Key takeaways
Banking days
Identifies calendar days to be counted when calculating contractual time periods.
Time governing performance
Performance by midnight local time at place of performance.
Multiple jurisdictions
Careful drafting required where contractual obligations intersect with multiple time zones.
In a significant decision for ship sale transactions, the Commercial Court has rejected the argument that a Saleform 2012 payment deadline ran until midnight in Hawaii simply because the MOA’s ’Banking Days’ definition referred to jurisdictions including the United States.
The Court held that the definition served only to identify which calendar days counted for the three-Banking-Day period. It did not create an extended, multi-time-zone ’day’ for 37 or 38 hours or displace the ordinary approach that performance is assessed by reference to local time at the place of performance.
For ship sale transactions, the message is clear: if parties want a particular time zone to govern payment, delivery or cancellation deadlines, they should say so expressly.
The background facts
The claimant sellers agreed to sell the MT SONGA CORAL to the defendant buyers for USD 25 million under an MOA based on Saleform 2012. Clause 3 of the MOA provided, among other things, as follows:
’On delivery of the Vessel, but not later than three (3) Banking Days after the date that Notice of Readiness has been given in accordance with Clause 5 (Time and place of delivery and notices):
(i) the Deposit shall be released to the Sellers; and
(ii) the balance of the Purchase Price and all other sums payable on delivery by the Buyers to the Sellers under this Agreement shall be released from the escrow account [those words replaced the Saleform's text 'paid in full free of bank charges'] to the Sellers' Account and shall constitute full completion of the Buyers' payment obligations under this Agreement but without prejudice to provided herein.’
The transaction was therefore structured so that payment would be made via an escrow account in Norway. The MOA required payment to be made within three ’Banking Days’ following the service of a notice of readiness. ‘Banking Days’ were defined by reference to whether banks were open in a number of jurisdictions, including the US, UK and Norway.
Notice of readiness was given on Friday, 2 September 2022. As such, 3 and 4 September were not Banking Days, and 5 September was not a Banking Day because of Labor Day in the US and Canada. The parties agreed that 6, 7 and 8 September were Banking Days. However, the relevant release/payment obligation had not been performed by midnight Norway time at the end of 8 September 2022.
At 00:09 Norway time on 9 September, the sellers served a notice of cancellation for non-payment. At that point, however, it was still 8 September in parts of North America, including Hawaii, and payment was subsequently made before midnight in that jurisdiction.
The Initial Arbitration Award
The LMAA tribunal held that the buyers were not yet in breach at the time the notice of cancellation was served.
It concluded that the concept of a ‘Banking Day’ extended across time zones such that the day did not expire until midnight in the most westerly relevant jurisdiction, namely Hawaii. The tribunal accepted this construction had ’little commercial logic’ but considered that the wording of the Banking Days definition required it.
On that basis, the buyers still had time to perform their obligations when the sellers attempted to cancel the contract.
The appeal
The sellers’ appeal, brought under s.69 of the Arbitration Act 1996, raised a single question of law. The Court was required to determine whether the relevant payment deadline expired at midnight in Norway, where payment was to be made, or only at midnight in the last relevant time zone identified in the definition of ‘Banking Days’.
The Commercial Court decision
The Court allowed the appeal and held that the tribunal’s construction was incorrect in law. The Court found that the relevant deadline expired at midnight in Norway, being the place where the escrow account was located and where the payment obligation was to be performed.
Function of ‘Banking Days’
The Court held that the definition of ‘Banking Days’ serves a limited and practical purpose. It is concerned only with identifying which calendar days are to be counted when calculating a contractual period. It does not redefine what constitutes a ‘day’, nor does it determine when a day begins or ends.
Once the relevant date, here 8 September, had been identified as the third Banking Day, the definition had performed its role. It did not provide any answer to the separate question of when that day expired for the purposes of performance.
Local Time governs performance
The Court reaffirmed the traditional approach that, unless the contract provides otherwise, a contractual act must be performed by midnight according to the local time at the place of performance.
In this case, the obligation was to release funds from an escrow account in Norway to a Norwegian bank account. The natural and commercially sensible conclusion was therefore that the deadline expired at midnight Norwegian time on 8 September.
Rejection of the tribunal’s approach
The Court rejected the tribunal’s interpretation that a ‘Banking Day’ extended until midnight in the most westerly jurisdiction. It noted that such an approach would effectively create an artificial ‘day’ lasting 37 to 38 hours, starting in the UAE and ending in Hawaii, with overlapping ’days’.
The Court considered that this interpretation was both linguistically strained and commercially implausible. Rather than promoting certainty, it introduced unnecessary complexity and arbitrariness.
Practical implications
The decision makes clear that references to ‘Banking Days’ across multiple jurisdictions should not be understood as extending contractual deadlines across time zones. Instead, such provisions are concerned solely with identifying which calendar days are to be counted when calculating time periods under the contract.
The judgment also reinforces the general principle that, in the absence of clear drafting to the contrary, contractual deadlines expire at midnight local time at the place where the relevant obligation is to be performed. This reflects both established legal authority and ordinary commercial expectations.
In rejecting the tribunal’s reasoning, the Court emphasised that a search for certainty cannot justify adopting artificial or commercially unrealistic interpretations. Where possible, contractual language will be interpreted in a way that aligns with common business understanding and the ordinary meaning of words such as ‘day’.
From a drafting perspective, the case proves the importance of clarity in international contracts. Parties should consider specifying expressly the relevant time zone for key obligations, particularly where payments are to be made across jurisdictions or in currencies which may involve multiple banking systems. Clear provisions addressing timing and cut-off points can avoid disputes of the kind seen in this case.
Comment
The decision provides valuable guidance on the interpretation of timing provisions in ship sale contracts. It confirms that multi-jurisdictional ‘Banking Days’ definitions do not alter the fundamental position that time runs by reference to local performance.
Finally, the judgment shows the need for careful drafting where contractual obligations intersect with multiple time zones, and it restores a practical and commercially intuitive approach to determining when deadlines expire.
Find out more about our Shipping expertise here or contact us to discuss how we can help.
This article was co-authored by Paralegal, Laela Rrustaj.
