The Court of Appeal has dismissed an appeal against a Commercial Court decision that a buyer was entitled to the repayment of an advance where there had been non-delivery for force majeure reasons. In doing so, the court found that, as a matter of construction, the contract between the parties obliged the seller to make repayment in the circumstances, both because that was the natural meaning of the language and because a different construction would offend business common sense: Nord Naphtha Limited v New Stream Trading AG [2021] EWCA Civ 1829.
Whilst 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. Of note is the Court of Appeal’s comment that it would be “surprising” if a contract for the sale of goods did not include a provision requiring the return of an advance payment in the event of non-delivery. The court considered this to be a reasonable starting point for the construction of such a clause. Nonetheless, the court’s criticism of the contract’s “clumsy drafting” serves as a reminder that the terms of a repayment obligation – or indeed any contractual provision – should be clearly expressed to avoid the sort of dispute that arose in this case.
The decision is also a reminder that, as stated in the leading Supreme Court decision Wood v Capita [2017] UKSC 24 (considered here), construction is a “unitary exercise”, in which it does not matter whether the analysis starts with the contractual language or the relevant context so long as the court balances the indications given by each. The present case demonstrates the importance of considering the commercial consequences of differing contractual constructions as part of this unitary exercise.
For a more detailed discussion of the decision, please see our litigation blog post.
For further information, please contact:
Harry Edwards, Partner, Herbert Smith Freehills
harry.edwards@hsf.com
