Contract Natural Gas Ltd (in liquidation) v Zog Energy Ltd (in liquidation)

A contractual liability cap applies according to the agreement’s objective meaning. Where an umbrella agreement governs multiple separate transactions, wording referring to a party’s entire or total liability and to all claims may impose one aggregate cap rather than a cap for each transaction.

A contractual time bar must be construed as drafted, subject to corrective construction where an evident drafting mistake produces nonsense or an incoherent commercial result. A clause barring the right to bring proceedings ordinarily bars the remedy without extinguishing the underlying debt. Entry into administration does not stop time running for limitation purposes, but entry into liquidation does where a statutory trust arises. Statutory acknowledgement rules do not restart a contractual time bar unless the contract so provides.

The parties were energy companies operating under a Master Sales Agreement governing gas Transactions. After both companies entered insolvency procedures, each challenged the rejection of its proof of debt under rule 14.8 of the Insolvency (England and Wales) Rules 2016.

The first preliminary issue concerned whether clause 13.3 imposed a £250,000 liability cap globally or separately for each Transaction, and whether clause 13.9 exempted ZOG’s claim from that cap. The second concerned the meaning and effect of the twelve-month contractual time bar in clause 13.5, including its application to claims by CNG, the effect of administration and creditors’ voluntary liquidation, and whether an acknowledgement restarted time.

1. Clause 13.3. The Master Sales Agreement was an umbrella agreement which governed each separate Transaction. It did not incorporate every provision verbatim into each Transaction. In any event, the language of clause 13.1 referring to the parties’ entire financial liability and clause 13.3 referring to total liability for all claims indicated one aggregate £250,000 cap, regardless of the number of Transactions. The cap therefore applied globally to ZOG’s claims.
2. Clause 13.9. The exception for breaches of ZOG’s obligations under clause 10 concerned ZOG’s obligation to pay for gas supplied. It did not exempt CNG’s alleged liability to pay liquidated damages. The wording could not be rewritten to refer to either party.
3. Clause 13.5. The references to CNG and ZOG produced obvious nonsense when applied to claims by CNG. Corrective construction was justified. The clause was to be read as applying bilaterally to claims by either party against the defaulting party, with the period running from when the non-defaulting party ought reasonably to have known of its entitlement to claim.
4. The clause barred proceedings and proof after expiry of the twelve-month period, but did not extinguish the underlying debt. The effect differed from the wording considered in Aries Tanker Corporation v Total Transport Ltd, where the claim was discharged from liability.
5. Entry into post-Enterprise Act administration did not create a statutory trust and did not stop time running. The possibility of rescue, the absence of an inevitable distribution, and the continuing management powers under Schedule B1 prevented that conclusion. Entry into creditors’ voluntary liquidation did stop time running, and this applied equally to contractual and statutory time bars.
6. An acknowledgement in a statement of affairs could not restart clause 13.5. Section 29 of the Limitation Act 1980 concerns statutory limitation and did not govern the contractual period.
7. The first preliminary issue was determined in favour of CNG’s liquidators. The rejection of ZOG’s proof above £250,000 was correct. The second was determined in part in favour of CNG: claims not time-barred when ZOG entered CVL remained provable, subject to consequential submissions on the precise amount.