Contracts Matter

The parties entered into a contract for the sale of a vessel MT Songa Coral for USD 25 million. Under the agreement, Gardsea Shipping Inc (Buyers) were required to release payment from an escrow account to Songa Product and Chemical Tankers IV AS (Sellers) in Norway no later than three "Banking Days" after notice of readiness (NOR) had been given. The NOR was served on the 2 September 2022 and the parties agreed the third banking day was 8 September 2022, after accounting for weekends and public holidays. The contract defined "Banking Days" by reference to days on which banks were open in multiple jurisdictions.

When payment had not been released by midnight in Norway, the Sellers served notice to cancel the contract. The arbitration tribunal in London concluded that the cancellation notice had been served prematurely. The tribunal held that the Buyers had until midnight in the most westerly time zone in the Banking Days definition (Hawaii) to make payment. The tribunal accepted that this construction had little commercial logic but considered that the contract drafting displaced the usual common law presumption that an obligation to be performed in a particular place must be performed by midnight in that place.

On appeal, the High Court concluded that the tribunal decision was incorrect in law. The contract required the balance of the purchase price to be released from escrow in Norway on 8 September 2022, and the Buyers were in default as that had not occurred by midnight in Norway.

The court confirmed that whether an obligation has been performed on a particular day is generally determined by reference to local time in the place where the obligation is to be performed. While this presumption is not a strict rule of law, clear contractual wording would be required to rebut it.

Applying the local time presumption, parties need to work forward, ascertaining each calendar day and establishing whether it is a "Banking Day". Determining whether a particular day qualifies as a "Banking Day" may require consideration of bank opening days in several locations, but it does not require parties to assess when each relevant day begins or ends across different time zones. The court considered that this approach reflects reasonable and ordinary commercial understanding and provides a practical and predictable basis for determining deadlines.

• Commercial parties should assume that contracts will be interpreted in a way that generally gives an ordinary meaning to words, especially when the ordinary meaning is one that makes complexity manageable.
• Contracts defining "Banking Days" by reference to multiple countries with different time zones should carefully consider whether the place of performance is sufficiently clear.
• The court reaffirmed that unless the contract expressly provides otherwise, contractual obligations must be performed by midnight local time at the place of performance.

Procoll Limited (Seller) agreed to supply Trinsic Collagen Limited (Buyer) with "food grade bovine single alpha chain collagen" under an agreement that stipulated certain quality and testing requirements. The Buyer later alleged that the collagen product supplied did not meet these requirements and claimed more than £7 million in damages for profits it alleged would have been earned had compliant collagen been supplied.

The limitation of liability clause contained a general cap on the Seller's liability of 100% of the price paid by the Buyer in the previous 12 months (although the cap did not apply in cases of deliberate default). The agreement also excluded claims for loss of profits, loss of business, loss of contracts, loss of goodwill, and indirect or consequential loss. The statutory implied terms under sections 13 to 15 of the Sale of Goods Act 1979 were also excluded, in view of the express commitments in the contract regarding compliance with the relevant specifications.

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The court found that the Seller had breached several contractual obligations. It failed to supply a replacement batch for a defective order on one occasion and also breached quality-related provisions for multiple other months, where the results of product testing were ambiguous. One container from the defective order was found to have been affected by microbial contamination, while the batches delivered in the other months in question had undergone collagen reformation, in each case rendering the affected product unfit for purpose.

The Buyer attempted to argue that the Seller's "deliberate default" (which included 'blind eye' knowledge of a breach) prevented it from relying on any limitation. The court rejected this argument on the facts of the case. The Buyer also argued that the limitation clauses were unreasonable under UCTA, on the basis that the Seller, as the sole worldwide supplier of the product, had an unfair advantage in terms of bargaining power and that the Buyer had invested heavily in equipment in reliance on the agreement.

Regarding bargaining power, the court disagreed with the Buyer's argument on the basis that although the Seller occupied a unique market position, the Buyer entered negotiations with significant leverage. It had asserted claims worth at least £4.7 million under an earlier agreement, which could have threatened the Seller's viability as a business. There was also evidence that both parties were legally advised and extensively negotiated the contract. Drafts showed the Buyer attempted to remove the loss of profit exclusion, but the Seller ultimately prevailed on this point in the negotiation.

Beyond relative bargaining power, which the court identified as a key factor in assessing reasonableness under UCTA, several additional considerations supported the validity of the exclusion clauses. First, the court noted that, based on the facts of the case, the excluded losses (particularly loss of profits) were evidently within the parties' contemplation when the contract was entered into. Secondly, there was a stark disparity between the parties' respective economic positions in relation to the agreement since the Buyer expected to generate revenues of approximately £3.5 million per month, while paying only around £30,000 per month for the collagen. Thirdly, the court considered that the Seller would have been unable to meet a claim of the scale envisaged by the Buyer and was unlikely to be capable of satisfying a comparable claim for future loss of profits. Taking these factors into account, the court concluded that the limitation clauses were fair and reasonable.

As a result, the Buyer's claim for £7 million in lost profits failed. The court held that the Buyer was only entitled to a contractual late delivery fee of £3,000. As the Seller was owed £30,000 for an unpaid invoice, it successfully set off this amount against the fee, meaning the Buyer ultimately recovered nothing.

• Negotiated limitation clauses are more likely to satisfy UCTA reasonableness requirements, particularly where both parties are legally advised.
• The parties' relative commercial risk and reward is a relevant factor in assessing the reasonableness of liability caps and exclusions.
• A supplier's market dominance does not, by itself, establish unequal bargaining power.

