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The limits on the right to dispute invoices under BIMCO SUPPLYTIME 2017

07.06.2019 Maritime

Michael Volikas

Michael Volikas Partner

Ester Toumpouris

Ester Toumpouris Managing Associate

Boskalis Offshore Marine Contracting BV v. Atlantic Marine and Aviation LLP (Atlantic Tonjer) [2019] EWHC 1213 (Comm) 

This is the English Court’s first decision on the effect of clause 12(e) of BIMCO SUPPLYTIME 2017. Following an appeal from an arbitration award, the Court upheld the Tribunal’s decision that: (i) a failure to challenge an invoice before its due date for payment meant that such undisputed invoice became payable in full in the first instance; and (ii) the Charterers could not later raise off-hire defences that did not constitute a breach of contract unless they had notified the Owners of such defences before the due date of an invoice

The background facts

On 9 April 2018, the Owners of a multi-purpose support vessel, Atlantic Tonjer, chartered the vessel for a period of 21 days, plus 21 daily options in the Charterers' favour, with a delivery date of 2 June 2018, on an amended BIMCO SUPPLYTIME 2017 form.

Clause 12 (Hire and Payments) had a number of additions, but the relevant sub-clauses (e)(Payments), (f)(Suspension and Termination) and (g)(Audit) were in unamended form. In particular, clause 12(e) provides:

"(e) Payments - Payments of hire, fuel invoices and disbursements for the Charterers' account shall be received within the number of days stated in Box 24 from the date of receipt of the invoice. Payment shall be received in the currency stated in Box 20(i) in full without discount or set-off to the account stated in Box 23….

If the Charterers reasonably believe an incorrect invoice has been issued, they shall notify the Owners promptly, but in no event no later than the due date, specifying the reason for disputing the invoice. The Charterers shall pay the undisputed portion of the invoice but shall be entitled to withhold payment of the disputed amount…“

It was agreed that the invoices were to be issued 14 days in arrears (Box 20) and payment was to be made within 21 days after that (Box 24). The Charterparty also provided for a maximum audit period of four years.

Between 16 June 2018 and 13 July 2018, the Owners issued various invoices to the Charterers for accommodation, meals and other services. However, the Charterers did not pay some of these invoices and did not dispute the invoice amounts within the agreed 21 day period.

The Owners commenced arbitration and applied for a partial final award for the outstanding sums.

The Tribunal’s decision

The Tribunal found that on the proper construction of clause 12(e), the Charterers had to pay the amounts of the undisputed invoices as they had not challenged these within 21 days after they were issued. In reaching this decision, the Tribunal indicated that the aim of clause 12(e) was to maintain the Owners’ cashflow, which the Tribunal considered to be a matter of considerable importance in time charter contexts.

Accordingly, in the Tribunal’s view, the intention of clause 12(e) was to ensure that the Owners received payment of undisputed sums in the first instance, even if it later transpired that the Charterers had a valid counterclaim and so should not have paid the sums in full.

The Commercial Court Decision

The Court dismissed the appeal. It found that the wording of clause 12(e) was clear and unambiguous. The Court held that clause 12(e) of the charterparty, on its proper construction, debarred the Charterers from raising defences against the Owners’ invoices in circumstances where they had failed to challenge those invoices within 21 days of receipt.

The Court highlighted the importance of cashflow for owners and the fact that the agreed periods in clause 12(e) were negotiated by two commercial parties of equal bargaining power. Accordingly, if the Charterers reasonably believed that there was an error in any invoice, they should have given the Owners the required notice under the clause within the time period specified.

The Court also upheld the Tribunal’s decision that the Charterers could not recover sums paid, even though they had a defence, if that defence was not a counterclaim in respect of financial loss resulting from such payment or by way of audit under clause 12(g). In other words, the Charterers could not raise off-hire defences which did not constitute a breach of contract unless they had notified the Owners of such defences before the due date of an invoice.

Comment

This is an important decision for those using the Supplytime 2017 form and other time charterparty forms with similar payment provisions, as it underlines the importance of giving prompt notice in situations where charterers consider that the invoice (or part of it) is disputed and should not be paid.

This decision may lead to potentially uncommercial results as it means that, in practice,  charterers will lose their right to raise an off-hire defence if this is not notified promptly to owners. This will be the case even in situations where charterers are not reasonably able to decide if they have such a defence within the agreed period for disputes to be raised. Charterers should either seek to extend the period within which invoices may be disputed or ensure that any issues with the invoices are raised promptly and within the period agreed.

The Charterers are seeking permission to appeal.

Article authors:

Michael Volikas Ester Toumpouris