated in Clause 8 (Documentation) and United States of America, Canada, United Kingdom, Switzerland, Turkey, UEA [sic], Greece, Norway (add additional jurisdictions as appropriate).” (para 6)
The various jurisdictions spread across different time zones and the parties disagreed as to when the final Banking Day expired in relation to a dispute as to whether the purchase price had been paid on time.
The Timeline
The following events took place, leading to the dispute before the Commercial Court:
- NOR was tendered on Friday, 2 September 2022;
- as the following days were weekend days and Monday 5 September was a public holiday in the US and Canada, the relevant three Banking Days were 6, 7 and 8 September;
- it was accepted by the parties that the three Banking Days identified in clause 3 of the MOA expired at the end of 8 September;
- by midnight in Norway on 8 September, payment had not been made by release from the escrow account;
- nine minutes after midnight, the sellers gave notice to cancel the MOA due to non-payment;
- however, midnight in Norway was not midnight in all parts of the world covered in the MOA;
- on this basis, the buyers asserted they were not in default and the sellers’ cancellation notice was premature and invalid; and
- the buyers commenced LMAA arbitration.
Arbitration
The key issue for the tribunal was whether the buyers breached the MOA by failing to provide the agreed purchase money by midnight Norwegian time on 8 September 2022.
The arbitrators sided with the buyers’ arguments. In their partial final award, the arbitrators held that the notice of termination was served too early and that the buyers could only have been in breach if the funds had not been paid by midnight on 8 September 2022 in Hawaii (the most westerly jurisdiction listed in the definition of Banking Days).
The tribunal held that the definition of Banking Days was determinative as to the start and end of a day. It therefore held that the time for performance under clause 3 expired at midnight at the end of 8 September 2022 in Hawaii. Applying principles of ordinary contractual construction, the tribunal was “unable to see how the words used, when reading the definition of ‘Banking Days’ into clause 3, could properly be said to give rise to any other meaning” (para 15).
Although the tribunal recognised that this displaced the prima facie presumption that an obligation to be performed in a particular place must be performed by midnight there, it took the view that the express language in the definition displaced that usual presumption.
Appeal to English High Court
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"The tribunal held that the definition of Banking Days was determinative as to the start and end of a day."
The sellers appealed on a point of law under section 69 of the Arbitration Act 1996. They argued before the High Court that the MOA’s definition of “Banking Days” identified which calendar days qualified as Banking Days but did not define when a day began or ended.
The sellers’ appeal was allowed. The court held that the sellers’ notice to cancel was valid.
The court assessed what the definition as applied in clause 3 would convey to the reasonable person:
“The definition of “Banking Days” does not purport to tell one what is meant by “day”, nor broaden that word’s ordinary meaning, nor fix its start or its end. It takes all that for granted… The “definition” of “Banking Days” does not tell us what a day is, or when it starts or finishes. It simply tells us which calendar days… count as Banking Days: that some calendar days are Banking Days, and other calendar days are not.” (para 24)
In reaching his conclusion, the judge considered several factors and took the view that “Banking Days” in the MOA referred to calendar days. He held that the tribunal had erred in treating the definition of “Banking Days” as determining the start and end of a day and that decision was incorrect in law. Once 8 September 2022 had been identified as the relevant day, the question was whether payment was made before midnight local time at the place of performance, Norway.
The judge explained that a broad reading of the definition would risk producing a “day” which lasts for 37 or 38 hours (depending on the time of the year), starting at midnight in the UAE and ending at midnight in Hawaii. He considered it unlikely that the parties intended to create a “day” in which the various jurisdictions noted in the definition would pass through three different calendar dates, potentially creating significant contractual uncertainty.
Further, in the judge’s view, the MOA used relative and not absolute terms – it did not define a fixed calendar date, but one that was calculated by reference to an interval.
Ultimately, the judge explained that the logical place to look to in identifying where a day began and ended was where the act in question has been or is to be performed (following the leading authority of Euronav NV v Repsol Trading SA (The Maria) [2022] 1 Lloyd’s Rep 247). In this case the obligation to release the balance of the purchase price was to be performed in Norway.
Key takeaways
Songa provides the following helpful practical takeaways:
"A broad reading of the definition would risk producing a “day” which lasts for 37 or 38 hours."
- payment deadlines will ordinarily be assessed by reference to local time at the place of contractual performance;
- definitions of “Banking Days” generally identify which days count towards a contractual period rather than when a day begins or ends;
- commercial certainty remains an important principle of contractual interpretation;
- courts are unlikely to interpret standard wording in a manner that creates artificial multi-time-zone “days” lasting more than 24 hours;
- ship sale contracts and escrow arrangements should be drafted carefully where parties intend for a deadline to be determined by reference to a particular time zone;
- parties using Saleform 2012 should carefully review payment and deadline provisions to avoid future disputes; and
- English judges will seek to give effect to business common sense and courts will adopt a logical approach, especially where there is an “international dimension”, as per paragraph 39 of the Songa judgment: “It is trivially true that since a given calendar day ends at different times in different places, then in a contract with any significant international dimension, there may be room for debate if the precise moment is not in some way specified.”
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