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London Credit Ltd (LC) agreed to loan £1,881,000 to the third appellant, CEK Investments Limited (CEK), for a period of 12 months. The loan was secured by a debenture over CEK’s assets, personal guarantees from CEK’s directors and third-party mortgages over their family home and several buy-to-let properties. Following drawdown of the loan, LC alleged that a non-occupation covenant had been breached and demanded repayment of the full loan amount, plus default interest.

The main issue revolved around the default interest rate clause in the facility agreement, and whether it constituted a penalty which would render the default interest provision unenforceable. On the first occasion in the High Court, the judge concluded that the default interest did not protect any legitimate interest of LC and was therefore a penalty. The Court of Appeal reversed this finding, holding that the judge had misapplied the Cavendish test and remitted the penalty issue for fresh determination (see our previous insight).

In a lengthy decision in October 2025, the High Court found that the default interest rate of 4% per month was not a penalty and gave guidance on the application of Cavendish Square Holdings BV v Makdessi [2016] in the context of a default rate which could be imposed in response to various defaults under a loan agreement (see Contracts Matter - January 2026). CEK appealed and the case came before the Court of Appeal for a second time.

The Court of Appeal unanimously dismissed the appeal, upholding the trial judge's conclusion that the default rate of 4% per month was not a penalty. Applying the test in Cavendish Square Holdings BV v Makdessi [2016], the trial judge had identified LC's legitimate interests - in particular, what he termed the "Credit Risk Interest"- and assessed whether the default rate was "out of all proportion" to each such interest. In the circumstances, it was not extortionate for LC to attach an above-market default rate to protect its credit risk. The Court of Appeal held that this was a rationally supportable evaluative judgment and that the borrowers had failed to identify any flaw in the judge's reasoning.

The Court of Appeal also addressed what is required to stop interest running. A valid tender requires the sum to have been set aside and kept available to the payee; a mere offer to repay does not suffice. The borrowers relied on several offers of repayment funded by refinancing from new lenders, arguing that the lender's refusal of those offers barred it from continuing to recover interest. The Court of Appeal rejected that argument, upholding the trial judge's findings.

• The Court of Appeal stated: "The question is not whether the legitimate interest is "adequately" protected. That would be to resurrect the now discarded "pre-estimate of loss" test. Rather the question is whether the Default Rate is "out of all proportion" to the legitimate interest in common."
• A sum of money which becomes payable on breach of a number of different primary obligations (some of which may be more serious than others) is more "susceptible" to being characterised as a penalty than a sum which becomes payable on breach of a single primary obligation.
• When drafting default interest provisions, it is therefore important that each separate default must reflect a need to protect a legitimate business interest, otherwise the entirety of the provision may fail.

SettleGo Solutions Limited (trading as "OpenPayd") provided QuidPay Finance Limited (QuidPay) with electronic money and payment services through electronic money accounts in QuidPay's name, with QuidPay in turn providing similar services to its own end-customers. In March 2026, OpenPayd identified suspected authorised push payment fraud totalling nearly EUR 9 million, linked to a Croatian shipyard whose funds had been routed through accounts assigned by QuidPay to two corporate customers and subsequently converted into cryptocurrency.

OpenPayd responded by progressively restricting QuidPay's accounts - initially requiring manual approval for outgoing payments, and later suspending all account activity entirely, including routine transactions such as payroll. OpenPayd then issued a formal notice under its General Terms of Use requiring QuidPay to set aside a reserve of approximately EUR 2.45 million and GBP 7 million, which OpenPayd deducted from QuidPay's accounts.

QuidPay treated these actions as a repudiation of the contract, with the agreements coming to an end in late May 2026. QuidPay brought proceedings seeking the return of the reserved funds. After an initial application for injunctive relief and the resolution of a procedural dispute concerning an alleged legal barrier to releasing the funds, the matter proceeded to a trial of a single preliminary issue: whether the contractual reserve mechanism continued to operate after the agreements had been terminated.

Ruling in QuidPay's favour, the High Court found that the requirement to hold a reserve was a primary, ongoing obligation that only had effect during the life of the contract. It was not an accrued right capable of persisting beyond termination. Significantly, the termination provisions of the agreement expressly identified which clauses would endure after the relationship ended, and the reserve clause was not among them. The judge observed that it would be hard to justify treating such an obligation as impliedly surviving termination when the contract did not say so. The reserve mechanism therefore fell away on termination, and OpenPayd was obliged to return the funds to QuidPay.

The court also dismissed OpenPayd's reliance on its own post-contractual conduct as a guide to the meaning of the agreement, characterising that approach as 'arguing backwards'. Just because OpenPayd treated the deducted funds in a particular way did not mean that was the correct interpretation of the agreement. The judge also noted that OpenPayd's interpretation of the contract did not fit well with the safeguarding protections afforded to customer funds under the Electronic Money Regulations 2011.

Neither side's arguments based on commercial reasonableness were found to be more persuasive than the other, and the judge concluded that the plain wording of the contract should prevail. OpenPayd was ordered to return the reserve immediately.

• Survival clauses should be drafted with precision. Where a contract contains an express list of provisions that endure beyond termination, obligations not included on that list are unlikely to be treated as impliedly surviving. Parties wishing to preserve particular rights post-termination must ensure those rights are clearly captured in the relevant survival provision.
• In this case, the reserve provisions in the Acquiring Service Terms were not expressly listed as applying post-termination in the survival clause of the General Terms. It is worth reviewing and updating general terms to make it clear that any reserve provisions in related contracts apply expressly post-termination.
• Post-contractual conduct cannot rewrite the bargain. A party's unilateral behaviour after a contract has been entered into will not be accepted as evidence of what the agreement was intended to mean. Courts will focus on the language agreed at the time the contract was made.