The Court of Appeal recently overturned a decision of Cockerill J at first instance on the interpretation of an agreement made between Sahara Energy and the Cameroonian state refiner SONARA.
The background is complex and best read by clicking the link here. However, the key point was that the parties met in Cameroon in September 2019 to discuss a settlement of historic claims. At the end of that meeting they divided the claims into three categories which they labelled “reconciled claims, undisputed claims and disputed claims”. They followed that up with a joint report which was stamped and signed on every page and described as “This Agreement”.
Fast forward and SONARA (which had paid late throughout) refused to pay the undisputed claims and in fact argued that they were time barred. That was a big deal given that the undisputed claims came to some Euros 77 million!
At first instance Cockerill J felt SONARA had been hard done by. She held that the “undisputed claims” were not finally agreed. To back that up she referred to some wording in the Agreement which said that the parties would “reconvene for further negotiations” on the undisputed claims and that SONARA were in, as she put it, a weak negotiating position at the time that they signed the Agreement. On this basis she held that the agreement on undisputed claims was merely an agreement to agree and thus not binding. Furthermore, she held that the claims were now time barred as there was no acknowledgement of the undisputed claims as a debt due and owing within the statutory time limit.
The Court of Appeal unanimously overturned this decision. Snowden LJ gave the leading judgment. He said that the language of the Agreement was clear. Key was the meaning of the word “undisputed” which was held to have its ordinary meaning. There was no comments column, no suggestion that the Government of Cameroon had to approve the document, and no wording indicating that liability remained open. The document called itself “THIS AGREEMENT”, and the structure of the Undisputed Claims table closely matched the binding Reconciled Claims table [49].
As regards the wording about reconvening for further negotiations, the judge rejected Cockerill J’s findings. The reference to “further negotiations” did not mean that liability remained unsettled. It was perfectly consistent with an agreement on liability while leaving the mechanics of payment to be worked out. The parties could still negotiate payment terms without renegotiating the debt itself [53].
The Court of Appeal also disagreed with the significance attached to the Government of Cameroon point. The evidence did not show that the Government had to approve the commercial agreement. At most, it suggested that government cooperation might be needed as a funding matter, not as a legal veto [69].
Two features of the drafting history reinforced that conclusion. In SONARA’s redline version, the incremental interest and FX claims had been placed in a “Disputed Claims” section. In the final signed version, they were moved to “Undisputed Claims”. A conditional phrase that had appeared in the draft was also removed. Even though draft materials were not admissible as aids to construction, they matched the meaning of the final document [66-67].
In view of the above, it was held that the claim was valid and there was no time bar point that could be taken. The final point on the indemnity provision in the Agreement fell away.
This judgment reinforces existing case law on admissibility of pre-contractual material. Evidence of negotiations and earlier drafts is generally not admissible to interpret a final written agreement, as restated in Investors Compensation Scheme v West Bromwich BS 1 WLR 896. It was suggested here that the trial judge may have been influenced by the drafting history because both parties invited reliance on it. But, once the final document was read in the ordinary way, the result favoured Sahara.
Other lessons to learn here are that the use of plain words is critical – undisputed meant just that! However, it also shows that “negotiations” can mean negotiations about payment terms and is not sufficiently clear to overturn “undisputed”.
The BDM team are often called on to interpret terms in contracts including settlement agreements. We have not experienced a case like this before possibly because the sums at issue are often considerably lower. In this case, it is perhaps understandable that the parties would want to go all the way on a dispute over Euros 77 million.
Nick Burgess
Partner
Gregory McManus
Associate
