MH Corporate

Tuesday 16th October, 2018

Force Majeure: not always an easy way out

Under English law it is difficult for a contracting party to avoid obligations under a contract that it has freely entered into. Two recent High Court decisions have further reinforced this notion, demonstrating how difficult it can be for a party to rely on the doctrine of force majeure to excuse liability for failure to perform a contract.

What is force majeure?

Force majeure, from the French for ‘superior force’, refers to the provisions of a contract that offer an exit route for both parties when an extraordinary event prevents either from fulfilling its obligations. Although the concept originates in French civil law, under English law, force majeure is nothing more than a contractual term and what qualifies as a force majeure event depends on the wording of the agreement.

Generally speaking, a party seeking to rely on the force majeure clause must prove that:

  • The event occurred and was outside its control;
  • The event caused a failure or delay to the performance of its contractual obligations; and
  • It did its best to mitigate the event.

The second issue – causation – was the focal point of two recent High Court decisions.

Seadrill Ghana

In Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 (“Seadrill”), Tullow Ghana had hired a drilling rig from Seadrill Ghana for the drilling of oil off the Ghanaian coast. Two unrelated events led to Tullow Ghana being unable to perform its obligations under the hire contract: (1) Ghana imposed a drilling moratorium over parts of the oil field (a force majeure event under the contract) and (2) Tullow Ghana had failed to secure permission from the government of Ghana to develop one of the oil fields (not a force majeure event under the contract). Tullow Ghana subsequently attempted to claim force majeure.

Relying on the decision in Interadex v Leisieur [1978] 2 Lloyd’s Reports 509, the judge considered that Tullow Ghana was not entitled to force majeure relief since force majeure had not been the “sole cause” of the failure to perform the obligation. The greater impediment to drilling was considered to be the Ghananain government’s refusal to approve Tullow Ghana’s drilling plans.

Classic Maritime

In Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor [2018] EWHC 2389 (“Classic Maritime”), the judge applied a different test to achieve the same result. Classic Maritime, a ship-owner, was engaged in a shipping contract with Limbungan, a charterer, for the shipment of iron ore pellets from Brazil to Malaysia. Following the Fundao Tailings Dam disaster, Limbungan was unable to perform its shipping obligations and sought to rely on the force majeure clause in the agreement.

Teare J held that Limbungan could not rely on the force majeure clause as it emerged on the facts that it was unlikely to have performed its obligations even if the disaster had not occurred: it had already missed two shipments for unrelated reasons. In other words, “but for” the force majeure event, Limbungan’s obligations would have nevertheless remained unfulfilled.

Comment

The cases demonstrate how difficult it can be for a party to invoke a force majeure clause and seek relief from its obligations under a contract, particularly in complicated, multi-national projects in which there are numerous potential causes (both internal and external) for non-performance. The issue the courts will consider is principally that of causation of the particular force majeure event in relation to the non-performance. Where there are several layers to an arrangement and multiple dependencies, force majeure may be a harder test to satisfy to enable a party not to be bound to its performance obligations.

Articles by James Fleming