When Can A Force Majeure Clause In A Contract Be Relied On?

In times of economic and/or political uncertainty, parties to construction contracts may consider whether they have a right to rely on force majeure provisions as a justification for temporarily or permanently failing to perform substantive obligations.

We review the recent decision in Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018], relating to the circumstances in which force majeure may be an available remedy.

The decision

In brief - key points

The wording of the specific contract is determinative in deciding whether or not there has been an event of force majeure. The force majeure event must be the sole cause of the innocent party being prevented from fulfilling its obligation(s) - using a "broad common sense view of the whole position". Where a party has taken the opportunity to benefit from a potential force majeure event, this may well indicate that the force majeure event was not the sole cause. Where a force majeure event does arise, and the parties are under an associated obligation to use reasonable endeavours to mitigate its impact, that obligation might require a party to act in a way that is less profitable than its original plan. Background (in summary)

Tullow was the operator of two offshore petroleum concessions off the coast of Ghana. It was also seeking approval from the Government of Ghana (Ghana) for the development of wells in a new area. In 2011, Tullow hired a semi-submersible drilling rig - the West Leo - from Seadrill (under the Contract), with a daily operating hire rate of US$600,000. Tullow intended to use the West Leo rig in various oilfields within the existing concessions, and thereafter in the new area once approval was received from Ghana. In September 2014, Ghana and Cote d'Ivoire entered into an arbitration to resolve an offshore boundary dispute affecting the drilling rights within Tullow's concession (the Boundary Dispute). In April 2015, the tribunal issued a Provisional Measures Order. One of the effects of this Order was that, whilst work on existing wells could continue in the existing concessions, no new drilling in those areas was permitted. The Order did not affect work in the area of the proposed new wells, which were still to be agreed with Ghana. In February 2016, a technical problem was discovered in Tullow's equipment, with the effect that Ghana did not approve Tullow's plans for wells in the new area. On Tullow's case, as from October 2016, there was no further work for the West...