Sahara Energy Resource Ltd v Société Nationale de Raffinage SA (Sonara)

Contractual default-interest provisions do not automatically constitute an exhaustive liquidated-damages code. Their effect depends on the wording, structure and commercial context of the contract. A clause providing interest from a specified date may apply even without breach and may therefore serve a function beyond compensation for breach.

Where a contract contains separate payment, liability and default provisions, the court should construe them as a coherent scheme. A broadly worded indemnity within a default clause will not ordinarily override the payment and damages provisions where its structure and placement show that it addresses losses arising from the exercise of default remedies.

Claims for incremental financing interest and bank charges may be losses arising naturally from late payment, while foreign-exchange losses require separate proof of foreseeability and causation.

Sahara supplied crude oil to Sonara under contracts made in 2013 and later years. Sonara admitted substantial delays in paying for the cargoes. Sahara claimed incremental financing interest, excess interest and bank charges, and foreign-exchange losses.

Sahara relied principally on a Joint Report signed after reconciliation meetings in September 2019. It contended that the document recorded a binding settlement of the claims described as undisputed. Sonara maintained that only principal and contractual interest had been agreed, while the remaining claims were subject to further negotiation or were rejected.

Sonara also counterclaimed for non-delivery of refined products under swap arrangements connected with a letter of credit. The issues included construction of the contracts, remoteness, limitation and whether the Joint Report created binding obligations.

1. Joint Report. The Joint Report created a limited agreement concerning outstanding principal and contractual interest. The references to “Undisputed Claims”, the resolutions requiring further negotiations, the proposed involvement of the Government of Cameroon and the surrounding negotiations did not establish an agreement by Sonara to pay the incremental-interest or foreign-exchange claims. At most, the parties agreed that the figures should be verified and negotiations continued. The penal-charge claims remained disputed.
2. Clause 8. Sonara failed to establish that the contractual interest provision was an exhaustive liquidated-damages code. The cited authorities did not establish that every default-interest clause is a liquidated-damages clause. Clause 8 formed part of a wider contractual scheme and interest accrued even where payment within 120 days would not constitute a breach.
3. Clause 18. The expression “directly consequential losses”, read with the exclusion of indirect, unforeseen or special losses, was substantially aligned with the ordinary contractual remoteness rules. Incremental interest and excess interest or default charges were losses naturally flowing from late payment and were not excluded. The foreign-exchange claim was not shown to be recoverable: the evidence indicated that currency risk would ordinarily be hedged, and the claim was not made out on causation and proof.
4. Clause 26. The indemnity was not an overriding provision displacing clauses 8 and 18. Read in its contractual setting, it addressed losses, costs and expenses arising from the declaration of an event of default or the exercise of the remedies in clause 26. Sahara’s live claim therefore arose under clause 18, so its alternative limitation arguments based solely on clause 26 did not arise.
5. Limitation. The Joint Report did not acknowledge Sonara’s legal liability to pay the contentious claims for the purposes of section 29(5) of the Limitation Act 1980. Those claims were unliquidated damages, not debts or other liquidated pecuniary claims. The alternative indemnity analysis could not fragment losses arising from a single failure to pay so as to postpone limitation. Nor was there an implied agreement or estoppel suspending time. Sahara’s claims were time-barred.
6. Counterclaim. The parties agreed to set off the outstanding letter-of-credit balance against liabilities owed by Sonara and sums discharged by Sahara. In any event, Sonara had proved no recoverable market-price loss under the contractual limitation. The counterclaim therefore failed.
7. Outcome. Sahara’s claim was dismissed as time-barred. The counterclaim failed. The judge made alternative findings on recoverable heads and quantum, but those findings did not affect the result.