Sahara Energy Resource Limited v Societe Nationale de Raffinage SA

A signed reconciliation document may constitute a binding agreement on liability and quantum even where further discussions concern payment arrangements. Contractual interpretation requires the words to be read objectively in the agreement as a whole, with admissible background, while negotiations and earlier drafts remain inadmissible. A heading such as “Undisputed Claims”, together with the absence of wording reserving liability or making agreement conditional on third-party approval, may therefore establish agreement. An indemnity clause must also be construed in its contractual setting. Where it appears within an events-of-default clause, follows the remedies and refers to losses caused by those remedies, it may be confined to the costs and losses of invoking or exercising those remedies. It does not automatically provide a general indemnity for external bank charges arising merely from non-payment.

Sahara sold crude oil to Sonara under a 2013 contract. After late payment, the principal and contractual interest were paid, but Sahara pursued claims for incremental interest, bank penal charges and foreign-exchange losses. At a September 2019 reconciliation meeting, the parties signed a Joint Report categorising some claims as “Undisputed” and the penal charges as “Disputed”.

Mrs Justice Cockerill held that the Joint Report was binding for the principal and reconciled claims, but not for the undisputed claims. She also held that the contractual indemnity did not cover the penal charges and dismissed the claims: [2024] EWHC 3163 (Comm). Sahara appealed on contractual interpretation, limitation and the scope of the indemnity. Sonara served a respondent’s notice concerning unliquidated damages.

The central issues were whether the Joint Report created a binding agreement for the incremental-interest and foreign-exchange claims, and whether the indemnity covered the bank charges.

1. Appeal partly allowed. The Joint Report was a binding agreement in relation to the incremental-interest and foreign-exchange differential claims. Judgment was given for Sahara in respect of the undisputed amounts. The appeal was dismissed as to the penal charges, and Sonara’s respondent’s notice was dismissed.
2. The meaning of the Joint Report was a question of contractual interpretation. Applying the approach in Wood v Capita Insurance [2017] AC 1173, the court had to ascertain objectively the meaning of the words used, reading them in the context of the agreement as a whole and having regard to its nature, formality, drafting quality and admissible background. Negotiations and earlier drafts were inadmissible under Investors Compensation Scheme v West Bromwich BS [1998] 1 WLR 896.
3. “Undisputed Claims” carried its ordinary meaning. The Joint Report used the same format for those claims as for the principal and reconciled claims, including the absence of a comments column. “Further negotiations” in Resolution 4 could refer to payment terms and scheduling, without making liability or quantum unresolved. Nothing made agreement conditional on approval by the Government of Cameroon. Such an implied condition would not satisfy the requirements identified in Marks & Spencer v BNP Paribas [2016] AC 742.
4. The movement of the claims from “Disputed Claims” in the redline draft to “Undisputed Claims”, and deletion of the qualification that flexible terms would be discussed if agreement were reached, strongly supported the conclusion that agreement had been reached.
5. The limitation issue under section 29(5) of the Limitation Act 1980 became unnecessary because the claims were debts under the Joint Report.
6. The indemnity in clause 26 did not cover penal charges. Read in its contractual setting, it covered losses, costs and expenses incurred in serving a notice of default or taking the specified contractual steps, including termination or suspension. Its position within clause 26 and the absence of cross-references to clauses 8 and 18 meant that it was not a general indemnity for bank charges arising merely from non-payment.

• Court of Appeal (Civil Division): Appeal partly allowed. Judgment given for Sahara on the Undisputed Claims; the appeal was dismissed as to Penal Charges and Sonara’s respondent’s notice was dismissed.
• High Court of Justice, Commercial Court: Mrs Justice Cockerill dismissed Sahara’s claims, holding that the Joint Report bound Sonara as to the principal and reconciled claims but not the Undisputed Claims, and that clause 26 did not cover the Penal Charges: [2024] EWHC 3163 (Comm).