Nord Naphtha Limited v New Stream Trading AG

A force majeure clause is construed objectively in its contractual and commercial context. Where its substantive wording states that the seller must repay an advance if force majeure prevents, or partly prevents, delivery, introductory language that nothing in the clause shall impair that obligation does not merely preserve an obligation created elsewhere. It creates and confirms the repayment obligation. An interpretation leaving a buyer unable to recover a substantial advance for undelivered goods requires clear language, particularly where a related comfort letter offers no effective protection.

Nord Naphtha paid New Stream an advance of US$16,059,600 under a contract for the sale of diesel. Delivery failed following a force majeure event at the refinery from which New Stream intended to source the product. Nord Naphtha validly terminated the contract and sought repayment.

The Commercial Court granted summary judgment for Nord Naphtha. New Stream appealed, contending that clause 14.5 did not create a repayment obligation and that any repayment protection lay in a refinery comfort letter. The central issue was whether clause 14.5 obliged New Stream to repay the advance upon non-delivery caused by force majeure.

1. Appeal dismissed. Lady Justice Whipple, with whom Dingemans and Newey LJJ agreed, held that clause 14.5 gave Nord Naphtha an express right to repayment of the advance when force majeure caused non-delivery.

2. Contractual interpretation is objective and unitary. The court must read the language chosen against the contract as a whole, the relevant factual background and the commercial consequences of the competing constructions. That approach accorded with [1998] 1 WLR 896 and [2017] UKSC 24.

3. The operative part of clause 14.5 was the statement of the seller’s obligation to repay the buyer the advance if delivery was not made, or was only partly made, due to force majeure. The opening words, stating that nothing in the force majeure clause should impair that obligation, were introductory. They neither limited nor displaced the clear repayment obligation that followed.

4. New Stream’s construction would make the whole of clause 14.5 redundant, since it would preserve a repayment right which existed nowhere in the contract. It would also expose the buyer to loss of its advance despite non-delivery. The force majeure provisions, read as a whole, instead aimed so far as possible to restore the parties to their pre-contract positions. Clear language would have been needed to impose the commercially uneven allocation for which New Stream contended.

5. The refinery comfort letter did not alter that conclusion. It was revocable in the circumstances that arose and had expired before termination. It provided no effective commercial explanation for depriving the buyer of a contractual repayment right.

6. Totsa Total Oil Trading SA v New Stream Trading AG, [2020] EWHC 855 (Comm), concerned a materially different contract containing a separate repayment clause. It did not address whether the equivalent force majeure wording itself created an obligation, and was therefore inapplicable. Since clause 14.5 was sufficiently clear, no implied term was required.

• Court of Appeal (Civil Division): dismissed New Stream’s appeal and upheld the conclusion that clause 14.5 required repayment of the advance following force majeure non-delivery.

• High Court of Justice, Business and Property Courts, Commercial Court (QBD): on 20 November 2020, Charles Hollander QC, sitting as a Deputy High Court Judge, granted Nord Naphtha summary judgment for repayment of the advance.