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A stitch in SUPPLYTIME 2017

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In a decision handed down last month, the Commercial Court has considered, for the first time, the consequences under clause 12(e) of BIMCO SUPPLYTIME 2017 of failing to dispute an invoice before the due date: Boskalis Offshore Marine Contracting BV v Atlantic Marine and Aviation LLP (Atlantic Tonjer) [2019] EWHC 1213 (Comm).

Background

The case concerned the charter of a multi-purpose support vessel, the Atlantic Tonjer (the “Vessel”). On 9 April 2018, Atlantic Marine and Aviation LLP (the “Owners”) chartered the Vessel to Boskalis Offshore Marine Contracting BV (the “Charterers”) on an amended BIMCO SUPPLYTIME 2017 form.

Clause 12 (Hire and Payments) of the Charterparty 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 full without discount or set-off …

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 payment was to be made within 21 days after issue of the invoices (Box 24).

Between 16 June 2018 and 13 July 2018, the Owners rendered invoices for hire, accommodation, meals and other services to the Charterers. The Charterers did not pay the invoices and the Owners commenced arbitration.

Tribunal decision

One of the issues that the Tribunal had to consider was the date by which the Charterers should have notified the Owners of an incorrect invoice and the consequences of failing to do so. 

The Tribunal determined that, if the Charterers wished to avoid their obligation to pay the invoices, they had to notify the Owners that an incorrect invoice had been issued within 21 days of receipt and that the consequence of failing to do so was that they came under an “obligation to pay [the Owners] the amount invoiced which they had not disputed within the relevant period”.

The Tribunal also concluded that clause 12(e) was not a time bar provision and that the Charterers’ characterisation of it as such was misconceived.

Commercial Court

The Charterers appealed to the Commercial Court on two questions of law:

  1. Whether clause 12(e) meant that the Charterers were debarred from raising defences against the invoices if they failed to notify the Owners before the due date for payment;  and
  2. Whether the Charterers were entitled to recover sums paid to the Owners which were not in fact due because the Charterers had a defence to the Owners’ claim for those sums (if that defence did not give the Charterers an independent counterclaim or a claim under the audit clause).

On question (1), the Charterers argued that the words of clause 12(e) were unclear and possibly ambiguous because they did not state that a failure to give notice would debar the Charterers from raising a defence to the sums claimed. The Charterers also argued that the clause was analogous to an exclusion or time bar and therefore needed to be clearer.

The Commercial Court agreed with the Tribunal and found that it was clear and unambiguous from the wording of clause 12(e) that the Charterers were barred from disputing the payment of invoices unless done so within the 21 days referred to in the contract. 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 because this is how the parties had bargained for disputes to be raised.

The Commercial Court also agreed with the Tribunal that the Charterers could always bring a counterclaim (including a claim for breach of contract or unjust enrichment) if they had paid sums which they later believed were not properly payable and, therefore, clause 12(e) was not analogous to a time bar or exclusion clause.

On question (2), the Commercial 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.

Therefore, the Charterers’ appeal was dismissed by the Commercial Court.

Comment

As this is the first opportunity that an English court has had to consider clause 12(e) of BIMCO SUPPLYTIME 2017, this case provides important clarification on the interpretation of this clause and the requirement for charterers to give prompt notice if they dispute an invoice (or part of it) and do not believe it should be paid.

In practice, charterers will lose their right to raise an off-hire defence if this is not notified promptly to owners, even in situations where charterers are not able to decide if they have such a defence within the agreed period for disputes to be raised (unless the claim can be construed as a claim for damages for the owners’ breach of the charterparty). 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. It is also important for parties to be mindful that charterers may also have a remedy under the audit clause (although, depending on the wording, the audit clause may be much more limited in scope).

It is, however, worth nothing that, given that the wording of clause 12(e) was amended from SUPPLYTIME 2005, this does raise a question about whether the court would have reached the same decision in relation to clause 12(e) of SUPPLYTIME 2005.

Chris Kidd was a member of the SUPPLYTIME 2017 drafting committee.

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

David Choy

David Choy Managing Associate

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