Glencore Energy (UK) Ltd v Sonol Israel Ltd (Rev 1)

In a sale contract containing laytime and demurrage provisions linked to a charter-party, the buyer’s obligation will generally be construed as an independent obligation to pay demurrage rather than an indemnity. The court must consider the nature, purpose and effect of the contractual cross-reference. Express laytime provisions, particularly where they do not coincide with the charter-party provisions, are a significant indicator of an independent obligation. Unless the contract provides otherwise, the cause of action accrues when the laydays expire, generally day by day pro rata. The later presentation of a quantified or documented claim, or the existence of a payment obligation triggered by presentation, does not necessarily postpone accrual for limitation purposes.

The claimant sought US$76,260.95 described as unpaid demurrage under two contracts for the sale of transportation gasoil. The contracts provided for 48 hours’ laytime and stated that demurrage was to be calculated at the charter-party rate, terms and conditions. The vessel’s discharge was completed in January 2005. The claimant issued its demurrage invoice on 28 April 2005 and commenced proceedings on 19 April 2011.

The defendant applied to strike out the claim under section 5 of the Limitation Act 1980, arguing that the cause of action accrued when the contractual laytime expired. The central issue was whether the sale-contract provisions created an independent demurrage obligation or an indemnity or contractual payment provision accruing only when the claimant presented its invoice.

1. The defendant’s application was granted and the claim was struck out as time-barred. The court had sufficient evidence to determine the short point of contractual construction and limitation without allowing the matter to proceed to trial. The principles relevant to summary judgment supported that approach, including the guidance in ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.

2. Contractual construction began from a neutral position. The nature, purpose and effect of a cross-reference to a charter-party were critical. Commercial certainty was an important consideration, particularly where an independent scheme enabled the parties to know their position without depending on liabilities under a third-party contract.

3. The sale contracts contained express laytime provisions which did not coincide with the charter-party’s 84-hour laytime. That was a significant indicator that the sale-contract demurrage provisions created an independent obligation rather than an indemnity. The reasoning in The Devon [2004] 2 Lloyd’s Rep. 282, and the earlier decisions in Gill and Dufuss SA v Rionda Futures Ltd [1994] 2 Lloyd’s Rep. 67 and OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep. 160, supported that conclusion.

4. The obligation therefore accrued when the laydays expired, day by day pro rata, in accordance with the general approach identified in President of India v LIPS Martime Corp [1998] 1 AC 395. The fact that the amount might not yet have been quantified, or that payment might depend on presentation of documents, did not necessarily postpone accrual. The discussion of documented claims in The Sabrewing [2008] 1 Lloyd’s Rep. 286 and The Eternity [2008] EWHC 2480 (Comm) did not alter that distinction.

5. There was no contractual payment mechanism making presentation of an invoice a prerequisite to accrual. The charter-party waiver clause was not incorporated into the sale contracts and was not itself a payment mechanism. The proposed implied term requiring presentation within a reasonable time was unsupported by the evidence and inconsistent with the need for contractual certainty.