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legal alert: The Enforceability of Force Majeure Clauses

04 Oct 2018

Seadrill Ghana Operations Limited v Tullow Ghana Limited [2018] EWHC 1640 (Comm)

Facts

The defendant contracted to pay the claimant $600,000 per day to hire an oil rig. The defendant intended to develop an oilfield off the coast of Ghana which required a licence from the government.

The defendant was entitled to end the contract if a force majeure event arose which prevented it from fulfilling its contractual obligations, and the event continued for 60 consecutive days. The contract specified a number of force majeure events, one of which was a “drilling moratorium imposed by the government”.

Following a territorial dispute between the Ivory Coast and Ghana, Ghana prohibited any new drilling in the disputed waters, which included the defendant’s proposed offshore oilfield (“the Moratorium”).

Unexpectedly, a major technical problem was discovered with one of the defendant’s existing offshore oilfields (“the Technical Event”). The defendant said that this resulted in the Ghanaian government’s refusal to approve its plan to develop the proposed oilfield.

The defendant argued that the force majeure clause had been triggered by the Moratorium event. It stopped paying the claimant and terminated the contract. The claimant claimed $277.4M for the defendant’s early termination of the contract. 

Decision

The court held:

  1. the construction of the contract and the particular circumstances of the case were key.
  2. the Moratorium and the Technical Event were both concurrent causes of the defendant’s breach of contract. However, only the Moratorium was a force majeure event under the contract.
  3. applying Intertradex v Lesieur [1978] 2 Lloyd’s Reports 509, both causes of the defendant’s breach were required to be a force majeure event in order for the clause to take effect. The defendant was therefore liable.
  4. The defendant had not used its reasonable endeavours to avoid or circumvent the effect of the force majeure, as required by the clause.

Commentary

The court will scrutinise the express wording of the contract and all the circumstances of the case.  It is important that both parties therefore understand the mechanics of the force majeure clause. 

Where multiple events are concurrent causes of a contractual breach, it is crucial that each event is recognised as force majeure event pursuant to the contract. A force majeure event must be the sole cause of the failure to perform a contractual obligation, not one of them.

The following should be noted when parties negotiate force majeure clauses:

  • carefully consider the types of events which ought to be listed in the force majeure clause (and conversely, events which ought to be excluded from the clause);
  • be clear whether such an expressed list is intended to be exhaustive;
  • consider whether the contractual relief should also address the consequential effects of the event;
  • ensure force majeure provisions are “back-to-back” with related contacts;
  • consider categorising force majeure events so that bespoke relief can be tailored for particular types of events; and
  • consider whether the clause should require the reliant party to take steps to avoid or mitigate the force majeure event.

 
If you require any assistance with negotiating a force majeure clause or reviewing the implications of such a clause, then please contact:

 

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Contacts


Bal Manak | Associate

Email:
bal.manak@watsonburton.com
Tel:
0345 901 0929