May The Force Be With You
“Force Majeure” is a clause commonly found in commercial agreements which states that one or both parties will not be liable for any delay in performance or non-performance of its obligations under the contract upon the occurrence of certain events, such as accidents, acts of war or terrorism, civil or military disturbances, natural catastrophes or acts of God.
The type of occurrences which are deemed to be “force majeure” events will depend on what is contained in the contract and so force majeure clauses require careful drafting to ensure that they include all eventualities otherwise a party could be in breach of contract even though it is unable to fulfil its obligations due to circumstances beyond its control. Further, the courts tend to interpret force majeure clauses narrowly so that only the events listed and events similar to those listed would be covered.
This approach was highlighted in the recent case of Seadrill Ghana Operations Limited v Tullow Ghana Limited. In that case, Seadrill provided a vessel to Tullow for use at two oil fields offshore from Ghana where Tullow had exploration rights. Under the terms of the contract, Tullow was able to end the contract at any time but it would have to pay Seadrill a fee equivalent to 60% of the remainder of the contract. However, Tullow was entitled to end the contract if a force majeure event arose which prevented Tullow from fulfilling its contractual obligations and the event continued for 60 consecutive days. The contract specifically stated that a drilling moratorium imposed by the Ghanaian government would constitute a force majeure event.
As matters turned out, the Ghanaian government did impose a drilling moratorium over parts of the oil fields due to a territorial dispute with its neighbour, Ivory Coast. In addition, a technical problem arose with the vessel. Concerned by this fault the Ghanaian government refused to approve Tullow’s plan to develop one of the oil fields. Tullow therefore notified Seadrill that it was terminating the contract under the force majeure clause. Tullow’s notice referred to both the drilling moratorium and the Ghanaian government’s refusal to approve its drilling plan. It alleged that both events prevented Tullow from performing its obligations under the contract.
However, Seadrill argued that Tullow’s failure to comply with the contract was caused both by a force majeure event (the moratorium) and a non-force majeure event (the plan refusal). In those circumstances, Seadrill argued that Tullow could not rely on the force majeure clause to end the contract.
The High Court agreed with Seadrill. It held that the moratorium was one reason why Tullow was unable to continue drilling but the greater impediment to continue drilling was the Ghanaian government’s refusal to approve Tullow’s drilling plan which was not a force majeure event under the contract. The Judge found that Tullow’s breach of its obligations arose both from a force majeure event and a separate event that did not constitute a force majeure and therefore Tullow was not entitled to end the contract on that basis. The force majeure event was not the sole cause of Tullow being unable to fulfil its contractual obligations and it could therefore not rely on the force majeure clause, as drafted, to justify early termination of the contract.
This case emphasises the need to exercise care when evoking a force majeure clause. Normally, it is not enough to show that a force majeure has occurred but a party will also need to demonstrate that the force majeure event actually prevented it from fulfilling its contractual obligations and that it was the sole cause.
If you are involved in a contractual dispute or it you require assistance with the preparation of contracts then Blacks Solicitors can assist. Please contact Luke Patel on 0113 2279316 or by email at “LPatel@LawBlacks.com”