Drilling Down into Force Majeure Clauses

Failing to perform obligations in a contract can often leave the offending individual or business facing substantial financial repercussions. Agreeing and setting out the circumstances which may excuse a party from proper performance is therefore invaluable and should always form an integral part of contractual negotiations.

Force majeure clauses are a common provision which, in summary, excuse a party from performance where such failure to perform results from circumstances or events outside their reasonable control making performance of the contract “inadvisable, commercially impracticable, illegal, or impossible”. Such clauses are often accompanied by a right to terminate including where the event preventing proper performance lasts for a prescribed period.

Force majeure clauses are routinely seen in contracts and their terms and operation are often overlooked and not given the proper consideration.

Force Majeure in the Spotlight

The recent case of Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] has put the concept of force majeure in the spotlight.

In this particular case, a contract was entered into between the two parties in 2012 for the hire of an oil rig intended for use in two oil fields off the coast of Ghana. The contract was due to terminate in June 2018. However, in April 2015 a drilling moratorium was imposed over parts of the oil fields meaning that parts of the project could not be undertaken. Then in February 2016, a technical problem arose on the oil rig itself and the Government of Ghana consequently refused consent for the planned drilling of one of the fields. As part of the force majeure clause of the contract, a drilling moratorium had been listed as a specific trigger event. In March 2016, Tullow notified Seadrill that it would be relying on the force majeure clause to terminate the agreement (as opposed to terminating for convenience which the contract permitted for a fee which was significant).

The Court held that although the drilling moratorium was included in the contract as a specific force majeure event, this was not the sole reason for termination by Tullow and so could not be relied upon. As Tullow had continued its drilling obligations after the moratorium was put in place and only later sought to terminate upon Ghana’s government refusing consent, this was thought to be the underlying reason for termination. The court held that if a party seeks to rely on a force majeure clause then it must be the sole reason for the termination of the agreement. As it was arguably under Tullow’s control to obtain the consent, this could not be held as a force majeure event.

This case, therefore, acts as a useful reminder that care should be taken when invoking a force majeure clause. In addition to demonstrating that the force majeure event has occurred, it must also be shown that the event is the sole factor preventing proper performance of the contract.

BHW routinely advise on a wide variety of contracts. If you require advice in relation to a contract then please contact Alex Clifton on 0116 281 6232 or email at Alex.Clifton@bhwsolicitors.com