The court of appeal vs a poorly drafted force majeure clause

To act as a brief aide-mémoire, a force majeure clause allows parties to suspend and / or delay performance of their obligations as a result of unpredictable and unforeseeable events without incurring any liability for default.

The recent case of Nord Naphtha (buyer) v New Stream Trading (seller) came before the Court of Appeal in 2021 and contained a particularly unusual force majeure clause. The parties had entered into a contract on 21 February 2019 relating to the supply of ultra-low sulphur diesel and prepayment was required to be made no later than the 22 February 2019. As such, the delivery dates were stipulated within the contract to occur between 5 – 25 April 2019; eight days’ before the delivery dates expired the seller informed the buyer of a force majeure event which affected their ability to source of the ultra-low sulphur diesel. The seller sought to rely upon the drafting of the force majeure clause to suspend / delay performance of their obligations, the clause stated:

‘Subject to any agreement between the parties in relation to deliveries after termination of Force Majeure Event or any variation of the contract with regard to the delivery affected by Force Majeure Event, in case of termination of the contract, nothing herein shall impair the obligations by the seller to repay to the buyer the amount of the advance payment or any Outstanding Advance Amount under this contract in the event that the delivery of the product is not made or only partially made due to Force Majeure Event.’

The court focused particularly upon the latter portion of the clause (underlined above) in its decision. The deputy judge went as far to say that it would be ‘a very surprising result’ if a buyer had no ability to reclaim or recover prepayments in any circumstances and as such the above clause should be construed to infer an express obligation to reimburse prepayments. Alternatively, if such an interpretation was wrong, then the deputy judge held that a repayment obligation is ‘so obvious’ that it would fulfil the requirements to be included as an implied term anyway.

This judgement once again reaffirms the importance of carefully drafting force majeure clauses as the consequences for getting it wrong can be costly.