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

This judgment determines two preliminary issues arising from competing proofs of debt between two companies, both in liquidation, under Rule 14.8 of the Insolvency (England and Wales) Rules 2016. The court interpreted key provisions of the Master Sales Agreement (MSA) concluded 24 May 2013, in particular clause 13 (limitation and exclusion of liability) and clauses 13.3 and 13.5.

Key legal principles and holdings:

• Clause 13.3 was construed as imposing a single overall cap of £250,000 on the total liability of each party in respect of all claims under clause 13, subject to the express exceptions; it does not impose a separate £250,000 cap for each Transaction.
• Clause 13.9 (the exception for breaches relating to payment and exclusivity) does not extend to convert CNG’s claim for liquidated damages into a payment by CNG recoverable outside the £250,000 cap; the payment exception was directed to ZOG’s payment obligations and not to sums payable by CNG for liquidated damages.
• Clause 13.5 was corrected as a drafting error and read as applying bilaterally: the non-defaulting party must issue proceedings against the defaulting party within 12 months from the date the non-defaulting party reasonably ought to have known of its entitlement. That contractual time bar disentitles a party from obtaining a judicial remedy after expiry of the period but does not extinguish the underlying liability; a creditor may still set-off a time-barred claim in appropriate circumstances.
• The court held as a matter of law that an administration under the post-Enterprise Act 2002 regime does not, by itself, stop time running for limitation purposes; by contrast, time does stop running when a company enters creditors’ voluntary liquidation (CVL) or a winding-up order is made.

This was a hearing of two consolidated preliminary issues concerning competing proofs of debt submitted by Contract Natural Gas Ltd (CNG) and ZOG Energy Ltd (ZOG), each company now in liquidation. The liquidators had rejected or admitted proofs in part and each company applied under Rule 14.8 of the Insolvency (England and Wales) Rules 2016 to challenge those decisions. The resolution turned substantially on interpretation of the Master Sales Agreement (MSA) dated 24 May 2013, which provided for multiple "Transactions", each described as a separate contract, and incorporated a regime including clause 13 (limitation and exclusion of liability).

Background and procedural posture:

• CNG supplied wholesale gas to ZOG. Both entities became insolvent after market disruption in late 2021. ZOG entered administration on 9 December 2021 and moved to creditors' voluntary liquidation on 7 December 2022. CNG entered administration on 17 December 2021 and moved to CVL on 28 September 2023.
• CNG proved in ZOG’s administration for invoices totalling £1,403,340.25; ZOG’s liquidators rejected the proof on the ground that clause 13.5 of the MSA time-barred the claims. ZOG submitted (and CNG’s liquidators admitted in part) a proof in CNG’s administration originally for over £10 million, disputed by CNG on many factual and contractual grounds; CNG’s liquidators admitted only £250,000 and rejected the remainder, relying on clause 13.3.

Nature of the applications and issues:

• Both applications were preliminary challenges under Rule 14.8 to decisions by liquidators rejecting or admitting proofs. The two specific issues for decision were (i) the effect of clause 13.3—whether the £250,000 limit applied globally to all Transactions or separately to each Transaction and whether the payment exception in clause 13.9 applied to ZOG’s claim; and (ii) the effect of clause 13.5—the contractual twelve-month time bar, including whether it applied to claims by CNG, whether it extinguished liability, and the effect of administration or liquidation on the running of such contractual time limits.

Court’s reasoning (concise):

• Interpretation approach: the court applied objective contractual interpretation principles, reading the MSA as an "umbrella" agreement governing separate Transactions rather than being incorporated verbatim into each Transaction. The court preferred constructions that gave coherent commercial meaning to the MSA as a whole.
• Clause 13.3: the phrase "entire financial liability" and "total liability ... in respect of all claims" reasonably pointed to a single overall cap of £250,000 across all claims between the parties, not a separate cap per Transaction. Arguments to the contrary produced commercially implausible results in the court's view and were not supported by the express language.
• Clause 13.9: the exception for breaches of clauses 3 (exclusivity) and 10 (payment) was directed to ZOG’s payment and exclusivity obligations; it could not be read to convert CNG’s failure to pay liquidated damages into a "payment" by ZOG outside the cap. The wording expressly referencing ZOG supported a limited exception rather than a broad rewrite.
• Clause 13.5: the clause as drafted contained a clear drafting error (it would otherwise require a party to commence proceedings against itself). The clause was read as bilateral (corrective construction justified because the mistake was obvious and the intended meaning could be ascertained): the non-defaulting party must commence proceedings against the defaulting party within 12 months of when the non-defaulting party reasonably ought to have known of its entitlement. The clause bars the remedy after the period but does not extinguish the substantive debt; the claimant remains able to set off a time-barred claim as part of mutual dealings.
• Administration and limitation: the court concluded that an administration under the post-Enterprise Act Schedule B1 does not, simply by its commencement, create the statutory trust that stops limitation running; time does stop running when a company enters a CVL or winding up. The court emphasised the distinctions between administration (which may pursue a rescue) and liquidation and held that any change to this area of law is for Parliament.

Outcome and further procedure:

• The court answered both preliminary issues in favour of the construction described above: clause 13.3 imposes a single overall £250,000 cap, and clause 13.5 operates bilaterally as a twelve-month contractual time bar which bars remedies but does not extinguish liability; administration does not stop limitation running but CVL does.
• The judge reserved for further hearing the precise consequential order sought by CNG to admit part of its proof (£481,814.86) on the ground that ZOG now contests whether that question falls within the preliminary issues and whether further matters require concise evidence.

This was a first-instance decision. The court decided the two preliminary issues as follows: (i) clause 13.3 of the MSA imposes a single overall limit of £250,000 on the total liability of each party in respect of all claims under clause 13; it does not create separate £250,000 caps for each Transaction, and clause 13.9 does not extend that payment exception to ZOG’s claim for liquidated damages. (ii) clause 13.5 contains a drafting error and is to be read as a bilateral twelve-month contractual time bar applicable to claims by either party; expiry bars the remedy (and the right to commence proceedings or prove in the insolvency) but does not extinguish the underlying liability. The court further held that an administration under the post-Enterprise Act regime does not, simply by its commencement, stop time running for limitation purposes, whereas time stops on entry into creditors’ voluntary liquidation. The court therefore upheld the liquidators’ rejection of ZOG’s proof in so far as it exceeded £250,000 and concluded that CNG’s entitlement to prove in ZOG’s liquidation is limited to debts for which the twelve-month period had not expired when ZOG entered CVL on 7 December 2022.