06 July 2018 - Post by:Benjamin Scrace
In Seadrill Ghana Operations v Tullow Ghana, the High Court found that a defaulting party cannot rely upon “force majeure” to terminate a contract if only one of two events preventing performance is a force majeure event.
Oil company Tullow hired a semi-submersible drilling rig from Seadrill for operations off the Ghanaian coast, including in oilfields claimed by Cote d’Ivoire. Tullow sought to terminate the contract saying that an order preventing new drilling in the disputed oilfields constituted a “drilling moratorium”, a named force majeure event. Seadrill claimed Tullow had terminated for convenience, citing Tullow’s plans (known internally as “Project Voldemort”) to exit the contract amidst falling oil prices and rig hire rates.
Determining whether a party can rely on force majeure hinges on the interpretation of the relevant clause and underlying factual matrix. The clause in question was interpreted as requiring the force majeure event to be the only effective cause of a party being unable to perform its obligation. The judge disagreed that the moratorium was the sole effective cause as Tullow had also failed to secure permission from the Government of Ghana to drill wells in alternative oilfields unaffected by the moratorium. Tullow was not prevented from performing its contractual obligations as alternative drilling opportunities for the rig existed; its failure to explore them was unaffected by the force majeure event.
Had the moratorium been the sole effective cause of Tullow’s inability to perform, the court found Tullow would nevertheless have failed in proving it had exercised “reasonable endeavours” required under the clause to remedy or avoid the force majeure. It was insufficient to claim reasonable endeavours had been undertaken if remedial steps existed but had not been taken solely as they were less technically straightforward or commercially attractive. Tullow could not disregard alternative drilling opportunities at less profitable gas or oilfields, as by doing so it ignored Seadrill’s commercial interests and its own duty to perform its contractual obligations by permitted alternative means.