Boskalis Offshore Marine Contracting BV -v- Atlantic Marine and Aviation LLP [2019] EWHC 1213 (Comm)

In this case, the court had to consider a short point on the interpretation of clause 12(e) of the BIMCO Supplytime 2017 Charterparty for offshore support vessels in relation to timing of payment and invoicing.

Factual background

The “ATLANTIC TONJER” was a multi-purpose support vessel, which on 9 April 2018 Atlantic Marine and Aviation LLP (as disponent Owners) chartered to Boskalis Offshore Marine Contracting BV (the Charterers) for 21 days, plus 21 daily options in the Charterers’ favour under the BIMCO Supplytime 2017 form (the Charterparty which included an addendum dated 22 May 2018).

The Charterparty, contained in Part I a number of boxes which the parties had to complete. In this case, hire was agreed at €35,050 per day (box 20); invoices were to be issued 14 days in arrears (box 22); payment of hire etc. was to be made 21 days after that (box 24); and the maximum audit period chosen was four years (box 26).

Part II of the Charterparty contained standard clauses, which in this case were modified in various respects. Clause 12 was headed ‘Hire and Payments’; clauses 12(e) and (g) were as in the original form. They read in their relevant parts as follows:

 ‘(e) Payments - Payments of hire, fuel invoices and disbursements for the Charterers’ account shall be received within the number of days stated in Box 24 from the date of receipt of the invoice. Payment shall be received in the currency stated in Box 20(i) in full without discount or set-off […]

‘If the Charterers reasonably believe an incorrect invoice has been issued, they shall notify the Owners promptly, but in no event no later than the due date, specifying the reason for disputing the invoice. The Charterers shall pay the undisputed portion of the invoice but shall be entitled to withhold payment of the disputed amount. […]

‘(g) Audit — The Charterers shall have the right to appoint an independent qualified accountant to audit the Owners’ books directly related to work performed under this Charter Party at any time after the conclusion of the Charter Party, up to the expiry of the period stated in Box 26, to determine the validity of the Owners’ charges hereunder. […] Any discrepancies discovered in payments made shall be promptly resolved by invoice or credit as appropriate.’

In due course, the Owners rendered invoices for hire and other services amounting to €1,475,029.26 and £42,683.04. The Charterers did not pay the invoices and these remain unpaid. The Charterers raised an off-hire defence, namely, that the largest item in dispute (€1,115,276.30) was not due because the vessel was off-hire throughout.

The Owners commenced LMAA arbitration and applied to the Tribunal for a partial final award on their invoices.

The Tribunal found that the Charterers had not challenged any of the invoices before their due date for payment and that the proper construction of clause 12(e) meant that the Charterers had to pay the invoiced amounts. In the Tribunal’s view, the focus of clause 12(e) was on the Owners’ cash flow. This much was apparent from the provision that payment was to be received ‘in full without discount or set-off’, the intention plainly being that the Owners should receive payment in the first instance for sums to which it might be ultimately proved not to be entitled because the Charterers had a valid counterclaim which, but for this provision, would operate as a defence or set-off. A similar intention was apparent in clause 12(g) which provided that the validity of the Owners’ charges could be re-opened up to four years after the conclusion of the Charterparty.

The Tribunal held that clause 12(e) gave the Charterers a relatively short period of 21 days within which to dispute an invoice (although the length of that period was a matter for negotiation between the parties). Once that period had expired, the Charterers were under an obligation to pay any undisputed sum to the Owners, whether they were liable for such sums or not, and disputed sums were left over to be subsequently resolved. The Charterers’ obligation to pay any undisputed sum to the Owners was also subject to their right to subsequently challenge their liability for such sums either by requiring an audit under clause 12(g) and a credit (if appropriate) or by way of a counterclaim.

In the Tribunal’s view, the only ground upon which the Charterers might be entitled thereafter to seek any form of reimbursement in respect of a sum which they had paid, whether voluntarily or pursuant to an award, in respect of an undisputed invoice; would be if the Charterers had a counterclaim in respect of the financial loss resulting from such payment, or if they were entitled to recover any such sum in the exercise of the audit rights.

Permission to appeal was granted under section 69 of the Arbitration Act 1996 on two questions of law:

Question 1: Did clause 12(e) on its proper construction debar the Charterers from raising defences against the Owners’ invoices if and to the extent that they had failed to notify the Owners that they believed those invoices to be incorrect because of those defences by the due date of those invoices?

