In Sahara Energy Resource Ltd v Société Nationale de Raffinage SA [2026] EWCA Civ 54, the Court of Appeal overturned the decision of the Commercial Court awarding Sahara US$77 million. However, the Court of Appeal did not overturn all the Commercial Court's decision. Oil and gas practitioners will be interested in the Court of Appeal’s approach to the relationship between a limitation of liability and indemnity provision that seemed to point in opposite directions, as the limitation provision held sway.
For CMS’s previous analysis of the Commercial Court’s decision, see the CMS Annual Review of Developments in English Oil and Gas Law (2025 Edition).[1]
Facts
Sahara Energy Resource Ltd (‘Sahara’) trades crude oil. Société Nationale de Raffinage SA (‘Sonara’) is a Cameroonian state-owned crude oil refinery. Sahara supplied multiple cargoes of crude oil to Sonara between 2013 and 2016, financed by major banks. The case concerned claims by Sahara against Sonara for breach of contract dated 14 January 2013 and various further crude oil contracts concluded in 2014, 2015 and 2016.
Sonara repeatedly delayed payment for several crude oil cargoes, in some cases by up to six years. Sahara brought claims to recover not only the principle and contractual interests (which were eventually paid), but also additional losses: Incremental interest, excess interest and penal charges imposed by its banks, penalties for late payment under letters of credit, and Foreign Exchange Losses (‘FX Losses’) due to currency fluctuations, resulting from Sonara’s delayed payments in relation to the various crude oil cargoes.
The parties held a series of reconciliation meetings, culminating in a ‘Joint Report’ in 2019 (‘Joint Report’). This summarised the agreed and disputed claims but did not resolve all issues: Disputes remained between the parties over the status of certain claims and the effect of the Joint Report. In particular: (i) certain claims were included under a heading “Undisputed Claims”; (ii) certain claims were included under a heading ‘Resolution’; and (iii) there was a separate clause which stated the parties would reconvene later for “further negotiations on the undisputed claims”.
Further, Sonara disputed Sahara’s claims on several grounds including: (a) That the limitation period started running for each cargo when the payment fell due, making all relevant causes of action time-barred; and (b) that the losses were excluded by the contract.
Commercial Court Decision
In the CMS Annual Review of Developments in English Oil and Gas Law (2025 Edition) we set out the Commercial Court’s findings in relation to remoteness and limitation, namely: (i) Were certain losses excluded as “directly consequential losses”; and (ii) were Sahara’s claims for losses time-barred under the Limitation Act 1980? On both points, the Commercial Court found for Sonara.
To reach its decision, however, the Commercial Court was required to consider the status and impact of the Joint Report: Sahara’s claim for incremental interest on the unpaid amounts, together with its claim regarding the FX Losses were both classified as “Undisputed Claims”. It was the Commercial Court’s approach to and treatment of the “Undisputed Claims”, that formed the basis of Sahara’s appeal.
No legally binding agreement
The Commercial Court decided that no legally binding agreement existed in relation to the claims for incremental interest and FX Losses, notwithstanding the use of the words “Undisputed Claims” in the Joint Report. This finding was based on:
- The wording of the Joint Report which stated: “[…] The Parties will reconvene for […] further negotiations on the Undisputed Claims”. The Commercial Court found “Undisputed” did not really mean ‘undisputed’. Rather, it indicated the parties were yet to agree, given the Joint Report provided for “further negotiations”. In coming to this decision, the Commercial Court relied on ‘admissible background’, which it was held demonstrated the parties had not agreed on the “Undisputed Claims”.
- Any legally binding agreement between the Parties in relation to the Undisputed Claims was conditional on the prior approval by the Government of Cameroon on which Sonara, a state entity, was financially dependent. A provision in the Joint Report for the submission of supporting documents to the Government of Cameroon supported this conclusion.
At best, the Commercial Court found that the Joint Report was ‘an agreement to agree’, meaning that it lacked the finality required to be enforceable under English Law.
Indemnity
In addition, there was an indemnity which provided: “The buyer shall indemnify and hold the seller harmless from all losses, damages, costs and expenses including legal fees that the seller would not have incurred but for the event of default and/or the exercise by the seller of any of its remedies hereunder”.
The Commercial Court decided that this provision did not indemnify Sahara for excess interest and penalty charges which had been levied by Sahara’s banks for its failure to make payment on various letters of credit which it had used to finance the relevant cargoes (“Penalty Charges”).
Court of Appeal Decision
The Court of Appeal: (i) Reversed the Commercial Court’s decision and awarded Sahara US$77million in respect of the “Undisputed Claims”; but (ii) upheld the Commercial Court’s decision on the Penalty Charges.
Contractual Interpretation
The Joint Report was found to be a binding legal agreement. Once it is established that the Joint Report was a binding legal agreement, the question of whether it extended to the claims for “Undisputed Claims” (Incremental Interest and the FX Differential) is a question of interpretation of the agreement.
In this respect, the Court of Appeal decided that “Undisputed Claims” carried an obvious meaning, reached using basic principles of contractual interpretation, i.e. by giving words their natural meaning:
- Based on the natural meaning of ‘undisputed’, the immediate conclusion was that Sonara had accepted both liability and quantum for the “Undisputed Claims”.
- The reference to “further negotiations” that the Commercial Court relied on to support its interpretation, ought to be understood as going to the mechanics of how the claims would be dealt with (e.g. flexibility of the payment terms, schedule of payment for the undisputed amounts and so on), rather than liability.
