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Risky Business, Voldemort and Force Majeure: The Tale of the West Leo Rig

With apologies to movie fans everywhere, this briefing has nothing to do with Tom Cruise’s 1983 comedy or the Harry Potter films.  Rather, it actually concerns the recent English High Court decision in Seadrill Ghana Operations Limited -v- Tullow Ghana Limited [2018] EWHC 1640.

The case relates to an agreement for the hire of ‘West Leo’ (an ultra-deep-water semi-submersible oil rig) and its ultimate termination by Tullow Ghana Limited for force majeure. 

The broad backdrop to that termination involves a confluence of issues including a territorial sea dispute between Ghana and Cote d’Ivoire, the failure of an FPSO turret, an expected government approval to drill not eventuating, and – almost inevitably - the overall fall in oil price.  The latter issue is of course a starker reality the energy sector more generally has reluctantly adjusted to, and even the current oil price hike has been met with muted relief for fear of a pending correction.  The wider facts of this case are of less material importance for the purposes of this briefing.

The key points arising from the decision are:

  1. Force majeure is a creature of contract.As with any other contractual provision, whether a party is able to rely on the force majeure clause (and so be released from performing its obligations) is a question of contractual construction and application of the factual evidence.

  2. Force majeure clauses often require a causal link between the force majeure event and the prevention or delay in the performance of an obligation.Such questions of causation are to be resolved by reference to common sense.Any other factors that, of themselves, did not constitute force majeure events but nonetheless played an intervening role must be taken into account.

  3. Although not a point on which this case turned, whilst an obligation on the parties to use “reasonable endeavours” to overcome or avoid the adverse impacts of force majeure permits the parties to consider their own commercial interests, it also requires them to consider the interests of their counter-parties.The fact that a possible avenue of mitigation is contrary to one party’s commercial interests or is burdensome and/or inconvenient is insufficient, without more, to classify it as unreasonable in the context of a force majeure clause.The burden of proving that nothing could reasonably have been done to avoid or circumvent the force majeure event lies with the party relying on, and seeking to invoke, the force majeure clause.

The judgment also contains a number of pertinent reminders for legal practitioners involved in English High Court proceedings.  First, that more should be done to ensure that disclosure is restricted to what is reasonably necessary to determine a dispute fairly.  Second, that the parties’ legal counsel should avoid including unnecessary documents in the trial bundle (the judgment notes that the trial bundle comprised 111 lever arch files, and that the documents actually referred to in the examination of the factual witnesses amounted to less than one file).  Third, that contemporaneous documents may be given more evidential weight than witness testimony where there is a divergence between them.  Fourth, and finally, that a precedence clause giving one part of the contract priority over another is to be upheld.

The case turned on the wording of the force majeure clause in question and the factual background.  So whilst Teare J’s opening statement that “Drilling for oil is a risky business” is undoubtedly true, it was ultimately irrelevant so far as it related to the determination of this particular dispute.  Far more relevant is how the parties have agreed to provide for the risks, and that is a matter of proper contractual construction.

To avoid entirely disappointing anyone who has read to the end of this briefing because of the Harry Potter reference, Teare J does mention Lord Voldemort and his “evil and destructive” character in the judgment in connection with references to “Project Voldemort” in the evidence.  This seemingly marks the first time that the Dark Lord has infiltrated the English judiciary, at least outside of copyright cases concerning the novels themselves.

© 2018 Bracewell LLP

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About this Author

John Gilbert Energy Law Solicitor Bracewell Law Firm UK
Partner

John Gilbert resolves disputes in the energy sector through litigation, arbitration, expert determination and mediation. He advises on a broad range of disputes related to oil and gas exploration and production, the construction and operation of pipelines and the downstream sector. John has particular experience representing clients locked in disputes over gas sales agreements, including price reviews and on the operation of take-or-pay provisions. In addition, he has advised on disputes relating to power generation, both conventional and renewables.

John has also represented...

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Damian Watkin International Barrister Bracewell UK
Partner

Damian is a dispute resolution barrister with a particular focus on high-stakes international arbitration and litigation. His practice primarily accents energy, oil and gas, power, infrastructure, construction, utilities, natural resources, maritime and transport disputes. Damian also advises in relation to international trade, business and general commercial disputes. He has extensive experience as counsel in complex international arbitration disputes under the ICC, UNCITRAL, ICSID, SIAC, HKIAC, SCMA, GAFTA, CIETAC, DIFC and LCIA rules. Damian is also highly experienced in conducting litigation proceedings before the senior courts of England and Australia, in addition to expert determination and dispute review board proceedings.

Damian retains full Higher Rights of Audience before the English courts and has also worked in Hong Kong, Singapore, Sydney and Dubai on a diverse range of global disputes, many featuring multi-billion dollar claims. He frequently presents and publishes on international arbitration topics and has guest lectured at the University of Sydney.

Recent Notable Matters

Yemeni oil company — advised on claims against a Yemeni oil and gas company, regarding LNG supply and operation contracts on a new $4 billion 2-train LNG facility in Yemen. Yemeni law applied.*

North American EPC contractor — represented in claims against a major Australian oil and gas consortium, concerning a $5 billion upstream EPC contract for coal seam gas extraction as part of a new $19 billion 2-train LNG facility in Queensland, Australia. Queensland law applied.*

British oil and gas company — represented in dispute with a U.S. energy and resources company, concerning a farmout agreement for the exploration and exploitation of hydrocarbons onshore Colombia. English law applied.*

Italian oil and gas corporation — represented in dispute with a British gas transportation company, concerning an agreement for the pipeline transportation of natural gas and condensate from North Sea production fields to onshore England. English law applied.*

Saudi Arabian / North American JV chemical corporation — advised on claims brought by a Turkish EPC contractor on a propylene oxide plant project, forming part of a new $20 billion petrochemical complex in Saudi Arabia. English law applied.*

North American oil and gas corporation — advised on claims brought by a French onshore pipeline contractor on a new $16 billion LNG facility in Papua New Guinea. Papua New Guinean law applied.*

* Work completed prior to Bracewell

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Robert Meade Solicitor Bracewell UK
Senior Associate

Robert Meade handles high-stakes international disputes in the oil and gas exploration, midstream and downstream sectors, as well as disputes related to infrastructure, construction and international trade. His experience includes representing clients in disputes concerning joint operating agreements, production sharing contracts and construction contracts and on issues arising out of joint ventures and asset acquisitions. Rob has acted on a number of international arbitrations under the LCIA and ICC rules as well as disputes in the English high court.

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