The judge held that clause 12(e) was clear and unambiguous. A reasonable person with the background knowledge available to the parties at the time of the contract would understand that invoices had to be paid within 21 days of their being received. (With invoices being issued in arrears that meant a maximum of 35 days after the invoiced expenses were incurred.)

Those time periods had been negotiated by two commercial parties. There was no suggestion that they were not of equal bargaining power in the shipping market. Even a small period of challenging the invoice within two or three business days, which was given as a hypothetical example by the Charterers, would have been a period freely negotiated and determined by express agreement. In any event, clause 12(e) did not preclude the Charterers from bringing claims (in that case the counterclaim referenced by the Tribunal) or withholding payment (that being subject, of course, to notice being given, so that if no notice was given a defence to payment could not be raised). What clause 12(e) required was prompt payment or prompt identification of any issue preventing payment.

Therefore, if the Charterers reasonably believed that there was an error in the invoice they could withhold payment of the disputed amount by notifying the Owners within the period they had agreed in the contract. They also had the audit rights under clause 12(g) to reclaim amounts paid through accounting-type errors (wrong hire rate, wrong number of meals and so) up to four years ahead. Further, as the Tribunal correctly concluded, the Charterers could always bring a counterclaim if they had paid sums which they later believed were not properly payable. Counterclaims in this context would include a claim for breach of contract or one for unjust enrichment.

This interpretation of clause 12(e) was in line with commercial common sense. The Tribunal had quoted the impeccable authority of Robert Goff J in The Kostas Melas [1981] 1 Lloyd’s Rep 18, that cash flow was a matter of considerable, sometimes crucial, importance to owners of ships. The judge held that there was nothing uncommercial in the Charterers being obliged to raise bona fide disputes timeously, at a time when the Owners had an opportunity to exercise the rights and remedies they had under the Charterparty such as under clause 12(f), which gave the Owners rights to suspend or terminate the Charterparty if hire or other sums were outstanding.

Question 2: If the answer to the first question was ‘yes’, were the Charterers entitled to recover sums paid to the Owners which were not in fact due because the Charterers had a defence to the Owners’ claim for those sums even if that defence (i) did not give the Charterers an independent counterclaim; and (ii) was not an ‘accounting’ defence suitable for resolution by an audit under clause 12(g)?

The Charterers contended that the Tribunal was wrong in determining that under the Charterparty the Charterers could not recover sums paid (including pursuant to an award from the Tribunal) even though they had a defence, if that defence was not a counterclaim in respect of financial loss resulting from such payment or by way of an audit under clause 12(g). The Tribunal’s conclusion, the Charterers submitted, meant that charterers under this standard form Charterparty could not raise off-hire defences, which did not constitute a breach of contract, unless they had notified owners of it before the due date of an invoice, however short that period might be. On the Charterers’ case, a term for the repayment of overpaid hire should be implied.

The judge held that the Tribunal’s conclusion made commercial sense and was consistent with the wording of clause 12(e). The Charterparty provided that hire was payable within the period the parties agreed after the invoice. In the current case the parties had also agreed that it was payable in arrears. Consequently, an off-hire event would have happened by the time the Charterers needed to serve a notice of disputed payment under the clause. The parties had bargained for how disputed payments were to be raised. The upshot was that the Charterers were precluded from raising a defence which was not done timeously and the subject of a valid notice. The Owners were not deprived of their contractually agreed remedies in clause 12(f) (suspension/termination), and the Charterers were not precluded from advancing a counterclaim or taking advantage of the long stop in clause 12(g).

The appeal was therefore dismissed.

Comment

The courts have long required clarity of contractual language with provisions which restrict the rights and remedies normally available to a party. Giving up contractual rights could take various forms, including exclusion or limitation clauses to which the courts have exhibited a traditional hostility and time bar clauses which the courts construe strictly.

It is to note that the judge held that clause 12(e) was not analogous to a time bar clause or any other type of clause limiting or excluding liability. Nothing was being implied into the clause. The Charterers were required by clause 12(e) to act in a certain way if they disputed an invoice and wished to withhold payment. However, as Lewison LJ said in the Interactive E-Solutions case [2018] EWCA Civ 62, this type of clause was to be construed in accordance with the same principles as any other clause. In the present case, the clause properly construed meant that, within 21 days of receipt of an invoice, the Charterers had to form a view about it. If they reasonably believed it was incorrect they did not have to pay, but they had to give the requisite notice.