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Home // Covid 19, Force Majeure and the cost of unclear Contract Terms

As the impact of Covid19 on business continues to unfold, we’ve seen commercial contracts come under scrutiny as never before. It’s crucial at any time to get specialist contractual advice before taking on any legal obligations. But it’s even more important to get advice in the context of a global pandemic. As the practicalities of doing business during Covid19 have shown, it’s not unusual for one party to a contract to seek to avoid or alter its obligations whenever it is faced with external challenges.

But what are the rules about contractual obligations that are rendered more difficult or impossible to perform because of some unforeseen, external factor? Force majeure clauses in particular have assumed a greater significance in light of Covid19. Here we look at the 2020 case of Totsa Oil v New Stream Trading where a dispute arose over the interpretation of a force majeure clause. Above all the case highlights the huge cost in terms of company resources and legal fees that any ambiguity in this type of clause can cause.

Interpreting Force Majeure Clauses: Totsa Oil v New Stream

This high-value case centred on a disputed payment of $14million for the supply of chemicals. Totsa Oil had paid the monies to New Stream by way of an advance payment but a month after payment New Stream, relying on what it said was a force majeure event declared it would be unable to deliver the goods. Not surprisingly Totsa Oil asked for its money back. New Stream refused, referring to a reimbursement clause in the contract that it said had the effect of annulling Totsa Oil’s rights to reimbursement of the $14million.

So what did the reimbursement clause actually say?

On one level the terms were clear-cut, and very much in favour of Totsa Oil’s position. The contract stated:

Save for the force majeure clause..if for any reason whatsoever the product is not delivered the seller will, within five working days of the buyer’s written demand, reimburse the buyer their advance payment

But the reference to the force majeure clause had the effect of muddying the waters and introducing ambiguity as to when reimbursement could be refused. It was this uncertainty that led to this expensive and time-consuming litigation.

Ultimately the court did side with Totsa Oil so it could recover the $14million. But the judgment was finely balanced. And the somewhat convoluted reasoning of the court in reconciling the two conflicting contractual terms indicates to us at least that the case could have gone either way.


The Totsa Oil case shows what happens when a contract lacks clarity. Our role as contract lawyers is to nail down the terms of your contract so they are certain. This involves a range of drafting techniques. For example:

  • Using plain language as far as possible
  • Defining any technical terms clearly
  • Setting out how each clause relates to the other, particular if a clause cross references another

There’ll always be the chance that a contractual dispute will arise in the future. But properly drafted agreements minimise the possibility of dispute and ensure your position is strong if the contract ever does face judicial scrutiny. While judges can occasionally use outside or extrinsic evidence to interpret a contract, in most cases they are limited to assessing a contract objectively – that is, relying in what the contract itself says.

Contact Us

For more information on contracts and key provisions like force majeure contact our director Shubha Nath at Nath Solicitors on 0203 983 8278 or contact the firm online.


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