Company wins contract dispute to recover $16m advance

A company has succeeded in recovering a $16m advance payment after a force majeure event prevented one of its suppliers from fulfilling a contract on time.

The case involved Nord Naphtha Ltd and New Stream Trading AG (2020).

New Stream had agreed to deliver 30,000 tons of ultra-low sulphur diesel to Nord on 21 April 2019.

The contract required Nord to make an advance payment of 90% of the value of the goods. The refinery that was to supply the seller with the diesel was to provide a letter of comfort.

The contract provided that the time for delivery was to be extended if a force majeure event occurred, and if the delay was more than 30 consecutive days either party could terminate the contract.

Clause 14.5 provided that following a force majeure event, nothing "shall impair the obligations by the seller to repay to the buyer the amount of the advance payment".

Nord made an advance payment of $16m by the required date. The refinery comfort letter provided that if the total value of product delivered was less than the advance payment, the refinery would repay the difference. Liability under the comfort letter was to expire on 25 April 2019, and it could be revoked by the refinery at its sole discretion.

New Stream informed Nord that delivery was going to be delayed because of a force majeure event. The delay exceeded more than 30 consecutive days, so Nord served notice to terminate the contract. It then sought repayment of the advance.

New Stream argued that there was no obligation under the contract to make repayment.

The High Court found in favour of Nord.

It held that the comfort letter could be revoked at the sole discretion of the refinery if a force majeure event occurred. Therefore, the rights and liabilities under the contract would not be affected by the comfort letter.

It was only possible to make sense of the contract by reading it as an express obligation to repay the advance in the event of termination after a force majeure event. Even if that was not the case, the requirements for implying a term to that effect had been satisfied.

Please contact us if you would like more information about the issues raised in this article or any aspect of contract law.

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