High Court Clarifies Meaning Of “Banking Days” In SALEFORM 2012

The High Court confirms how contractual deadlines should be interpreted under SALEFORM 2012 and the significance of local payment timing.

The High Court has provided important guidance on the interpretation of “Banking Days” in the Norwegian SALEFORM 2012, confirming that contractual deadlines are generally assessed by reference to midnight at the place of performance.

The decision provides welcome commercial certainty for parties involved in ship sale and purchase transactions, particularly where contractual definitions refer to multiple jurisdictions and time zones.

Background

The dispute arose from the sale of the MT Songa Coral under a Memorandum of Agreement (MOA) based on the Norwegian SALEFORM 2012.

Clause 3 outlined the payment provisions;

• 10% deposit was required to be paid to the escrow account in Norway
• The remaining 90% balance was to be paid into escrow one Banking Day before the expected date of delivery, to be held at the Buyers order only
• NOR would be given and
• The deposit and balance must be released from escrow to Sellers no later than three Banking Days after NOR.

The MOA defined banking days as;

“‘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).”

The Dispute

A NOR was tendered on 2 September 2022. The parties agreed, taking into account public holidays, that the three Banking Days in clause 3 expired on 8 September.

Once midnight on 8 September arrived in Norway, payment had not reached the escrow account. Just 9 minutes after midnight in Norway, the Sellers gave notice to cancel the MOA because of non-payment. The Buyers brought LMAA arbitration on the basis that Seller’s cancellation notice had been premature and invalid and that Buyer’s were not in default.

Buyer’s argued that the deadline was midnight in Hawaii. Therefore, the cancellation notice was served too early.

The Arbitration Decision

The Tribunal sided with the Buyers that the notice of cancellation had been served premature and should have been after midnight 8 September 2022 in Hawaii, which was the most westerly jurisdiction listed in the Banking Days Definition.

Appeal Under s69 Arbitration Act 1996 to the High Court

The High Court had to determine whether the Buyer’s had breached the MOA by failing to provide the purchase money by midnight Norwegian time on 8 September 2022.

The High Court allowed the appeal and held that the Sellers cancellation notice was valid.

The judge held that Banking days referred to calendar days, being a period of 24 hours.

Once 8 September 2022 was identified as the end date, the question was whether payment was made before midnight at the place of performance, which was in Norway. This was in line with Euronav NV v Repsol Trading SA 2022 1 Lloyds rep 247 the leading authority.

The judge said that if day was interpreted broadly, then a single day could last for 37 or 38 hours starting at midnight in the UAE and ending at midnight in Hawaii. This was not likely the intention of the parties and would not be what a reasonable person would interpret clause 3 to mean.

Key Considerations

• Payment deadlines will generally be assessed by reference to local time at the place where contractual performance is required.
• Commercial certainty is a fundamental objective of contractual interpretation.
• Courts are unlikely to adopt interpretations of contracts that create artificial or commercially impractical outcomes.
• Ship sale contracts and escrow agreements should be carefully drafted where parties intend deadlines to be determined by a particular time zone.
• Users of SALEFORM 2012 should carefully review standard definitions where multiple jurisdictions are referenced.
• The courts will favour a common-sense and commercially workable interpretation of contractual provisions.

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