- Therefore, it was unnecessary for the Commercial Court to adopt what the Court of Appeal called a “strained” interpretation of words to give meaning to any negotiations that followed.
Prior Approval
In relation to the prior approval said to have been required by the Cameroon Government, the Court of Appeal found that such approval was neither expressly nor impliedly required under the terms of the Joint Report to make the Claims binding on Sonara.
Documents could have been provided to the Government of Cameroon for the purposes of enabling it to determine how much financial support (if any) to extend to Sonara to help Sonara meet its liabilities. However, submission of documents did not grant the Government of Cameroon a veto right over whether Sonara could incur the liability at all. Notably, the Court of Appeal identified an internal inconsistency in the Commercial Court’s reasoning, querying why prior government approval was considered necessary in respect of the “Undisputed Claims”, but not the other categories of claim within the Joint Report, such as the “agreed” and “reconciled” claims.
By allowing Sahara’s appeal, the Court of Appeal confirmed that the Joint Report created binding obligations in respect of the “Undisputed Claims”. That finding rendered the Commercial Court’s earlier analysis on limitation irrelevant: The “Undisputed Claims” crystallised as contractual debts on the signing date (5 September 2019), thereby side-stepping previous limitation issues.
Indemnity
The indemnity was part of Clause 26. In turn, Clause 26 provided for a list of specified events of default (relating to breach and non-breach events) and rights exercisable, on Sahara’s discretion, on the occurrence of an event of default.
The Court of Appeal agreed with the analysis of the Commercial Court that the indemnity did not apply to Penalty Charges, as (amongst other things) such a generous reading to the application or breadth of the indemnity wording would “cut across the contractual scheme”. The wording was not an overriding indemnity provision but rather a specific indemnity aimed at the “loss, damage, costs and expenses including legal fees” that would arise from the exercise of remedies under Clause 26. That conclusion arises from looking at the wording in the round, including:
- The role of Clause 26 overall in the contract
- the structure of Clause 26;
- the positioning of this wording in the text, which follows on from the remedies of the seller and is placed after a paragraph which deals with the effects of one of those remedies (suspension); and
- the specific reference to exercise of remedies.
Essentially the indemnity was designed to mop up losses and costs incurred, in circumstances where an event of default is declared and/or if any steps are taken under it.
In addition, the Court of Appeal made the following observations:
- If the indemnity clause had the wide meaning for which Sahara contended, then it would potentially cut across the specific provisions of Clauses 8 (Payment) and 18 (Liability); and yet the contract contained no indication that the parties regarded Clause 26 as having potential application in the same situation as Clauses 8 or 18.
- The indemnity clause appears after the definitions of an “Event of Default” in “A/” to “H/”. It also follows the operative parts of the clause that commence with the introductory words “UPON THE OCCURRENCE OF AN EVENT OF DEFAULT…”. That positioning plainly envisages that the indemnity clause was only meant to apply after an Event of Default had occurred and if the seller had given formal notice in writing to the buyer of the occurrence.
- Sahara’s argument (to contrary effect) is essentially based upon reading the words “and/or” in the Indemnity Clause disjunctively, so that the indemnity applies immediately upon the occurrence of an Event of Default and irrespective of whether Sahara had taken any actions under Clause 26. That is far too wide a reading. The purpose of using the words “and/or” was simply to avoid any doubt that the indemnity would apply to both costs and expenses etc resulting from Sahara serving notice to accelerate Sonara’s liabilities after an Event of Default, as well as to any separate costs of taking any of the further steps specifically identified in the clause.
Comment
In respect of the indemnity, the Court was required to wrestle with the difficulty that:
- The limitation clause sought to limit liability to the normal measure of damages under the Sale of Goods Act (the difference between the contract price and market price) and any “directly consequential loss”.
- An event of default included any failure by Sonara (the buyer) to make payment or failure to comply with its other obligations under the agreement.
- As such, an isolated and natural reading of the indemnity for an event of default may have had the effect of negating the limitation clause in respect of any non-payment or other breach by Sonara.
Objectively, it might be said, that was unlikely to have been the parties’ intention. In approaching this issue, the Commercial Court and the Court of Appeal sought to arrive at an interpretation that was harmonious between the payment, limitation and indemnity provisions. That is undoubtedly the approach that English law has traditionally taken. In turn, this resulted in the scope of the indemnity being restricted. However, whether that truly reflects the ‘tug-of-war’ that really occurs in the negotiation of energy transactions is more debatable. In practice, there are many circumstances where a party that seemingly ‘gives ground’ on a limitation of liability provision may seek to ‘gain the same ground back’ through a widely worded indemnity.
The take-away for those drafting such contracts is: Seeking to rely on a general indemnity clause, especially when it is at the back of the contract and embedded with a certain scheme of provisions that might suggest the indemnity applies to only that scheme, may be difficult.
The remainder of the Court of Appeal’s decision is largely an affirmation of the modern approach to construction and interpretation. Once a contract is found to exist, where it is between sophisticated commercial parties, primacy will usually be given to the natural and ordinary meaning of the words used.
On 29 June 2026, the UK Supreme Court formally rejected Sonara’s application for Permission to Appeal.
Commercial Court Judge: Cockrill J
Court of Appeal Judges: Popplewell LJ, Phillips LJ, Snowden LJ.
CMS Annual Review of Developments in English Oil and Gas Law | Page 36 - Sahara Energy Resource Ltd v Société Nationale de Raffinage S.A (Sonara) [2024] EWHC 3163 (Comm).
