Clumsy force majeure can still work

A couple of years ago – before Covid – only lawyers had heard of force majeure clauses. As the UK went into lockdown (after lockdown, after lockdown) these clauses became very well-known and all-important.

A force majeure clause allows a party to escape liability for non-performance caused by an event outside their control. Remember, as I said before, there is no general concept of “force majeure” under English law, so including such a clause is important.

The Court of Appeal looked at this again recently although it relates to a case before lockdowns. Nord Naphtha paid $16 million in advance to New Stream Trading for it to supply ultra-low sulphur diesel. During the agreed 20-day delivery window, NST informed NN that the diesel refinery was experiencing operational and production issues. The refinery (with whom NN had no direct relationship) issued a comfort letter that it would deliver the diesel. NN later terminated the contract under the force majeure clause when the diesel was not still delivered. It also sought repayment but NST refused. There are other factors here but these are the essential ones for our purposes.

The judge at first instance observed that the “the contract was not well drafted and it is a mix of sophisticated commercial terms and other clauses which do not fit in”. The judge in the Court of Appeal agreed, calling it “clumsily drafted” but said:

It does not make any business sense for a buyer to enter into a contract which lacks a right of repayment of the advance in force majeure circumstances. It offends business common sense and ordinary common sense.

It is a relief that a Court of Appeal judge interpreted the poorly-drafted clause to make it work, thus allowing NN to be repaid.

Two lessons

There are a couple of lessons to learn here. First you should engage a contract lawyer to draft your contract. Naturally I would say that as a contract lawyer. But you shouldn’t have to rely upon the person (here, a judge) interpreting your drafting with this level of dexterity.

Secondly, force majeure provisions can save the day. Since they can be drafted in a standard form, you should be able to get this correct from the start.

If you need advice, contact me f.jennings@teacherstern.com or +44 (0) 20 7611 2338.

What's your view? Leave a comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.