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Supplier can’t use force majeure to avoid repaying customer

January 18th 2022

A supplier has failed in its bid to use a force majeure event as a reason to avoid repaying a customer after it failed to fulfil a contract.

Sam Lyon Head of Corporate & Commercial reports on this recent case.

The issue arose after the two parties entered into a contract in February 2019 for the supply of sulphur diesel.

In accordance with the contract, the buyer made a significant advance payment to the supplier on 22 February. The diesel was to be sourced from a refinery.

The refinery issued a comfort letter to the buyer which referred to the contract and offered certain guarantees and confirmations. Delivery was to be between 5 April and 25 April 2019, time being of the essence.

Clause 14 of the contract was headed Force Majeure. Clause 14.5 provided that “…nothing herein shall impair the obligations by the Seller to repay to the Buyer the amount of the advance payment or any Outstanding Advance Amount under this Contract in the event that the delivery…is not made…due to Force Majeure Event”.

On 17 April 2019, the supplier notified the buyer of a force majeure event that was delaying delivery.

The comfort letter was amended extending its validity to 15 May 2019. The diesel was not delivered. The buyer terminated the contract on 30 June 2020 and sought repayment of the advance.

The supplier argued that the refinery was liable for any repayment under the terms of the comfort letter.

The buyer issued proceedings. The court granted summary judgment in its favour on the grounds that the comfort letter could not affect the rights and liabilities under the contract, and cl.14.5 only made sense if an express obligation to repay was read into it.

The Court of Appeal has upheld that decision.

It held that where there were two possible constructions, the court was entitled to prefer the one which was consistent with business common sense.

The contract was a straightforward bargain for the sale of diesel, albeit clumsily drafted in places. The natural reading was that it created and confirmed the obligation on the seller to repay the advance if the goods were not delivered in force majeure circumstances.

If you would like more information about the issues raised in this article or any aspect of contract law please contact Sam on 01228 516634 or click here to send him an email.

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