The “Atlantic Tonjer”  EWHC 1213 (Comm) is thought to be the first reported judgment on SupplyTime 2017. The decision clarifies the meaning of clause 12(e) of the standard form, which requires Charterers to notify Owners by no later than the due date of an invoice, if they reasonably believe that the invoice is incorrect. The Court construed clause 12(e) in its commercial setting, highlighting the equal bargaining power of the parties and the importance of cash flow to Owners as key features. It found that, on its proper construction, clause 12(e) means that Charterers cannot later raise a defence to payment of an invoice of which Charterers have failed to notify Owners by way of a valid notice prior to its due date. Whilst this does not impact on Charterers’ right under 12(g) or their right to raise a counterclaim, it serves as a reminder that courts have little sympathy for commercial parties that have misunderstood the letter of their bargain. It provides a valuable insight into the judicial approach to SupplyTime 2017 and standard form charterparties negotiated between commercial parties generally. Parties are advised to negotiate standard form charterparties cautiously and know exactly what their contracts say.
The “Atlantic Tonjer” – the first glimpse of the judicial approach to interpreting SupplyTime 2017
On 14 May 2019, the High Court handed down its judgment in Boskalis Offshore Marine Contracting BV v Atlantic Marine and Aviation LLP (the “Atlantic Tonjer”)  EWHC 1213 (Comm). This is thought to be the first reported judgment on the BIMCO SupplyTime 2017 standard form.
“SupplyTime” was first published in 1975 and, now in its third revision, is one of BIMCO’s most widely used forms. It is considered to be the industry standard form for the chartering of offshore vessels. The 2017 revision included amendments to the payments provision at clause 12(e), and this dispute gave the Court (Sir Ross Cranston sitting as Deputy Judge) the opportunity to clarify the effect of the revised clause 12(e), as well as to consider SupplyTime2017 generally.
Atlantic Marine and Aviation LLP (‘Atlantic’) chartered the vessel ‘Atlantic Tonjer’ to Boskalis Offshore Marine Contracting BV (‘Boskalis’) for 21 days pursuant to a standard form charterparty based on SupplyTime 2017 (the ‘Charterparty’). The Charterparty contained a number of boxes for the parties to complete in Part I and modified standard clauses in Part II. By completing the boxes in Part I, the parties indicated that they had agreed (among other things) that: (i) invoices were to be issued 14 days in arrears (Box 22); (ii) payment of hire was to be made 21 days after that (Box 24); and (iii) the maximum audit period was 4 years (Box 26). The disputed clause 12(e) provided as follows:
“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 payment is not received by the Owners within five (5) Banking Days following the due date the Owners are entitled to charge interest at the rate stated in Box 25 on the amount outstanding from and including the due date until payment is received.
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…”
Other relevant clauses included:
- clause 12(f)(i), which requires Owners to give Charterers prompt written notice of Charterers’ failure to comply with clause 12(e), requiring payment within 5 days;
- clause 12(f)(ii), which allows Owners to suspend the Charterparty at any time while sums due remain outstanding;
- clause 12(f)(iii), which allows Owners to terminate the Charterparty if sums remain outstanding after expiry of the 5 days’ written notice referred to in clause 12(f)(i); and
- clause 12(g), which gives Charterers the right to appoint an accountant to audit Owners’ books up to 4 years after the Charterparty has ended and recover sums paid to Owners due to accounting irregularities.
Atlantic rendered invoices for hire, accommodation, meals and other services amounting to a total of €1,475,029.26 and £42,683.04. Boskalis did not pay or dispute the invoices within the 21 days stated in Box 24, but sought to raise an off-hire defence after that period had expired. Atlantic commenced an LMAA arbitration for an award on their invoices.
The Tribunal construed clause 12(e) in its commercial context, viewing the crucial importance of cash flow to shipowners as a key feature of that context. It ruled that, on its proper construction, clause 12(e) required Boskalis to pay any undisputed sums to Atlantic once the invoices became due, regardless of whether Atlantic was ultimately entitled to such sums. Boskalis could challenge their liability subsequently, by way of a counterclaim or exercise of the audit rights in 12(g), but Atlantic was to receive payment in full without discount or set-off in the first instance. Thus, Atlantic’s cash flow was not disturbed.
Boskalis appealed the Tribunal’s award on the two questions of law considered below.
Does clause 12(e) of the BIMCO SupplyTime 2017 form, on its proper construction, debar Charterers from raising defences against Owners’ invoices if and to the extent that they have failed to notify Owners by the due date of those invoices?
Boskalis argued that if clause 12(e) was to debar defences Charterers fail to notify to Owners prior to the due date of an invoice, this had to be stated in clear and unambiguous terms. Boskalis relied on legal authorities on exclusion and limitation clauses, according to which “clarity of contractual language” is required for provisions that “restrict the rights and remedies normally available to a party” (see, inter alia, Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd  AC 689). Boskalis submitted that clause 12(e) does not meet this clarity criterion.
The Court disagreed that clause 12(e) is ambiguous, reasoning that its meaning would be clear to a “reasonable person with the background knowledge reasonably available to the parties at the time of the contract”. In any event, the Court disagreed that exclusion and limitation clauses should be interpreted with special caution in the context of commercial contracts between parties of equal bargaining power. It reasoned that this type of clause is integral to pricing and risk allocation between commercial parties, citing Lewison LJ’s dictum in Interactive E-Solutions JLT v O3B Africa Ltd  EWCA Civ 62 with approval.
