Skip to content

Advance to be repaid following force majeure event

Author
Image of Mark Dean
Mark Dean

Trainee

London

View profile →

16 December 2021

The Court of Appeal held that the natural reading of a force majeure clause in a diesel supply contract pointed to an express obligation to repay an advance payment following termination due to a force majeure event.

In a contract between Nord Naphtha and New Stream, New Stream sold diesel to Nord Naphtha via a refinery. The refinery issued a comfort letter which referred to the contract and offered certain guarantees and confirmations. As per the contract, Nord Naphtha made an advance payment to New Stream. Delivery delays occurred and were not resolved. 

Nord Naphtha terminated the contract under the force majeure provision and issued proceedings to seek repayment of the advance. 

The relevant provision stated

“…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 of Appeal held that the advance payment was to be returned. 

  1. The words “nothing herein shall impair” were merely introductory and were not words of limitation at all. New Stream’s argument that the words only “suggests the preservation but not the creation of a right” failed.
  2. The comfort letter offered no real comfort to Nord Naphtha and was commercially worthless. Accordingly, it had not made any business sense for Nord Naphtha to enter into a contract which lacked a right of repayment of the advance. 
  3. New Stream relied heavily on an early judgment to which it was party: Totsa Total v New Stream. The contract in that case contained a provision almost identical to the one in dispute this case. However, the contract in Totsa had another express provision giving a right to repayment of the advance in the event that delivery of the product did not take place “for any reason whatsoever”. The judge in Totsa said that the first clause (ie the equivalent to this case) did not itself create the obligation to repay, but begged the question of the source of that obligation. New Stream said the Court of Appeal should give the clause in this case the same meaning as the judge had to the first clause in Totsa and/or draw adverse inferences from the failure to include the second express provision. The Court of Appeal was having none of this, saying Totsa involved the consideration of a “materially different contract in order to answer a different question, set in a different context.”

Judgment: Nord Naphtha v New Stream