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

The defendant, Sonol Israel Ltd, has applied to strike out the claim by Glencore Energy (UK) Ltd (“the claimant”) for US$76,260.95 in (see paragraph 1 of the Particulars of Claim) “unpaid demurrage”. It does so on the ground that the claimant’s Particulars of Claim discloses no reasonable grounds for bringing the claim because, on the facts asserted by the claimant, the claim is time barred.

The evidence on behalf of the defendant consists of two statements of Michael Biltoo, a solicitor at Waltons & Morse LLP, dated 14 July and 17 October 2011. That on behalf of the claimant consists of the statement of Edward Mills-Webb, a partner of Clyde & Co LLP, dated 27 September 2011.

Since the issue is the applicability of a time bar, I first set out the factual chronology as pleaded by the claimant. For the purposes only of this application the defendant proceeded on that factual basis, but it does not admit those facts.

The claimant entered into two contracts to sell transportation gasoil to the defendant on 15 December 2004 and 10 January 2005. The terms of the contracts are contained in letters on those dates from the claimant to the defendant. The first sentence of both letters is “as discussed, we are pleased to confirm the following sale of Transportation Gasoil subject to your agreement of the following terms”. The defendant agreed to buy a total of 18,100 metric tonnes of gasoil from the claimant to be delivered between 1 and 12 January 2005 at the port of Ashkelon in Israel; 12,500 mts under the first contract and 5,600 mts under the second contract. The claimant had purchased the cargo on cif terms from BP, which was not itself the charterer of the relevant vessel, the “Team Anmaj”. The vessel arrived at Ashkelon at 17:00 on 28 December 2004 and tendered Notice of Readiness. No berth was available, and it only arrived at its berth on 9 January 2005. Discharge was completed at 00:25 on 11 January.

BP presented its demurrage claim to the claimant on 27 April 2005. The claimant issued a demurrage invoice to the defendant on 28 April 2005. The demurrage invoice stated:

“Incurred:

WE CHARGE YOUR ACCOUNT FOR DEMURRAGE INCURRED

Demurrage value

USD 76,260.95

Due date

UPON PRESENTATION OF INVOICE

Payment

PLEASE REMIT BY SWIFT IN IMMEDIATELY AVAILABLE FUNDS…

…

Reference

QUOTE REFERENCE:- DEMURRAGE PER ‘TEAM ANMAJ’…”

Section 5 of the Limitation Act 1980 provides that “an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued”. These proceedings were launched on 19 April 2011. If the cause of action accrued on either 11 January 2005, when discharge was completed or 10 January, the last day for which demurrage is claimed, the claim is time barred. But the demurrage invoice was issued five years and 361 days before proceedings were launched. If the cause of action accrued on that date, the claim is just in time.

The date on which the cause of action accrued depends on the nature of the laytime and demurrage provisions in the sale contracts. Miss Paruk, on behalf of the defendant, submitted that on their true construction they are free-standing independent obligations by the buyer to pay demurrage. If so, it is common ground the obligation accrued day by day pro rata from the moment when the laydays expired (see President of India v LIPS Martime Corp [1998] 1 AC 395 per Lord Brandon at 422) and time has expired. But Mr Mills-Webb (statement, paragraphs 12-13) suggested they constitute obligations to indemnify the seller. He described them (paragraph 24) as contractual payment provisions reflecting the risk that sellers may be liable in demurrage which pass that risk and the payment obligation to the ultimate buyer. Miss Wilmot-Smith, on behalf of the claimant, submitted that, as either indemnities or contractual payment provisions the obligation only accrues when the buyer is presented with the relevant documents including an invoice, and time has not expired.

The defendant’s application to strike out the claim was lodged on 14 July 2011. On 18 October the claimant applied to amend its Particulars of Claim. The application states that the amendment is sought because “for reasons that are not presently clear, the defendant does not appear to have understood the claimant’s case as set out in the original Particulars of Claim”. It is stated that the claim is for sums due and owing pursuant to “laytime” and “demurrage” provisions in two contracts of sale and not a claim for demurrage under a charter-party. Paragraph 1 of the draft amended Particulars of Claim states: “The Claimant’s claim is for US$76,260.95 in unpaid monies due and owing under two contracts of sale, described therein as demurrage”. It is stated on behalf of the defendant that, if its strike out application is not successful it will not contest the application to amend, but that the amendment is evidence of the fact the claimant has attempted to reformulate its claim in the light of the application to strike out the claim.

