Force Majeure – Not Easy to Rely On

In a recent case (Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 (Comm)) the High Court ruled that although a force majeure event had arisen, that event was not the sole reason for Tullow’s failure to perform. As such Tullow could not rely on the force majeure clause to avoid liability for its failure to perform.

Background

Tullow had interests in two offshore petroleum licences off the coast of Ghana granted by the Government of Ghana. Tullow hired a large and expensive drilling rig from Seadrill to extract the oil – operating costs for the rig were USD 600,000 per day.

The contract between Tullow and Seadrill contained a force majeure clause that specifically included a “drilling moratorium imposed by the government” as an example of a force majeure event.

After the contract had been entered into, the Government of Ghana and the Government of Cote d’Ivoire entered into arbitration to resolve an offshore boundary dispute. This led to the arbitration tribunal making a Provisional Measures Order (“PMO”) pursuant to which the tribunal ordered that “Ghana shall take all necessary steps to ensure that no new drilling either by Ghana or under its control takes place in the disputed area. As a result of this order, the Government of Ghana imposed a moratorium on drilling in one of the concessions. Tullow was also prevented from drilling in its other concession because the Government of Ghana refused to approve its project plan for that area.

Tullow terminated its contract with Seadrill relying on the force majeure clause.

Seadrill claimed that Tullow terminated the contract for convenience deciding that the contract had become too expensive. Due to the collapse in oil prices by the time that Tullow terminated the contract similar rigs were being hired out for around USD 200,000 per day.

Decision

The High Court found that the drilling moratorium was a force majeure event while the Government of Ghana’s failure to approve the project plan for the other concession was not. Citing the Court of Appeal’s decision in Intertradex v Lesieur [1978] 2 Lloyd’s Reports 509, which establishes the proposition that a force majeure event must be the sole cause of the failure to perform an obligation, Teare J concluded that there was no sole cause here.

Tullow was ordered to make payment to Seadrill of approximately USD 254 million.

Conclusions

As a clause often found at the back of a contract, it is easy to forget how important the force majeure clause can be. Careful consideration needs to be given as to how it is drafted. If a party wants to be able to vary or terminate a contract if adverse economic conditions arise then specific provisions should be built in to address this – a standard force majeure clause would probably not be sufficient.

Terminating a contract on grounds of force majeure is not straightforward. The relevant force majeure event must actually cause the failure to perform and must be the sole cause.

Remember that emails you send can end up in court. In this case the court was presented with an email from a director of Tullow who had written to a colleague asking whether “with a bit of manipulation” it was possible to use the PMO “to call FM” (force majeure) on either the West Leo or Drillmax.” (West Leo was the name of Seadrill’s rig.) That email certainly can’t have helped Tullow’s cause.

If you have any questions around force majeure or you need support with drafting force majeure clauses contact Neil Williamson.