The Importance of Careful Drafting – Force Majeure Clauses

by Daniel Jennings 

The High Court, in the case of Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 considered whether a defendant could rely on a force majeure clause to justify early termination of a hire contract for the use of an oil rig. The Claimant brought the claim for outstanding sums under the contract.

Force Majeure Clauses

Force majeure clauses are invaluable contractual mechanisms as they entitle parties to cancel the contract when a specified event or events beyond their control occur. Contractual performance is often contingent on the actions of third parties and a force majeure clause often recognises the risks associated with this and allows for the parties to walk away from a contract when an event or action beyond their control occurs.

These clauses are construed strictly by the courts as they allow for a party to avoid its contractual obligations. Thus, when courts consider whether an event truly is a force majeure event they consider whether a method of alternative performance was available.

A common example of a force majeure event would be the outbreak of war, an event outside the control of the contracting parties and one where it may be considered unfair for either party to pay damages.

The Facts

The government of Ghana granted Seadrill, the Defendant, concessions in two offshore petroleum fields. As a result, Seadrill contracted with Tullow, the Claimant, for Tullow to provide drilling programmes in Ghana. In return, Seadrill was to provide Tullow with an ultra-deepwater semi-submersive rig, called West Leo. It was intended that the rig be used for two projects, namely ‘TEN’ and the Greater Jubilee Plan.

However, Ghana and Ivory Coast entered into a United Nations Convention on the Law of the Sea arbitration to resolve a dispute regarding their territorial waters. A Provisional Measures Order (PMO) was issued by the tribunal. The PMO stated 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”. The disputed area included the area in which the TEN project was located. This triggered a force majeure event as the parties had agreed a force majeure clause which included a “drilling moratorium imposed by the government” as a force majeure event.

The Ghanaian government informed the defendant of the PMO by letter and gave them an opportunity to comply with the order. The defendant made alternative arrangements but these were rejected by the Ghanaian government in December 2015. In 2016 the Ghanaian government continued to refuse to approve the plan, this time because of problem on a floating storage and offloading unit.

As a result of this, in October 2016 the defendant ceased to pay the daily hire rate and terminated the contract citing the force majeure clause. The defendant argued that the drilling moratorium meant that it was unable to fulfil a contractual term as it was unable to provide a drilling programme.

The claimant issued invoices for the period in which the rig was on standby and for the termination of the contract.

The Judgement

Teare J found in favour of the claimant. He firstly considered the issue of whether the drilling moratorium imposed by the Ghanaian government was a force majeure event. It was found that the moratorium qualified as a force majeure event. The failure of the defendant to gain the approval of the Ghanaian government for its revised plan did not qualify as a force majeure event because the triggering event, namely the moratorium, was not the cause of the defendant being unable to gain the approval of the Ghanaian government for its revised plan.

The defendant also failed in its contractual duty to use its “reasonable endeavours”. It would have been possible for the defendant to provide the claimant with drilling instructions in different locations. There were also several wells that required workovers while this particular rig went unused. It was this failure to assign the rig to these wells that was seen as a breach of its reasonable endeavours obligation confirming that it would be unable to rely on the force majeure clause.

Comment

This case illustrates the importance of carrying out a comprehensive risk assessment before drafting the force majeure clause. It is therefore important that these risks are then fully accounted for in the contract itself to avoid similar situations.

If you have any queries about this article, please get in touch with Daniel Jennings.

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