Key takeaways
Settlement agreements
These should be drafted carefully to make it clear whether all or only some of the claims between the parties have been settled.
Contractual indemnity
This may be either a specific indemnity or an overriding provision, depending on the wording and context.
Limitation
Be careful of different time bars applying to different claims and expiring at different times, for example claims in respect of separate parcels of cargo.
Sahara Energy Resource Ltd -v- Societe Nationale de Raffinage S.A. (SONARA) [2026] EWCA Civ 54
We previously reported on the Commercial Court decision in this case, focusing on the Court’s finding that claims for non-payment for cargoes of crude oil were time-barred: The clock doesn’t stop ticking
The Court of Appeal has now allowed the appeal on a different issue relating to the scope and effect of an agreement between the parties to settle their differences and resolve the seller’s claims. It also construed an indemnity provision in the underlying sale contract and found it was not an overriding indemnity provision but was more limited in scope.
The background facts
Pursuant to a contract entered into in 2013 (2013 Contract) Sahara Energy Resource Ltd (Sahara) supplied multiple cargoes of crude oil to Société Nationale de Raffinage S.A. (Sonara), a Cameroonian state-owned crude oil refinery, between 2013 and 2016. Sahara obtained finance for the transaction from a number of banks.
Sonara was very late making payment of some of the amounts due. The principal amount of the invoices and contractual interest was eventually paid but three further categories of damages claims remained outstanding:
'Incremental Interest,' which was the difference between the contractual rate of interest under the 2013 Contract and the rate which Sahara had been required to pay from time to time to its banks;
'Penal Charges', namely a claim for excess interest and penalty charges which had been levied by Sahara's banks for its failure to make payment on various letters of credit which it had used to finance the relevant cargoes; and
'FX Differential,' which was a claim for foreign exchange losses said to have arisen from the depreciation of the Euro against the US dollar during the period of delay in payment where the relevant cargo was to be paid for in Euros, but the Euro had depreciated against the US dollar during the period of delay.
The main issue at the trial was whether the claims for Incremental Interest and FX Differential were the subject of a legally binding agreement for payment contained in a document entitled 'Joint Report'.
The Joint Report was produced following a 'Reconciliation Meeting' held between the parties on 4 and 5 September 2019. The Joint Report set out four tables:
2013 Outstanding on Principal;
Reconciled Claims;
Undisputed Claims: Claims for Incremental Interest and FX Differential in the sum of US$76,967,673.97; and
Disputed Claims: Penal Charges
The Report then stated:
'RESOLUTION
All relevant supporting documents for the claims have been submitted by Sahara and duly acknowledged by Sonara.
Sonara would review and collate the documents for submission to the Government of Cameroon.
Sonara completely rejects all Penal charges and requests for a waiver of same.
Sonara will communicate a date within two (2) weeks to [sic] for parties to reconvene, Sonara to propose potential flexible payment terms, schedule and further negotiations on the undisputed claims.'
The Commercial Court decision
The Commercial Court held that the Joint Report was a binding legal agreement for payment of the stated amounts by Sonara, but only in relation to the 2013 Outstanding on Principal claim and the Reconciled Claims. There was no legally binding agreement in relation to the claims for Incremental Interest and FX Differential that were included in the table headed Undisputed Claims.
In the Court’s view, the parties had used the word 'Reconciled' to mean agreed as to both liability and quantum, but 'Undisputed' to mean undisputed as to quantum but disputed as to liability, or undisputed as to liability, but disputed as to quantum. Furthermore, referring to item no. 4 in the Resolution (Resolution 4), the Court thought this indicated that agreement on the undisputed claims had yet to be reached.
The bigger picture was that these were claims that the parties had been arguing over for years because Sonara was not persuaded that they fell within its scope of contractual liability. Sonara was in financial difficulty and was, therefore, unlikely to have agreed to bear liability for these claims without more. Finally in this respect, the Court thought that any agreement on liability for Incremental Interest and FX Differential required the consent of the Government of Cameroon.
The Court also held that the reference to Undisputed Claims in the Joint Report was not an acknowledgement of those claims for the purposes of section 29(5) of the Limitation Act 1980, with the result that unless covered by a contractual indemnity in the 2013 Contract, they would be statute barred.
Additionally, the Court found that the contractual indemnity in the 2013 Contract did not, as a matter of interpretation, apply to any of the Undisputed Claims or the Penal Charges; but even if it did, the limitation period would have commenced from the date of the first loss recoverable thereunder, rather than commencing separately from each loss claimed.
