Commercial Court considers impact of force majeure clause on repayment obligation in sale of goods contract

In a decision earlier this year, the Commercial Court considered the impact of a force majeure clause on a repayment obligation in a contract for the sale of goods: Totsa Total Oil Trading SA v New Stream Trading AG [2020] EWHC 855 (Comm). (The judgment was given in March 2020 but the transcript has only recently become available.)

While the force majeure event in this case was unrelated to COVID-19, the decision will be of interest to financial institutions considering the ongoing impact of the pandemic. Although, under English law, force majeure is entirely a creature of contract, it is helpful to see further examples of the court’s interpretation of such clauses. Whether force majeure can be relied on, and the effect of such reliance, will depend on the proper construction of the contract and the particular circumstances of the case.

In this case, the court granted summary judgment on a buyer’s claim for repayment of an advance payment, in circumstances where (on facts assumed for the purposes of the summary judgment application) the seller had been prevented from delivering product due to a force majeure event, and the buyer had given notice terminating the contract. The court found that, on the proper construction of the contract, the repayment obligation kicked in if product was not delivered in accordance with the contract (and any agreed extension) for any reason whatsoever, including force majeure. However, where the failure to deliver was due to force majeure and that triggered an extension to the delivery timeframe, it could not be said that product had not been delivered “in accordance with the contract and any agreed extension” until the contract was actually terminated in accordance with its terms.

This decision illustrates that a valid claim to force majeure will not necessarily relieve a party of all of its obligations under the contract, such as obligations to repay advance payments for deliveries that are prevented due to force majeure. Parties negotiating force majeure provisions will wish to consider the extent to which any relevant obligations are to be affected by force majeure, and ensure the drafting is clear.

For a more detailed discussion of the decision, please see our litigation blog post.

For further legal analysis and insights in relation to COVID-19, and how we expect the crisis to operate as a catalyst for change, please visit our Catalyst Hub.