I turn to the relevant terms of the sale contracts, which are in materially identical terms. They provide:

“Delivery:

DDU adjusted for out-turn quantity, one safe port/one safe berth Ashkelon which shall be delivered within the period 1 – 12 January 2005.

Delivery to buyers’ storage facilities directly or via port storage facility. Buyers’ responsibility to arrange pumping schedule with port facility for quantity stored.

Buyers to ensure they arrange to receive full allocated quantity as confirmed by independent inspectors.

…

Laytime:

Laytime allowed for discharging is 48 hours, Sundays and holidays included, pro rata for part cargo (if applicable).

If vessel arrives within the contractual laycan, laytime shall commence berth or no berth six hours after notice of readiness has been tendered at nominated or ordered anchorage or when vessel is all fast in berth, whichever occurs first.

If vessel arrives and tenders her notice of readiness before the contractual laycan, laytime shall commence, berth or no berth, six hours after the beginning of the contractual laycan or when the vessel is all fast in berth, whichever occurs first.

If vessel arrives and tenders her notice of readiness after the contractual laycan, laytime shall commence when vessel is all fast in berth.

Demurrage:

As per charter-party rate, terms and conditions.”

The charter-party to which the sale contracts refer is contained in or evidenced by a fixture recap dated 30 November 2004. The material provisions of the fixture recap are:

“DEMURRAGE US$26,000 PDPR

LAYTIME 84 HRS SHINC

…

EXXONVOY 84 WITH FOLLOWING AMENDMENTS”

The material provisions of the Exxonvoy 84 charter-party are:

“13 LAYTIME/DEMURRAGE

(a)

COMMENCEMENT/RESUMPTION. Laytime or time on demurrage, as herein provided, shall commence or resume upon the expiration of six (6) hours after receipt by charterer or its representative of notice of readiness or upon vessel’s arrival in berth, whichever occurs first. Laytime shall not commence before 06:00 local time on the commencing date specified in part I(B) unless charterers shall otherwise agree, in which laytime shall commence upon the vessel’s arrival in berth.

…

(b)

PAYMENT. Charterer shall pay demurrage per running day and pro rata for a part thereof for all time by which the allowed laytime specified in part I(I) is exceeded by the time taken for loading and discharging, and for all other charterer’s purposes and which, under this charter, counts as laytime or as time on demurrage.”

…

I should also set out clause 35 of the charter-party. Although, at the hearing it was common ground that it was an ancillary provision and (see OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep. 160) not incorporated into the sale contract. But, (see the discussion at [24]), Miss Willmott-Smith placed some reliance on it. It is headed “WAIVER OF CLAIMS” and provides:

“Any claim for freight, dead freight, demurrage and/or charges or expenses under this charter shall be deemed waived, extinguished and absolutely barred if such claim is not received by charterer or owner, as the case may be, in writing with supporting documentation within 180 days from the final date of discharge of the cargo on the voyage with respect to which said claim arises. This clause shall not apply with respect to claims for damage, loss, or shortage of cargo”.

I start with a point in Miss Wilmot-Smith’s written submissions but not developed at the hearing. In paragraph 9 of her skeleton argument she submitted that the defendant’s strike-out application is misconceived because the proper meaning of “demurrage” provisions is a question of construction; as with all questions of construction, the factual matrix is relevant; and the Court must approach the task of contractual construction against the relevant commercial background. It is undoubtedly correct that the Court must approach the task of contractual construction against the relevant commercial background. Miss Wilmot-Smith did not, however, suggest that the claimant would be adducing additional evidence if this case proceeds to trial or disagree with Miss Paruk’s submission that the Court has all the evidence necessary for it to make a decision before it. So, the position is that the application gives rise to a short point of law, the parties have addressed it in argument, and there is no suggestion that the Court does not have before it all the evidence necessary for a proper determination. The principles applied by the Court in the context of summary judgment are of assistance. In that context it has been said (ICI Chemicals & Polymers Ltd v TTE Training Ltd. [2007] EWCA Civ 725) that the mere possibility of some further evidence arising does not justify the court allowing a case to go forward to trial.

Miss Wilmot-Smith’s submissions can be summarised thus:-

Miss Paruk submitted (skeleton argument, paragraph 26) that there is “nothing” in the sale contracts or the terms incorporated from the charter-party which alters the well-established position that a claim for demurrage is a claim for liquidated damages payable as a result of the improper detention or delay of the vessel. If by this she meant that there are no indications that can be seen as pointing the other way, she has put the matter too high. But, notwithstanding the force of Miss Wilmot-Smith’s submissions, for reasons I shall give, such indications as there are do not lead to the result for which she contended. The terms of the demurrage and laytime provisions in the sale contracts and the authorities upon which Miss Paruk relied have led me to conclude that in the circumstances before me the claimant’s case should be struck out.

