Commercial Court Considers The Nature Of Laytime And Demurrage Provisions In A Sale Contract

Glencore Energy (UK) Limited v. Sonol Israel Limited (Team Anmaj) EWHC 2756 (Comm)

The Commercial Court has recently issued a judgment in the above matter involving a consideration of the incorporation of laytime and demurrage provisions from a charterparty into separate sale contracts and, in particular, the time at which the obligation to pay demurrage accrued under the sale contracts.

The background facts

This dispute arose out of contracts for the sale of gas oil from Glencore ("sellers") to Sonol ("buyers") on a DDU basis. The parties concluded two contracts providing for the goods to be delivered between 1 and 12 January 2005 at the port of Ashkelon, Israel.

The sale contracts set out a regime for the commencement and running of laytime and, as regards demurrage, they provided "Demurrage: As per charter-party rate, terms and conditions". It is not necessary to set out the laytime and demurrage provisions from the relevant charterparty in this article, save to say that the charterparty laytime provisions did not coincide with those contained in the sale contracts.

The vessel arrived and tendered notice of readiness at Ashkelon on 28 December 2004 but no berth was available until 9 January 2005 and discharge was not completed until 11 January 2005. The sellers issued a demurrage invoice to the buyers on 28 April 2005 and eventually issued proceedings on 19 April 2011. The buyers sought to have the claim struck out on the basis that it was time-barred under Section 5 of the Limitation Act 1980, as the proceedings had not been commenced within 6 years from the date on which the cause of action accrued.

The issues for the Commercial Court

The key question for the Commercial Court was the date on which the sellers' cause of action accrued. The buyers contended that the relevant time was either (a) the completion of discharge or (b) the last day for which demurrage was claimed. In either case, the claim fell foul of the Limitation Act and was time-barred.

The sellers, on the other hand, contended that the cause of action did not accrue until the demurrage invoice was issued on 28 April 2005. In this case, the proceedings would have been issued (just) in time.

The issue turned on the nature of the laytime and demurrage provisions contained in the sale contracts and whether these created an independent obligation for the buyers to pay demurrage or merely an obligation to indemnify the sellers for any demurrage that they themselves had...