OFFSHORE STANDARD CONTRACTS – FORCE MAJEURE

The COVID-19 situation and the drastic drop in oil prices are creating the perfect storm for many industry players in the oil & gas market. We are seeing many questions being raised in terms of invoking force majeure in offshore contracts – including LOGIC and SUPPLYTIME 2017. 

LOGIC

The force majeure clauses under the LOGIC contracts provides what on the outset must be treated as an exhaustive list of events. In this list there is no reference being made to “pandemic”, “epidemic” or similar situation. However, some legal scholars have argued that the mentioning of “other natural physical disaster” under the listing of “earthquake, flood, fire, explosion and/or other natural physical disaster” could potentially encompass a pandemic situation as the one currently facing the world. While arguments supporting this assessment can be made, we find it difficult to see that these provide a compelling case under the LOGIC-contract regime. The more secure and direct route to coverage is likely to be found in the listing of “Changes to any general or local Statute, Ordinance, Decree or other Law, or any regulation or bye-law of any local or duly constituted authority or the introduction of any such Statue, Ordinance, Decree, Law, regulation or bye-law”. In this respect close attention needs to be given to the difference between governmental “recommendations” (which is not covered be the clause) and actual decrees (which will be covered by the clause). Together with several other considerations, companies invoking force majeure under the LOGIC contracts needs to carefully assess whether it is the result of a decree that impacts the ability to perform the obligations under the contract, or whether it is other events – not covered by the clause – that, perhaps in cumulation to the effects of a decree, provides the causal link. While decree-based traveling restrictions for rig-crews will be one of the easier cases to assess, many situations will arise where the impact of drastically dropping oil prices and the broader effects of the COVID-19 situation will make assessments significantly more difficult to make. 

SUPPLYTIME 2017

For the force majeure situation under the SUPPLYTIME regime the evaluation is different compared to the LOGIC contracts. SUPPLYTIME – while also operating with a list of force majeure events – have a much broader list and definition of the events of relevance. While the list does not explicitly cover the pandemic situation of the COVID-19 outbreak, it does include the expansion of the list of events in litra h), stating that “any other similar cause beyond the reasonable control of either party”. The clause is modelled on the ICC (International Chamber of Commerce) model Force Majeure Clause 2003 in which the listing of “plague” and “epidemic” is made together with other qualifying events as “natural catastrophes or disasters”. Hence for the SUPPLYTIME contracts we believe that there are stronger arguments in support of classifying the direct results of the epidemic, eg. epidemic disease with the vessel crew, to be a temporary force majeure event, compared to the situation under the LOGIC contracts. Also the listing in litra b) of “any government requisition, control, intervention, requirement or interference” gives rise to broader considerations under SUPPLYTIME compared to the equivalent clause in LOGIC. Always a noteworthy mention is that special attention under the SUPPLYTIME standard should be given to the fact that the force majeure exemption deals only with loss, damage and delay, but not with hire, which will continue to be payable despite a force majeure event having occurred. 

A SHARED CONSIDERATION

We see broadly that questions are being raised as to when you should invoke a force majeure clause under the offshore standard contracts, and while there is generally only an obligation to invoke the clauses when the actual event has led to the delay or prevention of fulfillment of obligations, we always strongly advise our clients to engage in an upfront dialogue with their counterparties to ensure flexible solutions are found and early intel on expectations and possibilities for showing “reasonable diligence and efforts” in managing the event are gathered.