I start with the decision of the Court of Appeal in The Devon [2004] 2 Lloyd’s Rep. 282. Mance LJ gave the leading judgment. On the issue that arises in the present case, Judge LJ gave a concurring judgment, and Sir Richard Buxton dissented. Mance LJ reviewed the authorities dealing with the position where there is some form of cross-reference in the sale contract to a charter-party under which demurrage liability may arise. He stated (at [42(vi]) that there are broadly two situations. In the first, “the sale contract creates a liability for demurrage by way of ‘indemnity’”. In the second “the sale contract provisions simply refer to or incorporate provisions of a charter-party … in an otherwise independent sale contract”. Miss Wilmot-Smith relied on Mance LJ’s earlier statement (see [42(i)(ii)]) that the scope and effect of provisions in a sale contract regarding laytime and demurrage is a question of construction and that such provisions should be approached without any pre-conceptions or presumption as to their likely nature. She also relied on the statements in the commentaries that the position of “demurrage” provisions in contracts of sale is not necessarily the same in charterparties: Schofield, Laytime and Demurrage 6^th ed, (2011) 6-284; Benjamin’s Sale of Goods (8^th ed) 19-089.

Notwithstanding what might be described as a neutral starting point, in his judgment in The Devon, Mance LJ emphasised (at [33]) the advantage in terms of commercial certainty for parties to know precisely where they stand. He stated that parties may find it simpler and more acceptable to agree and operate an independent scheme “which means that, in the event that delay occurs, they will know precisely where they stand, rather than to contract on a basis which makes their rights inter se depend upon the rights and liabilities of one of them, and possible disputes under some actual or future contract with a third party”. Achieving such certainty is one of the perceived benefits of liquidated damages clauses, a factor to which Mance LJ also referred. He stated (see [34], [38], and [42(iii)]) that an independent demurrage provision in a sale contract adopting the demurrage rate in the charter-party can, subject to the law on penalties, be justified as a genuine pre-estimate of the receiving party’s exposure, rather than making what he described as “a best guesstimate” of future demurrage rates.

The starting point may be neutral and free of pre-conceptions or presumptions, and, where there is some form of cross-reference in a sale contract to a charter-party or other contract under which demurrage liability may arise, the nature, purpose, and effect of the cross-reference becomes critical. But it is clear both from Mance LJ’s judgment and the earlier cases that some factors are of particular significance. One of these is where the sale contract demurrage clause incorporated only the demurrage rate in the charter-party. Mance LJ (at [45]) regarded the fact that the sale contract demurrage clause in The Devon incorporated a rate “and no more” as “most important” and a pointer to the clause in the sale being a free standing independent demurrage obligation. In the present case, however, the clause provided “as per charter-party rate, terms and conditions” so this factor does not assist the defendant. Miss Paruk was correct not to press her initial submission (skeleton argument, paragraph (b) and (c)) that the natural meaning of the words used to refer to the charter-party in the sale contract demurrage clauses in this case is no wider than in The Devon and can only refer to the demurrage rate.

But there is another important factor which provides considerable assistance to the defendant. This factor is whether the sale contract contains laytime provisions, and, if so, whether they coincide with those in the charter-party. In the present case the laytime provision in the charter-party is “84 hours SHINC” but that in the sale contracts is “48 hours, Sundays and holidays included”. Miss Paruk submitted (skeleton argument, paragraph 38(a)) that the provision in the sale contracts is inconsistent with that in the charter-party. Whether or not that is logically so, they clearly do not coincide.

In The Devon Mance LJ stated (at [44], and see also [40]) that “as soon as one has a situation where the laytime provisions may not coincide, problems…arise about treating sale contract demurrage provisions as operating by way of indemnity in respect of charter-party liability” (emphasis added). This, he stated, was because the sale contract laytime would have to be read not as a period after which demurrage would be payable, but as a minimum discharging period which must elapse before demurrage might become payable.

The earlier decisions in Gill and Dufuss SA v Rionda Futures Ltd [1994] 2 Lloyd’s Rep. 67 (Clarke J) and OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep. 160 (Colman J) and considered in The Devon also accorded importance to this factor. In OK Petroleum (at 164) Colman J stated that the conclusion that the sale contract contained an independent demurrage obligation “must follow” from the express provisions in it for laytime. See also Clarke J in Gill and Dufuss at 77. It is clear from these authorities that where a sale contract incorporates the terms of a charter-party relating to demurrage in an otherwise independent sale contract containing, for example, provisions about laytime, that the obligation in the sale contract is generally to be construed as an independent demurrage obligation and not as an indemnity.

