A dispute over the cancelled $25 million sale of a tanker has produced a ruling with direct relevance for how payment deadlines are calculated in cross-border shipping and bunkering contracts, according to Ship & Bunker, which cites an analysis by law firm Watson Farley & Williams.
The case centred on the sale of the MT Songa Coral under a Saleform 2012 memorandum of agreement, reported Ship & Bunker. Under the terms, the purchase price was to be released from an escrow account at Nordea Bank in Norway no later than three banking days after notice of readiness. Accounting for a weekend and a US and Canadian public holiday, that deadline fell at the end of September 8, 2022.
What the court decided
When payment had not been received by midnight in Norway, the sellers cancelled the contract nine minutes later, according to the report. The buyers, Gardsea Shipping Inc, argued the cancellation came too early, contending that because the contract’s banking days definition referenced several jurisdictions including the United States, the day had not yet ended in Hawaii, the most westerly location listed.
An LMAA arbitration tribunal initially sided with the buyers, but the English High Court overturned that decision on appeal, Ship & Bunker reported. The court held that a banking days definition determines which calendar days count towards a contractual period, not when a day itself begins or ends. Accepting the buyers’ argument, the court noted, would create a contractual “day” stretching 37 or 38 hours, starting at midnight in the UAE and ending at midnight in Hawaii, an outcome it considered the parties could not have intended.
Instead, the ruling established that the deadline expired at midnight in the location where the payment obligation was to be performed, in this case Norway, making the sellers’ cancellation valid.
Relevance for bunker payment terms
According to Ship & Bunker, the same reasoning can be extended to bunker contracts, most of which are governed by English law. Where an obligation requires payment to be received on a given day, the relevant midnight is that of the location of the nominated bank account, not the buyer’s time zone or any other jurisdiction that might offer a more favourable reading.
The report notes that the principle applies directly to bunker credit terms: default crystallises at midnight in the location where payment is to be received, a factor that determines when default interest begins accruing, when credit facilities can be withdrawn, and when a supplier may take action against a vessel.
Does this matter to you?
The ruling offers practical clarity for parties handling cross-border payment terms, particularly where invoicing, currency, and banking arrangements span multiple time zones, as is common in bunker transactions. Suppliers monitoring for late payment now have clearer authority on when a default can be declared in the absence of express contractual wording, while buyers relying on time zone differences to gain extra hours no longer have that argument available to them, according to the report.
Watson Farley & Williams’s analysis, as cited by Ship & Bunker, notes that parties wishing a deadline to be governed by a specific time zone must state this expressly in the contract rather than relying on assumptions.
Gulf Bunkering does not provide operational or security guidance. This article is for informational purposes only. Operators should consult flag state authorities, P&I clubs, and relevant advisories for decisions relating to transit planning.
Sources: Ship & Bunker (citing analysis by Watson Farley & Williams)
