Contractual limitation, set-off and administration

In Contract Natural Gas v Zog Energy, both parties appointed administrators in December 2021 and subsequently entered CVL in 2023. The contract between the parties contained a clause barring any claims issued after 12 months of the date of any breach. In 2022, Contract Natural Gas (CNG) submitted a proof of debt in Zog’s administration based on 16 invoices. They were rejected by Zog’s liquidators in 2023 on the basis they had become time barred. In between, Zog’s administrators sought permission to issue proceedings for breach of contract against CNG. Proceedings were issued and stayed, and Zog then submitted a proof of debt in CNGs administration of c. £13m. Those claims were brought within the 12-month limitation period.

It has been held for some time that limitation periods cease to run in liquidation but not administration as a statutory trust arises in the former, but not the latter. Amendments made by the Enterprise Act 2002 now enable administrators to effect distributions in certain circumstances. The court reaffirmed none of these changes altered the rule on limitation periods, meaning all but 6 of the debts set out in CNG’s invoices were time barred. It did, however, confirm CNG could still rely on a set off in respect of the sums proved by Zog – this was because the relevant contractual term only barred the remedy, rather than extinguishing the liability altogether.  
 
A few interesting points come out of this case:

• Creditors need to be alive to the need to preserve their claim in administration, either by way of an acceptance of it, or by issuing proceedings and staying them, particularly if there are extensions to the administration
•  An acknowledgement of the debt in a statement of affairs does not extend the time limit where there is a contractual bar, absent an express provision to the contrary
• It appears the clock may stop running once an administrator gives notice of an intention to make a distribution, although this point was not determined in this case
• The effect of a clause barring the remedy meant the claim could still be relied on for the purposes of a set off even once the time period had passed.

Contract Natural Gas Ltd v Zog Energy Ltd [2025] EWHC 86 (Ch)

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