I turn to Miss Wilmot-Smith’s submission that the defendant’s approach does not make commercial sense. One limb of this (see [14(e)]) was that the defendant’s construction involved the cause of action accruing before 10 January 2005 when the second sale contract was concluded, with the result that the claimant being subjected to an obligation that it was impossible to perform at the date of contract. The claimant would be liable for delay that occurred before the contract was concluded. Miss Paruk contended that the second sale contract was concluded prior to 10 January 2005, the date of the letter, but that is a factual submission and in any event (see [3]) is inconsistent with the basis on which the defendant stated it was proceeding for the purposes of this application.

Despite the initially attractive nature of Miss Wilmot-Smith’s submission, on closer examination it does not grapple with the fact that, even on the claimant’s case, whereby the cause of action would accrue on presentation of the claim, the defendant would be liable for delays caused prior to the formation of the second contract. Moreover, in a case such as this where (see Mr Mills-Webb’s statement, paragraph 23) performance was largely completed before the contract is concluded, there is no reason in principle why a cause of action could not accrue at that time as well. Compare the position where parties act on an informal understanding which is not binding and a formal contract made later is held to have retrospective effect: Trollope & Colls Ltd v Atomic Power Construction Ltd. [1963] 1 WLR 333.

The other limb of Miss Wilmot-Smith’s “commercial unattractiveness” submission is that, on the defendant’s approach, parties, who were “far removed from the underlying charter-party” would be unable to “quantify the claim for demurrage” at the time the obligation accrued. There are, however, no payment provisions in the sale contracts themselves providing or indicating that a documented claim is a prerequisite to the accrual of the cause of action. Miss Wilmot-Smith recognised that the defendant’s initial reliance on clause 35 of the charter-party was misconceived because, as an ancillary provision, it was not, in the light of, for example, OK Petroleum AB v Vitol Energy SA, incorporated into the sale contract. In any event, clause 35 is itself not a payment mechanism but a “waiver” clause.

There may, in these situations, and notwithstanding the advantages of liquidated damages clauses, be some uncertainties. See for example, albeit in relation to uncertainty at the time of contracting, the cases in which no charter-party has been entered into when a sale contract containing a reference to a demurrage rate in the charter-party is made and the demurrage rate is unknown: OK Petroleum at 163; in Gill & Duffus’s case there was, however, a standard agreement on demurrage on the route. More fundamentally, even if the obligation to tender payment depends on the presentation of a documented claim; that does not necessarily affect the accrual of the cause of action. So, for example in The Sabrewing [2008] 1 Lloyd’s Rep. 286, (see [14(c)]), the presentation of a documented charter-party demurrage claim was held to be important, and subject to the qualification in The Eternity [2008] EWHC 2480 (Comm) to which I have referred, failure to do so may trigger the operation of terminus ad quem of a demurrage time bar. But that does not necessarily affect the time the obligation first accrues or the general rule, to which I have referred (see [7]), that an obligation to pay demurrage does so day by day pro rata from the moment when the laydays have expired.

The claimant’s case, that no cause of action accrued until it presented its claim for demurrage, would permit it to present a claim long after discharge was complete and thus prevent the cause of action accruing until that time. That, as Miss Wilmot-Smith recognised during the course of the hearing, is commercially very unattractive. She reformulated the claimant’s position and submitted that the seller would be under an implied obligation to present its claim within a reasonable time. Although clause 35 of the charter-party was not incorporated into the sale agreement, she suggested the 180 day period in it was relevant in ascertaining what period of time is reasonable. Quite apart from the fact that clause 35 is a “waiver” clause and not a payment mechanism, there is no evidence before the court as to this and, as I have stated (see [13]), it was not suggested that there would be any more evidence if the matter proceeds to trial.

In any event, the suggestion that a term to this effect be implied into the sale contract sits uncomfortably with Miss Wilmot-Smith’s submissions as to the need for certainty in this context. Moreover, it does not chime with what Mance LJ, in The Devon, stated was the rationale for regarding the inclusion of express provisions for laytime in a sale contract as an important factor in construing its provision on demurrage as an independent demurrage obligation, see [33].

For these reasons, the defendant’s application is granted and the claim is struck out as time-barred.