“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.