Relying on force majeure to terminate a contract
In which circumstances can you rely on a force majeure clause to terminate an agreement?
The defendant had been granted concessions in two offshore petroleum fields by Ghana. It had hired a deep water semi-submersible rig from the claimant, for which it paid a daily rate. The defendant was required by the contract to provide drilling instructions to the claimant.
In 2014 Ghana and Cote d'Ivoire entered into a United Nations Convention on the Law of the Sea arbitration to resolve a dispute over the offshore boundary in their territorial waters. The tribunal issued a provisional measures order (PMO) requiring Ghana to take steps to ensure that no new drilling took place in the disputed area.
In December 2015 Ghana refused to approve the defendant's plan for the wider field for separate reasons. From October 2016 the defendant ceased to pay the daily hire rate and terminated the contract by reference to the force majeure clause, citing Ghana's drilling moratorium following the PMO.
The issues for determination were whether:
- the cause of the failure to comply with the contractual obligations amounted to force majeure;
- if the cause was force majeure, the claimant had exercised its reasonable endeavours to remedy or avoid the force majeure.
The defendant's failure to comply with its contractual obligation to provide drilling instructions to the claimant was caused by two matters; one a force majeure, the other not attributable to force majeure. Teare J concluded, citing the Court of Appeal's decision Intertradex v Lesieur  2 Llloyd's Reports 509 which establishes the position that a force majeure event must be the sole cause of the failure to perform an obligation, that there was no sole cause here.
While the PMO prevented the defendant from drilling a new well and completing it with the rig, Ghana's failure to approve the new drilling plan was a greater impediment to the defendant's plans. The PMO was a force majeure but the refusal of approval was not.
Why is this important?
This case highlights the importance of the wording of a force majeure clause and is a reminder that a force majeure event must be the sole cause of the failure to perform a contractual obligation, not just one cause.
Any practical tips?
When drafting a force majeure clause, it is important to ensure that the clause is sufficiently wide so as to incorporate all possible events and also to include other contractual protections which would enable termination when force majeure is not the sole cause of termination.