Trying To Resolve Commercial Dispute? Don’t Forget The Limitation Period
The statutory time period in which legal action must be commenced can easily be missed by lawyers and businesses alike. A case illustrates just how important these limitation periods are.
The risks of failing to plan for the relevant limitation period – even if negotiations to resolve matters are looking most promising – could prove extremely costly, both financially and reputationally.
Limitation periods
The law imposes statutory limitation periods for good public policy reasons, for instance it removes the risks to entities and individuals of any open-ended risk of being sued.
However, the fact a limitation period has been missed does not necessarily mean an action is time barred: the court can exercise its discretion to extend the limitation period in exceptional circumstances.
What’s the background?
This case involved a breach of contract claim worth approximately US$44m. Energy giant Sahara Energy Resource contracted with the defendant company (Sonara) to supply it with crude oil. A dispute arose in relation to four specific cargoes delivered in 2013.
The contract terms required payment for cargoes within 4 months. Sonara failed to pay in full for one cargo until 2016, while the other three remained outstanding until 2019. However, the lengthy delays in payment meant that Sahara was charged by its banks with higher, and ultimately penal, interest.
At issue was whether those losses were recoverable - and particularly whether it was now too late for Sahara to claim its losses. Under the Limitation Act 1980, a breach of contract claim must be brought within six years from the date the action accrued. Sonara argued that the claims were time barred and Sahara could not proceed with its action.
Meanwhile, both parties had agreed to jointly contest the penal charges the banks had imposed on Sahara by entering into a joint report following a reconciliation meeting. Further negotiations with a view to a settlement were also fairly well advanced.
The High Court ruled in Sonara’s favour. It decided that all the losses derived from a single breach and not, as Sahara claimed, separate breaches and separate losses. The
single breach was the failure to make full payment within 120 days after the bill of lading date.
The court then ruled that the limitation period was not suspended by any implied agreement within the joint report. In fact, Sonara had (after the joint report) made clear that there was no agreement as to any of the claims – let alone any agreement to suspend limitation.
The claims were time barred – a crushing blow to Sahara given that the judge considered that the company would otherwise have recovered around £24.1m.
Key takeaway
A formal claim must be brought within the relevant limitation period, otherwise the claim will be time barred. Even if negotiations are well under way and court action appears unnecessary, it is unwise to allow the limitation period to expire without a claim being formally lodged.
Better to be prepared, than to risk being statute barred – especially if your case stands a good chance of success.
1Sahara Energy Resource Ltd v Société Nationale de Raffinage S.A. (Sonara) [2024] EWHC 3163 (Comm)
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