The clock doesn’t stop ticking

Sahara Energy Resource Ltd -v- Société Nationale de Raffinage S.A. (Sonara) [2024] EWHC 3163 (Comm)

A recent court decision serves as a warning not to forget about time bars for claims simply because settlement negotiations are underway. Time bars will continue to apply unless there is a clear agreement that they have been suspended. Traders with claims need to be careful to calculate time bars and ensure that time is protected, either by commencing proceedings or by agreeing an extension of time or standstill agreement. 

The background facts

Sahara Energy Resource Ltd (Sahara) and Société Nationale de Raffinage S.A (Sonara) entered into a term contract under which  Sahara agreed to supply crude oil to Sonara. 

The relevant claims arose out of four cargoes delivered by Sahara in 2013. Sonara was obliged to pay for those cargoes within 120 days of the bill of lading date with a lock-step increase in the rate of interest depending on how long it took them to pay. 

Sonara made a series of payments for the 2013 cargoes but full payment for one cargo was not made until 2016 and full payment for the other three was not made until 2019. As a result, Sahara claimed interest, penal charges imposed by banks for failure to pay promptly under letters of credit and currency exchange losses. 

Ultimately, the Court held that, although Sahara would have otherwise succeeded in respect of claims for approximately US$44 million, the claims failed because they were time-barred under the Limitation Act 1980 (the Act). 

Time bars

Under the Act, a claim for breach of contract must be brought within six years from the date on which the action accrued (usually the date of the breach of contract). There are various time bars for different type of claims under the Act, so it is always worth checking whether the specific cause of action has a long stop date under that. 

Commodity sale contracts and other commercial contracts also commonly impose a timeframe within which claims must be notified to the other party or legal proceedings commenced, failing which such claims will be barred.

The time bar under the contract

The 120-day period for payment for the cargoes expired at different dates between November 2013 and March 2014, depending on the bill of lading date for the cargo. The Court held that Sahara’s losses stemmed from breaches by Sonara in failing to make payment by the 120th day after the date of the bills of lading. There was no contractual time bar but, for the purposes of the time bar under the Act, time began running at the end of each of those 120-day periods and expired six years later. 

Sahara commenced proceedings against Sonara on 21 April 2021 and the Court held that all relevant claims which accrued before 21 April 2015 (ie six years before proceedings were commenced) were time barred. As such, all of Sahara’s claims were time barred and they could not recover their losses. 

The settlement discussions

The parties had entered into a joint report in relation to Sahara’s claims, under which they had agreed to jointly contest the penal charges imposed on Sahara by the banks. On this basis, Sahara advanced three arguments before the Court in order to overcome the time bar issue, all of which were dismissed. 

Firstly, Sahara argued that, by issuing the joint report, Sonara had acknowledged the claims. The Act provides that, if a debtor acknowledges a claim or makes payment in respect of it, the six-year limitation period recommences from the acknowledgement or payment. This is taken to mean that that debtor must acknowledge both its indebtedness and its legal liability. 

The Court held that the agreement to jointly contest the penal charges was not an acknowledgement of the claim by Sonara. There could be all sorts of reasons why it would offer to assist Sahara with this, and Sonara had always made it clear that there was no agreement on liability.

Secondly, Sahara pursued an alternative claim under a contractual indemnity on the basis of which it claimed that a new claim arose and a new limitation period commenced every time interest or penalties were incurred. The Court rejected this argument on the basis that all of the losses arose out of one breach of contract - i.e. the failure to make payment by the expiry of the 120-day period. Therefore, the applicable limitation period ran from the end of that time and not any later date when damages arising from the breach were incurred.

Thirdly, Sahara argued that there was an implied agreement to suspend time based on the agreement to jointly contest the penal charges and based on the fact that Sonara never raised a limitation defence in this time. The Court held that Sonara had not waived any limitation defence in this way. Settlement negotiations do not suspend time and Sonara had always made it clear that there was no agreement as to the claims. 

Comment

This decision serves as a reminder to claimants of the importance of protecting time and remaining conscious of limitation periods. In particular:

1. Check your contract carefully for any time bars, including separate time bars for submitting claims and commencing proceedings in respect of such claims. 

2. Consider when the relevant breach of contract occurred and when the limitation period commenced – it is best to take the earliest possible point in time to avoid a time bar argument even arising if possible.

3. Be aware that settlement discussions do not in and of themselves suspend time. 

4. Ensure that any agreement to suspend or extend time is recorded in writing. 

5. Diarise time bars and leave enough time to commence proceedings before they expire.