Boskalis’ other argument against the Tribunal’s interpretation of clause 12(e) was that it is uncommercial. Boskalis referred to a hypothetical scenario where the period inserted in Box 24 is shorter than 21 days, arguing that there would be no commercial basis for barring Charterers’ defence for failure to respond within such a short period. Boskalis also noted that if hire was payable in advance (an option in Box 22(i)), Charterers may be precluded from raising off-hire defences altogether, as an off-hire event may happen after an invoice has fallen due.
The Court found arguments inviting it to assess the commercial workability of clause 12(e) unconvincing where the periods in Box 24 are negotiated between commercial parties of equal bargaining power. In any event, it considered that “there is nothing uncommercial in charterers being obliged to raise bona fide disputes timeously”, referring to authorities highlighting the crucial importance of cash flow to shipowners (see, inter alia, The Kostas Melas  1 Lloyd’s Rep 18).
Based on the above, the Court upheld the Tribunal’s interpretation of clause 12(e) that Charterers are debarred from raising defences to invoice payment that they have failed to notify to Owners within the period stated in Box 24.
Are Charterers entitled to recover sums paid to Owners which were not in fact due because Charterers had a defence to Owners’ claim for those sums even if that defence (i) did not give Charterers an independent counterclaim; and (ii) was not an “accounting” defence suitable for resolution under clause 12(g)?
The Tribunal’s interpretation of clause 12(e) meant that Charterers cannot rely on a defence that does not constitute an independent counterclaim or stem from accounting irregularities to recover sums paid in respect of an invoice, unless they have notified this defence to Owners prior to the due date of the relevant invoice. Boskalis considered this uncommercial, as it effectively debars Charterers’ off-hire defences where the period stated in Box 24 expires before Charterers might discover that the vessel was in fact off-hire. Once again, Boskalis referred to the hypothetical scenario where Box 22(i) specifies that hire is payable in advance, noting the risk to Charterers in these circumstances. On this basis, Boskalis suggested that a term requiring repayment of overpaid hire should be implied.
As in the context of question (1) above, the Court was unimpressed by arguments as to the commercial utility of clause 12(e), where commercial parties of equal bargaining power have negotiated the period in Box 24. In the premises, the Court held that Charterers are precluded from raising a defence to an invoice payment which is not notified to Owners timeously to recover sums paid to Owners. The Court favoured this interpretation of clause 12(e), because it ensures that Owners are not deprived of their contractually agreed remedies in clause 12(f), while Charterers are not precluded from advancing a counterclaim or exercising their audit rights under clause 12(g). The Court refused to consider whether the term suggested by Boskalis should be implied, as this issue had not been before the Tribunal yet. Therefore, this question was left for the Tribunal to consider at Stage 3 of the proceedings. Whether a counterclaim by Charterers could include an action for unjust enrichment was another issue left for the future.
The Atlantic Tonjer provides a valuable insight into the judicial approach to SupplyTime 2017, as well as standard form charterparties negotiated between commercial parties generally. It serves as a reminder that commercial parties of equal bargaining power will be held to the letter of their bargain. No special standards of interpretation apply to provisions restricting a party’s rights or remedies in a commercial setting, as such contractual restrictions are viewed as integral to pricing and risk allocation. Parties should note this judicial approach to interpreting SupplyTime 2017 (and standard form charterparties negotiated in a commercial setting generally) and ensure that they understand precisely what their contract says.
As to clause 12(e), it is now clear that it requires “prompt payment or prompt identification of any issue preventing payment”. Therefore, Charterers should act timeously on receipt of an invoice, bearing in mind the period stated in Box 24. Otherwise, a failure to dispute an incorrect invoice could give rise to an indisputable liability, as noted by Boskalis’ counsel, James Turner QC.
As pointed out by Boskalis, clause 12(e) is silent as to what would happen if Charterers dispute an invoice timeously, but their objection turns out to be unreasonable or unfounded. Therefore, where Charterers are unable to establish with certainty whether they have a defence to hire payment within the applicable period, they may be better off disputing the relevant invoice anyway, rather than missing the long-stop date imposed by Box 24.
When negotiating the period for insertion in Box 24, Charterers should ensure that its length suffices for them to become aware of or assess any potential defences to hire payment. Particularly if Charterers are to agree to payment of hire in advance (at Box 22(i)). As argued by Boskalis, if invoices are payable in advance, Charterers may (if the period in Box 24 is insufficient) be obliged to pay or dispute an invoice before an off-hire event occurs and would effectively then be deprived of raising off-hire as a defence. An amendment to deal with this will then be required.
While Charterers should negotiate the period for insertion in Box 24 cautiously, the importance of Box 24 may decrease if the question as to whether a term for the repayment of overpaid hire should be implied is answered positively (by the Tribunal). While this issue is pending, however, Charterers should bear in mind the far-reaching consequences of failing to dispute an invoice within the period stated in Box 24 during negotiation.
The above points are also seemingly relevant to the “SupplyTime 2005” and “WindTime” standard forms, as these contain clauses similar to 12(e). Clause 12(e) SupplyTime 2005 and clause 14(e) WindTime both state that “[w]here an invoice is disputed, the Charterers shall notify the Owners before the due date and in any event pay the undisputed proportion of the invoice but shall be entitled to withhold payment of the disputed portion provided that such portion is reasonably disputed and the Charterers specify such reason.”.
Permission to appeal the decision of the Court has been refused.