Commercial Court finds buyer entitled to repayment of advance payment where delivery prevented by force majeure

In a decision earlier this year, the Commercial 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: 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.)

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.

Under English law, force majeure is entirely a creature of contract. Accordingly, 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. 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 more information on force majeure, see our recently published guide When events intervene: Force majeure, frustration and material adverse change (issue 7 of our series of contract disputes practical guides).
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Force majeure considerations in the “second wave” of Covid-19

When we originally published this article in April we used the term “potential” in respect of a second wave of Covid-19. Back then many countries were contemplating an easing of Covid-19 lockdown restrictions following a downturn in cases, and a second wave was discussed as a possibility. In the six months since, we have seen case numbers go up and down at different points in different locations around the globe, and now Europe (including the UK) is experiencing the reality of a second wave. As a consequence we are seeing the re-imposition of restrictions.

At the time of writing, in the UK, there has been no return to the full lockdown of the spring but a range of measures have been introduced often on a localised level to try and restrict the spread of the virus.

The second wave has important implications for contracting parties, many of whom have already been affected by a force majeure event related to the first wave of the Covid-19 pandemic and some of whom may still be in a force majeure situation under their contracts.

Contracting parties are now finding themselves in a range of situations:

  • in some cases, parties may have been able to resume full contractual performance as the initial restrictions were lifted and the initial period of force majeure relief ended, but then find that the re-imposition of restrictions affects their contractual performance in a different manner and to a different extent;
  • in other cases, parties may not have been able to resume performance in full, and now find that the new restrictions further affect their ability to perform meaning that they need to assess whether they need to give notice of a new force majeure event;
  • others may not have previously sought force majeure relief but may find that the new restrictions affect their performance so they will be seeking force majeure relief for the first time.

Whatever the case, it is essential for parties to consider their current situation, how that situation may evolve in light of further restrictions and what they need to be doing at each stage to ensure that they obtain the best contractual protection available. Continue reading

When events intervene: Force majeure, frustration and material adverse change

When events take a dramatic turn, parties may be left unable to perform their contractual obligations, or may find that their counterparty is unable or unwilling to perform. In such circumstances, a party may be able to rely on contractual provisions, such as a force majeure or material adverse change (MAC) clause, to suspend its contractual obligations or to avoid them altogether. Alternatively, a party may argue that the contract has been brought to an end automatically as a result of the doctrine of frustration.

The question of when a party can suspend or avoid performance due to an intervening event or change of circumstances has gained particular prominence in recent years, initially in anticipation of Brexit and more recently in light of the disruption caused by the Covid-19 pandemic.

In this seventh of our updated and relaunched series of contract disputes practical guides, Neil Blake, Julie Farley and Natasha Johnson consider when such rights or principles may be triggered, as well as some practical steps that contracting parties can take to protect their position.

You can click here to download the PDF guide or here to access our webinar exploring these issues.

We will be publishing further editions of the updated series of contract disputes practical guides in the coming months. In the meantime, the first six editions in our relaunched series, and the remaining editions from the original series, can be accessed from the home page for our contract disputes series (which is also linked under “our guides” in the top menu).

Catalyst // Pressure Points: Disputes risks – new guide on dispute risks arising out of the Covid-19 pandemic

Herbert Smith Freehills has published a new guide exploring a number of areas in which we anticipate that disputes may arise around the globe as a result of the Covid-19 pandemic or associated disruption.

These include contractual disputes, where parties may take steps to terminate a contract or claim damages if their counterparty is not performing, or conversely may be looking to rely on contractual or other mechanisms to excuse their own breach. Class actions may be brought where groups of individuals or businesses have similar claims arising out of the pandemic, for example shareholder, employee, competition or data breach claims.

The recent disruption has put many businesses at risk of insolvency, which in turn has increased the risk of insolvency litigation including claims brought by creditors and officeholders. The pandemic may also lead to an uptick of claims against the state by way of judicial review or other similar routes, and the actions and decisions of various governments may be scrutinised in a public inquiry (which may also involve commercial entities as participants). There is also the potential for investor/state claims under treaties designed to protect foreign investment.

Click here to read the guide on our website.

Our new publication: Covid-19 Contract Disputes Guide

The economic disruption caused by the Covid-19 pandemic inevitably exposes businesses to heightened legal risk. In particular, counterparties may seek to delay, avoid performance and/or terminate agreements. This may be either because Covid-19 has legitimately prevented them from performing their contractual obligations, or because they are seeking to use the pandemic as an excuse to extricate themselves from a bad deal.

We have published a guide which provides a general overview of the common bases for avoiding contractual obligations in commercial contracts, including a comparison of the key rights and remedies. Click here to access the guide.

COVID-19: Our new quick reference tool to help assess the availability of force majeure relief under English law

As a result of the COVID-19 pandemic, many commercial parties have been reviewing their contractual arrangements to consider whether there are grounds for excusing non-performance or suspending or terminating their contracts.

Against that background we have developed a new interactive tool which is designed to assist clients and contacts of the firm in evaluating the availability of force majeure relief under English law, either in respect of a party’s own contractual obligations or those of its counterparty, as a result of the COVID-19 pandemic or related circumstances.

Created using Neota Logic’s automation platform, the new tool takes the user through a series of questions relevant to their circumstances to help guide their assessment of whether force majeure relief may be available.

Please click here to access the tool: https://www.herbertsmithfreehills.com/forcemajeure.

