The Court of Appeal has today handed down judgment dismissing New Stream Trading’s appeal against the decision of High Court awarding summary judgment in favour of Nord Naphtha Limited in the sum of $16 million.

The claim arose out of the collapse of the Antipinsky Oil Refinery, one of Russia’s largest and most modern oil refineries.  Nord Naphtha had placed an order for 30,000 metric tonnes of ultra-low sulphur diesel but, following the collapse of the refinery, New Stream was unable to deliver the diesel and invoked the force majeure provisions in the contract.  When Nord Naphtha sought repayment of its $16 million advance, New Stream argued that it had already paid the monies to the refinery and that, in the absence of an express right to repayment, Nord Naphtha’s only right of recourse was against the refinery under a separate Comfort Letter which the refinery had provided.

Despite the absence of a clear provision in the contract giving Nord Naphtha a right to repayment of the advance, Nord Naphtha applied for summary judgment on its claim and at a hearing before Charles Hollander QC (sitting as a Deputy High Court judge), the application was granted.

The Court of Appeal has upheld that decision. It found that, despite the “clumsy drafting”, the contract did give Nord Naphtha an express right to repayment of the advance in the event of a force majeure.  The court agreed that, whilst the so-called “presumption against surplusage” (i.e. the presumption that parties do not include words in their contract which are redundant) is generally of little assistance when construing commercial contracts, it does nevertheless have a role to play in appropriate cases.  The court held that, if New Stream’s argument was correct, it would offend against the presumption on “quite a grand scale” as it would render an entire clause of the contract otiose.

When construing the contract, the judge at first instance had started from the position that it would be surprising if the contract did not provide for the return of the advance; he then went on to consider the actual words of the agreement.  New Stream argued that this was a “back to front” approach to the issue of construction and that the judge should have started by looking at the words of the contract before considering whether it produced an uncommercial result.

The Court of Appeal rejected that submission and held that the judge’s approach was permissible and, indeed, consistent with what Lord Hodge had said in Wood v Capita [2017] UKSC 24 about contractual construction being a “unitary exercise”, by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated.  As Lord Hodge explained in Wood v Capita: “it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each”.

Dismissing the appeal, Whipple LJ observed in the present case that New Stream’s position that it did not have to repay the advance to Nord Naphtha “offends business common sense and ordinary common sense” and said that “no reasonable buyer would put the advance at risk in that way”.

Edward Levey QC represented Nord Naphtha Limited in the court below and on appeal, was instructed by Adrian Giles of Dentons LLP.  A copy of the Court of Appeal’s judgment is available here.