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An obligation to release escrow funds in Norway had to be performed by midnight local time, not on the later expiry of Banking Days in Hawaii on the same date, under a contract where Banking Days were defined as days when banks were open for business in these and other named places.
The principles from this judgment potentially apply to other commercial contracts with deadlines. This includes charterparties, bills of lading, and international sales of goods. It also stands as a good reminder of the desirability of drafting time-related provisions clearly.
The case arose from an appeal concerning a question of law decided in a final arbitration award. The arbitration tribunal found that the buyer had made a timely remittance of a ship’s purchase price within the specified number of Banking Days. As a result, the seller was held to have breached the contract by cancelling it early.
In allowing the seller’s appeal, the judge clarified the role of the Banking Days definition and the relevance of the place where an obligation must be fulfilled before a deadline expires.
According to the contract, Banking Days were defined as days when banks were open for business in certain named places. Those places included the UAE (+4 hours GMT), Norway (+2 hours GMT), and the USA (where Hawaii is -10 hours GMT).
Clause 3 of the contract stated that the purchase price should be released from an escrow account in Norway to the seller's bank account (also in Norway) within three Banking Days after the notice of readiness was given under clause 5.
Clause 13 gave the seller the right to cancel the contract if the purchase price was not paid on time in accordance with clause 3.
In this case, the seller cancelled the contract just after midnight in Norway, three Banking Days after the notice of readiness was given. At that point, the buyer had not yet released the funds from the escrow account.
However, the buyer later released the funds before midnight in Hawaii on the third Banking Day after the notice of readiness was given. Thus, the validity of the seller’s cancellation depended on which time zone was relevant.
Both parties agreed that a “day” in the contract meant a “calendar day,” which is a twenty-four-hour period from midnight (0000 hours) to just before midnight (2359 hours).
The judge noted that the definition of Banking Days was meant to identify which calendar days counted when calculating time intervals. A day only counted as a Banking Day if banks were open for business in each place named in the contract on that day.
That definition answered the question, “which days are Banking Days?”. However, it did not also answer the question, “when does a day end?”.
In applying The Afovos [1983] 1 Lloyd’s Rep 335 (HL), the judge held that, unless agreed otherwise (which was not the case here), a day ended just before midnight in the time zone of the relevant place where the obligation was to be fulfilled.
This interpretation made sense under the contract, meaning that the funds had to be released (in Norway) no later than three days after the notice of readiness was given, ignoring any day when banks were closed for business in the places named.
Otherwise, a Banking Day could bizarrely span three calendar dates, lasting 37 or 38 hours (depending on the time of year), starting at midnight in the UAE and ending at midnight in Hawaii, regardless of where the obligation had to be fulfilled.
In line with The Maria [2021] EWHC 2565 (Comm) (here), which discussed time as a local concept, the judge favoured the local midnight time presumption to reflect practical reality.
Based on this reasoning, the judge concluded that the seller had validly cancelled the contract just after midnight in Norway on the third Banking Day after the notice of readiness was given.
The decision reflected the English courts’ approach to interpreting commercial contracts with a commonsense view which promotes commercial certainty and, unless a contract states otherwise, this approach can reasonably be expected to be followed by English courts and arbitration tribunals interpreting similar contractual wording in future.
Should members have any queries arising from this judgment or article, they should feel free to approach their usual contact for FD&D matters at NorthStandard to discuss.