Natasha Johnson

Natasha Johnson
Partner
+44 20 7466 2981

Anna Pertoldi

Anna Pertoldi
Partner
+44 20 7466 2399

Emma Schaafsma

Emma Schaafsma
Partner
+44 20 7466 2597

Sarah Hawes

Sarah Hawes
Head of Corporate Knowledge
+44 20 7466 2953

Richard Mendoza

Richard Mendoza
Senior Associate
+44 20 7466 2024

Maura McIntosh

Maura McIntosh
Professional Support Consultant
+44 20 7466 2608

New COVID-19 podcast – Force majeure considerations in a potential second wave of COVID-19

In this latest episode of our Navigating COVID-19 podcast series, Sarah PollockEmma Schaafsma and Julie Farley consider the force majeure implications of a potential second wave of COVID-19 infections and the resulting re-imposition or tightening of lockdown measures.

Many contracting parties have already been affected by force majeure events arising out of the pandemic and the associated restrictions.  As the focus starts to shift toward the gradual easing of lockdown measures, those parties who have claimed force majeure relief will be preparing to resume performance as soon as the impact of the force majeure event comes to an end.  However, it is also important for contracting parties to prepare for any second wave force majeure situation, and the podcast will share some practical tips of actions that can be taken.

Our podcast is available on iTunes, Spotify and SoundCloud and can be accessed on all devices.

The relevant issues are also discussed in this recent blog post.

High Court finds claim for lost profits arising from damage caused by London riots not prevented by force majeure or exclusion for indirect or consequential loss

The High Court has held that the London riots of 2011 did not give rise to a force majeure defence to claims for failing to secure a warehouse from break-ins and arson attacks. Nor did the claims fall within an exclusion clause relating to indirect or consequential losses: 2 Entertain Video Ltd v Sony DADC Europe Limited [2020] EWHC 972 (TCC).

A force majeure clause typically excuses a party from liability where it is prevented from performing some or all of its obligations under the contract due to some event or circumstance beyond its control. In light of the global COVID-19 pandemic, force majeure clauses are being turned to more than ever. This decision highlights the difficulty of relying on force majeure where the relevant event or circumstance was foreseeable – even where, as here, the clause in question does not contain refer to unforeseeability. Although there is no general requirement under English law that an event must be unforeseeable to give rise to a claim for force majeure relief, the more an event is foreseeable the more it may be possible to guard against it having an impact on contractual performance, and the more a failure to do so may be seen as the real cause of non-performance. (For a high-level overview of the approach taken to force majeure clauses in key jurisdictions, please see our recent publication, COVID-19: Force majeure: A global perspective.)

The decision also illustrates the court’s approach in interpreting contractual exclusions of liability for indirect or consequential losses, which is a matter of some debate in the case law. While each case will turn on the wording of the clause in the context of the agreement and the relevant background, it may be difficult to persuade a court that losses that are foreseeable as arising naturally from the breach fall within an exclusion for indirect and consequential losses.

Although the decision is not radical from a legal perspective, it is an important reminder that contractual mechanisms such as force majeure clauses and exclusions of liability have their limits. Continue reading

Low oil price – high disputes risk: The scope for disputes in a world of low oil prices

Oil prices have collapsed since the start of the year, driven down by concerns around oversupply, compounded by the collapse in demand caused by COVID-19 and the price war between Russia and Saudi Arabia.

This briefing published on our website looks at the implications of low oil prices on certain key trading and operational agreements for oil companies, and considers the scope for disputes to arise. It considers the position under English law, which is commonly adopted by parties in the oil and gas industry, but many of the same themes apply to contracts governed by other common law systems.

James Baily

James Baily
Partner
+44 20 7466 2122

Craig Tevendale

Craig Tevendale
Partner
+44 20 7466 2445

Steven Dalton

Steven Dalton
Partner
+44 20 7466 2537

Paula Hodges QC

Paula Hodges QC
Partner
+44 20 7466 2027

James Robson

James Robson
Senior associate
+44 20 7466 2641

Our new publication – COVID-19: Force majeure: A global perspective

The COVID-19 pandemic has led many commercial parties to review their contractual arrangements and consider whether there are any grounds on which they may seek to delay or avoid performance (or liability for non-performance), or suspend or terminate their contracts.

Force majeure clauses are intended to address circumstances in which a supervening event has prevented or delayed the performance of a contract. As such, parties across the supply chain may look to force majeure clauses as an avenue for relief in the wake of COVID-19. Equally, in some jurisdictions, there may be a statutory entitlement to invoke force majeure independent of any contractual provision.

Our new publication, COVID-19: Force majeure: A global perspective, provides a high-level overview of the approach taken to force majeure clauses in key jurisdictions, set out in table format for quick reference. The jurisdictions covered are: Australia; China; France; England & Wales; Germany; Hong Kong; Indonesia; Italy; Japan; Russia; Saudi Arabia; South Africa; Spain; Thailand; and United States (California, New York & Texas).

Natasha Johnson

Natasha Johnson
Partner
+44 20 7466 2981

Anna Pertoldi

Anna Pertoldi
Partner
+44 20 7466 2399

Sarah Hawes

Sarah Hawes
Head of Corporate Knowledge
+44 20 7466 2953

Richard Mendoza

Richard Mendoza
Senior Associate
+44 20 7466 2024

Maura McIntosh

Maura McIntosh
Professional Support Consultant
+44 20 7466 2608