When can you rely on a force majeure clause to justify the early termination of a contract?

Tullow hired a floating drilling rig from Seadrill for operations in oil fields off the coast of Ghana at a daily rate. The oil fields included an area which was subject to a territorial dispute between Ghana and the Cote d’Ivoire.

The hire contract was due to run until June 2018, but in October 2016 Tullow stopped paying the daily rate and terminated the contract relying upon the ‘force majeure’ clause in the contract.

What had happened? Tullow had a contractual obligation to provide Seadrill with its drilling programme which it was not able to do for two separate reasons. First, because the territorial dispute between Ghana and the Cote d’Ivoire had led Ghana to impose a drilling moratorium over parts of the oil field, which the hire contract specifically stated would be a force majeure event. Secondly, because a technical problem with the rig meant that the Ghanaian government had refused to approve Tullow’s development plan.

Seadrill asserted that Tullow could not rely on the force majeure clause to terminate the contract because, whilst the drilling moratorium may have been an event of force majeure, the failure to obtain Ghanaian Government approval was not. Seadrill also noted that Tullow’s refusal to pay the daily rate and to terminate the contract suspiciously coincided with a significant drop in the market rate for rig hires.

The Court found that, whilst the drilling moratorium did constitute a force majeure event, this was not the only effective cause preventing Tullow from performing the contract. The failure to obtain Government approval also prevented Tullow from performing the contract, but that was not a force majeure event because, whilst outside Tullow’s control, it was within the range of the sort of risks that might be encountered in rig work which is understood to be a risky business. So, following the precedent of Intertradex v Lesieur (1978) and interpreting the wording of the force majeure clause itself, the Court held that Tullow was not entitled to rely on the force majeure clause to terminate the contract because there was no causation – the force majeure event, the drilling moratorium, could not be shown to be the reason why Tullow was prevented from fulfilling its contractual obligations to Seadrill.

The Court also found that Tullow had failed to use its reasonable endeavours to remedy or avoid the force majeure, which was required by the wording of the clause itself. As a result, even if the drilling moratorium been the sole reason preventing Tullow from performing the contract, it still would not have been able to rely on the force majeure clause to avoid its contractual obligations and terminate the contract.

The case is an interesting reminder that when a number of things go wrong, one of which is outside of a party’s control but some of which may be within it, the affected party cannot ignore the other events and focus solely on the force majeure event as a ‘get out of jail free’ card allowing it to terminate its contract. In this case, whilst not a decisive factor, the Court also had relatively little sympathy for Tullow when it was beset by problems in what is known to be a risky business.

Lessons for drafting a force majeure clause?

The answer to that question may well depend upon who primarily bears the performance obligations in each contract but, for example:

• Should further details or examples of what would constitute a force majeure event in the context of their particular contract be included (beyond the usual ‘boilerplate’ descriptions)?
• Must the force majeure event actually prevent performance in order for a party to rely upon it to terminate the contract, or is it sufficient for the event to impede or delay performance in some way?
• Must the force majeure event be the sole cause of the performance failure or can it be one of a number of factors?
• Should a party be required to use their reasonable endeavours to resolve the force majeure event and, if so, what should that involve in the context of the contract?
• Can either party terminate the contract or only the party affected, or not affected, by the force majeure event?

Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 (Comm).