The Court of Appeal decision
Undisputed Claims
The Court of Appeal held that the binding agreement reached in relation to 2013 Outstanding on Principal and Reconciled Claims also extended to the claims for Incremental Interest and FX Differential that were included in the table of Undisputed Claims in the Joint Report.
The ordinary and natural meaning of the words 'Undisputed Claims' in the heading of the table containing the claims for Incremental Interest and the FX Differential, was that there was no dispute about those claims. There was also no difference in the format and express wording of the Joint Report to distinguish between the unqualified and binding agreement that the Court found had been reached in respect of the 2013 Outstanding on Principal and the Reconciled Claims, and the position in relation to the claims for Incremental Interest and the FX Differential.
In particular, in common with the tables for the 2013 Outstanding on Principal and the Reconciled Claims, and in contrast to the table for Disputed Claims, there was no 'Comments' column in the relevant table to indicate that there was any unresolved issue in respect of the Undisputed Claims.
Nor was there anything in the language of the Joint Report which expressly indicated that any agreement between Sahara and Sonara on liability or quantum was conditional upon the approval of the Government of Cameroon, such that the agreement would not be legally binding unless such approval was given. There was certainly no suggestion that this was the case in relation to the 2013 Outstanding on Principal and the Reconciled Claims and neither was there any wording in the Joint Report to indicate any such conditionality in relation to agreement of the Undisputed Claims.
In marked contrast to the express provision for the 'Agreement' (as the Joint Report described itself) to be submitted to Sahara's banks and lawyers for 'validation', there was no indication in the document that any similar process was envisaged on Sonara's side.
When Resolution 4 was read as a whole, the reference to 'further negotiations on the undisputed claims' could be understood as a reference to further negotiations that might be required in relation to the proposals that Sonara was to make for flexible payment terms and a schedule for payment of the Undisputed Amounts. Indeed, amendment made between the Redline Draft and the signing of the Joint Report supported the Court of Appeal’s construction, no matter that the Court of Appeal considered earlier drafts such as the Redline Draft to be inadmissible evidence. The specific comment that was attached to the claims for Incremental Interest and FX Differential in the Redline draft was
'Parties would thereafter meet on a date to be agreed to continue with the negotiations and possible flexible payment terms if an agreement is arrived at.'
In the final Joint Report, the words 'if an agreement is arrived at' were deleted. This strongly indicated that Sonara had changed its position by the time of the Joint Report and an agreement had been reached, with Sonara to follow up with flexible terms for payment.
Limitation defence
As a result of allowing the appeal on this issue, no limitation defence could then apply because the claims for Incremental Interest and FX Differential were claims in debt under the Joint Report entered into on 5 September 2019.
Indemnity clause
Finally, the Court of Appeal agreed with the Commercial Court that the indemnity found toward the end of Clause 26 of the 2013 Contract (Events of Default/Termination Clause) did not apply to the Penal Charges. The clause read as follows:
'THE BUYER SHALL INDEMNIFY AND HOLD THE SELLER HARMLESS FROM ALL LOSSES, DAMAGES, COSTS AND EXPENSES INCLUDING LEGAL FEES THAT THE SELLER WOULD NOT HAVE INCURRED BUT FOR THE EVENT OF DEFAULT AND/OR THE EXERCISE BY THE SELLER OF ANY OF ITS REMEDIES HEREUNDER.'
Clause 26 did not stand alone as a scheme for recoupment of damage or loss caused by breach. The parties had agreed three clauses: a contractual interest clause, a damages clause and a (part) of a default clause. Structurally the Clause 26 indemnity did not look like an overriding provision: it was buried within Clause 26, with no signposting to it, and no cross references to the other clauses which it might affect.
In the Court of Appeal’s view, the wording in question was not an overriding indemnity provision but rather a specific indemnity aimed at the 'loss, damage, costs and expenses including legal fees' that would arise from the exercise of remedies under Clause 26. The wording aimed to mop up losses and costs incurred in the event an event of default was declared and/or if any steps were taken under it. The immediate context indicated that the indemnity clause was not intended to have any wider effect independently of the situation for which Clause 26 provided. To find otherwise would result in the Clause 26 indemnity cutting across other specific provisions in the contract and there was nothing in the contract to indicate that this was what was intended.
In conclusion, it did not include a general indemnity against external charges that might be imposed on Sahara by its banks simply because an Event of Default as defined in Clause 26 had occurred (e.g. once Sonara had not paid a sum due).
Comment
The dispute highlights the importance of ensuring that the wording of any reconciliation or settlement agreement is carefully drafted to avoid any ambiguity.
