The sellers under a sale contract, which incorporated English Law, commenced arbitration in December 2005 despite the fact that discharge had been completed in June 1999, on the basis that the buyers had on their own calculations acknowledged as due part of the demurrage claimed in a message of May 2000. The buyers disagreed. Their laytime calculations were first produced at a without prejudice meeting and, they argued, the calculations retained this character when subsequently re-submitted in May 2000, despite the fact that there was no without prejudice heading.
The issue for determination by the judge was whether the communication from the buyers in May 2000 constituted an acknowledgement of indebtedness for the purpose of the s29(5) Limitation Act 1980.
English Law, as a general rule, provides that the period of limitation for contractual disputes is six years. However, there are exceptions to the general rule which are set out in s29 Limitation Act. The sellers relied on s29(5) which provides as follows:
‘….where any right of action has accrued to recover –
(a) any debt or other liquidated pecuniary claim
and the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it the right shall be treated as having accrued on and not before the date of the acknowledgement of payment.’
Following completion of discharge sellers submitted their laytime calculations to buyers. Buyers did not agree with the same and in September 1999 a meeting was held between the parties to discuss various outstanding matters, wherein buyers presented their counter laytime calculations. The meeting was not expressly referred to as being held on a ‘without prejudice’ basis, however, the parties agreed that that was the intention.
Subsequent to the meeting, in May 2000, sellers requested buyers to present their calculations. Buyers responded on the same day and provided their laytime calculations with an accompanying message simply stating that they believed the calculation had already been provided at the meeting and attached the same again.
In reaching his decision Mr. Flaux stated that it would not always be the case that a document which is first produced on a without prejudice basis would retain this status when provided at a later date. However, when looking at the circumstances of this matter the counter laytime calculations had not changed their character and therefore, could not be construed as an acknowledgement which was capable of re-starting the period of limitation.
This point of law is not new as the courts will often look at the intentions of the parties in order to determine whether in fact the communications are a genuine attempt at settlement and therefore properly characterized as being without prejudice, regardless of how the parties themselves have characterized the same. In English & American Insurance v Axa[1] a letter was produced following a without prejudice meeting wherein, reinsurers provided a statement of their position and a conditional offer to settle. Reinsurers deemed that the communication was without prejudice (despite the lack of a without prejudice heading) and that, therefore, this could not be relied upon in court. However, it was held by Mrs. Justice Gloster that the scheme administrators for the insurance company had requested reinsurers to set out their position in order that they were able to have a record of the same and therefore, the letter itself was deemed to be an open statement and capable of being produced in court.
In the instant case Mr. Flaux then went on to hold that irrespective of whether the re-submission of the laytime calculations could properly be construed as being without prejudice, the question remained as to whether the communication in May 2000 was sufficient for the purposes of re-starting the limitation period for the purposes of s29(5). In Surrendra v Sri Lanka[2] Mr. Justice Kerr had set out that for the purposes of the act the ‘debtor must acknowledge his indebtedness and legal liability to pay the claim’. Applying this to the instant claim Mr. Flaux held that neither the covering message nor the calculations themselves could be construed as amounting to such an acknowledgement of indebtedness or legal liability. As such, sellers’ claim was time barred.
This final part of the judgement may well have implications outside the interpretation of the Limitation Act; if the submission of a laytime calculation is not in itself an acknowledgement of a legal liability then something more will be required in order that it is deemed that there is an offer to pay the sum reflected within the calculations.
Lia Oil S.A. v ERG Petroli S.P.A [2007] EWHC 505 (Comm)
[1] [2006] EWHC 3323 (Comm.)
[2] [1977] 1 WLR 565
