• English High Court rules payment deadlines expire at midnight at the place of performance
• Sellers of MT Songa Coral validly cancelled $25 million sale nine minutes after midnight in Norway
• Principle applies to bunker credit terms: default crystallises at midnight where payment is to be received
• Suppliers acting on late payment, and buyers running close to deadlines, need to know which clock governs

A $25 million tanker sale cancelled nine minutes after midnight has produced a ruling on a question most contracts never answer: when a payment deadline falls on a given day, where in the world does that day end?

It is a question that hangs over the bunker market every day, where a supplier in Singapore may invoice a shipowner in Athens in US dollars payable to an account in Rotterdam, and where the moment a payment becomes late determines when default interest starts running, when credit can be pulled, and when a supplier can move against the vessel.

The English High Court's decision in Songa Product and Chemical Tankers IV AS v Gardsea Shipping Inc, examined in a new analysis by law firm Watson Farley & Williams, arose from the sale of the MT Songa Coral under a Saleform 2012 memorandum of agreement.

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, which after a weekend and a US and Canadian public holiday meant the deadline expired at the end of September 8, 2022.

When the money had not moved by midnight in Norway, the sellers cancelled the contract nine minutes later.

The buyers argued the cancellation was premature: the contract's banking days definition listed jurisdictions including the US, and the day had not yet ended in Hawaii, the most westerly place on the list.

An LMAA tribunal agreed with the buyers, but the High Court overturned that award on appeal, holding that a banking days definition identifies which calendar days count towards a contractual period, not when a day begins or ends.

A broader reading would produce a contractual "day" lasting 37 or 38 hours, starting at midnight in the UAE and ending at midnight in Hawaii, an outcome the court considered the parties could not have intended.

Instead, the deadline expired at midnight at the place where the payment obligation was to be performed, in this case Norway, making the sellers' cancellation valid.

For bunker contracts, most of which are governed by English law, the same logic can be applied to give guidance on which midnight is relevant. If the relevant obligation is for payment to be received on a particular day, logic and contract interpretation points to the location of the nominated bank account: an invoice due on a given day is late once midnight has passed where the money was to be received, not in the buyer's time zone, and not in whichever jurisdiction offers the most generous reading. A differently worded obligation may suggest a different local time for midnight to expire, but the case helps identify which one.

The impact cuts both ways: a supplier has clarity as to when to declare default in the absence of express terms, while a buyer counting on a few extra hours from a distant time zone now has clear authority against them. Clarity helps everyone.

The drafting lesson, Watson Farley & Williams notes, is that parties who want a deadline governed by a particular time zone must say so expressly in the contract.

The full analysis from Watson Farley & Williams can be read here.