30th July 2018

An unexpected turn of events

It is very common for parties to include a force majeure clause in a contract. Such clauses provide that certain events happening outside the control of the parties will not make the party in default liable if unable to perform its obligations. Examples of these ‘events’ – which include natural disasters, terrorist attacks and strikes – should always be defined in full.

In the case of Seadrill Ghana Operations Limited and Tullow Ghana Limited, the parties had entered into a contract for the hire of an oil rig, which included a force majeure clause. Unfortunately for Tullow, after entering into the contract, a dispute between oil-producing states required drilling to stop.

A number of additional issues arose, including technical problems which significantly affected the amount of oil which could be extracted from the well; there was also a fall in the price of oil.

As a result, Tullow brought the contract to an end, relying on the arbitral decision requiring drilling to stop as a force majeure. Seadrill rejected the reliance on the force majeure clause, and claimed the sum of US$277million which was due under the contract.

The trial judge was required to decide if the drilling moratorium imposed by the government of Ghana was a force majeure, and, if so, whether Tullow had exercised reasonable endeavours to remedy or avoid the force majeure. The parties called in a total of nine witnesses – including experts – and placed over 33,000 pages of documents before the court.

The force majeure clause listed a number of matters defined as force majeure including “drilling moratorium imposed by the government”. The clause also required the party being affected by force majeure to notify the other party “without delay”, and to use "all reasonable endeavours to remedy the situation without delay".

The court’s decision was that a moratorium had been imposed. However, the judge also decided this was not the only cause of Tullow being unable to fulfil its obligations. There were two causes, one being a force majeure, and the other not. Therefore, the question arose as to whether or not Tullow could rely on the clause, which contained a causation requirement.

The judge relied on a Court of Appeal authority, which established the proposition that a force majeure event must be the sole cause of the failure to perform an obligation. However, this will be subject to the construction, or interpretation, of the contract. In this case, the judge concluded that Tullow was unable to rely upon the force majeure clause, and that Seadrill was entitled to the judgment.

In summary, a force majeure clause is used in most contracts. From time to time, events take place which impact on the parties’ obligations, which are outside their control. The specific events must be defined. A clause merely stating that the "usual force majeure clauses shall apply" will be void on the grounds of uncertainty. The wording of such a clause is important. The force majeure event must be the sole cause of the failure to comply with the obligations under the contract.

For help and advice on dispute resolution issues, please contact David Patterson.

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