The historical and an innovative term “Force Majeure”, has been used in commercial contracts in principle to relieve the Parties, from performing their obligations, when prevented by the events entirely beyond the control of a Party or Parties. Such events often had been termed or blamed as “acts of God”.
With technological advancements and sophisticated operations in deep waters and harsh weather conditions prevailing at offshore Oil & Gas fields, the force majeure clause is no longer a simple statement, making God responsible for it. It is becoming a very complex and comprehensive article, developed such as to share the risks between parties, when faced with the uncontrollable events, instead of simply blaming God for it.
In this paper, the author shares his experiences with implementation and interpretation of varieties in the contents of the clauses, related to Force Majeure Events (“FME”). These contended causes of disputes are related to shipbuilding contracts, rig building contracts, offshore E & P Rig’s charter contracts, Offshore Supply Vessel (“OSV”) charters and Oil & Gas pipeline related contracts. The FMEs are best understood by grouping them into three types:
1. Universal Force Majeure Events: The events which have impact on the entire geographical region, nation or nations, such as wars or political hostilities between the nations linked to the Contract and or contracting parties;
2. Systematic Force Majeure Events: The events which have direct impact on the industry segment in which the contract and the contracting parties are operating. The typical examples are, delays or failures in international transportation chain due to strikes, lockouts or other reasons directly interrupting transportation link of the supply chain, including delays due to strikes at factories of major equipment suppliers to the industry segment; and
3. Unique Force Majeure Events: The events or circumstances having direct correlation to the performance of the contract between the parties. These are the events for which neither party is responsible and is not in a position to control it i.e. beyond the control of the parties. Such events are reasonably identified prior to the signing of the contract and are defined within the clause of Force Majeure events. The typical examples for Offshore & Marine Industry projects can be strikes in the Shipyards/ fabrication yards, their sub-contractors and suppliers.
In addition to FMEs, there are often events which are specifically excluded from the definition of FME. Hence a party is expected to take necessary measures for risk management and adopt predefined strategies against such events, if and when they occur. The case law examples demonstrate how typical clauses in OSV Charter Party, like “Knock for Knock Clause”, “Himalaya Clause” and “Off-hire Clauses” have been applied.
The most interesting and ingenious clauses are found in Offshore E & P Rig Operations, Rig building and Shipbuilding contracts, where variation orders and extension of time management procedures, are intertwined with FME Clauses. The subjective interpretation and implementation of such complex clauses, is often the germane cause for commencement of a litigation project. The findings in context of specific FMEs and administration of a FME Clause provides, useful lessons to be learned and recommendations for drafting a FME clause from the beginning, as a risk sharing strategy. This will enhance transparency between the parties and avoid unnecessary time & costs to be incurred in resolving disputes.
This is a Synopsis of the Paper published in ICMA 2012 Conference Publication. For full paper or enquiries on issues pertaining to Force Majeure Events, please contact customerdesk.tmc@tiberiasmc.com