Requirements For Force Majeure Declaration In LNG MSPAs
Force Majeure clause of the LNG MSPAs provides that an event of force majeure affecting a contracting party shall constitute force majeure only to the extent that such event meets the requirements stated in the definition of force majeure.
In GIIGNL Master LNG Sale and Purchase Agreement Template, 2024 Edition, Force Majeure is defined as any event or circumstance whatsoever (or combination of events or circumstances) that delays, interferes with or prevents the affected Party from fulfilling one or more of its obligations under the Agreement and "which is beyond the reasonable control of the affected Party and the effects of which cannot be avoided by steps which might reasonably have been expected to have been taken by the affected Party acting as a Reasonable and Prudent Operator [but] excluding any such event or circumstance or combination thereof that is the direct or indirect result of a failure by the affected Party to perform any of its obligations under the applicable Transaction1."
Sub-clause 15.4 of GIIGNL Master LNG Sale and Purchase Agreement Template, 2024 Edition, provides also that:
"A Party claiming Force Majeure shall use reasonable endeavours:
(a) to eliminate or overcome the event or circumstance of Force Majeure relied on to enable it to resume full performance of its obligations; and
(b) to minimize the effects of the event or circumstance of Force Majeure; provided however that:
(i) such Party claiming Force Majeure shall not be obliged to take any steps which would be beyond its reasonable control or would not be taken by a Reasonable and Prudent Operator and
(ii) a strike or any other kind of labour dispute may be settled by the Party concerned at its absolute discretion."
These provisions require the party who claims force majeure to show that the event invoked as force majeure was beyond its reasonable control, that the event invoked as force majeure delayed, interfered with or prevented it to perform its contractual obligations and that it could not have avoided or overcome the effects of the event by using reasonable endeavours.
1. The Event Invoked As Force Majeure Was Beyond The Reasonable Control Of The Affected Party
Regardless of whether the event invoked as force majeure was specified as force majeure event or not in the force majeure clause of the LNG MSPA, it has to be beyond the reasonable control of the party seeking to rely upon it.
An event is considered to be beyond the reasonable control of the affected party, if it occurs without its fault. Therefore, in order to be considered force majeure, the event invoked must take place without the fault of the party seeking to rely upon it.
In disputes arising from the declaration of force majeure, the arbitrators and courts will first consider whether the event invoked was indeed an event that could not have been reasonably foreseen or whether it was an event that the party invoking force majeure had the means and opportunity to prevent but nevertheless allowed to occur through negligence or whether the event invoked was caused by the actions of the party invoking force majeure2.
Force majeure declarations for events arising from the negligence or wilful misconduct of the party invoking force majeure will be considered invalid.
If a party affected by an event fails to take reasonable steps to prevent that event from occurring, it cannot subsequently validly claim that the event is force majeure event. For instance, on 8 June 2022, at the US Freeport LNG plant in Quintana, Texas, a gas pipeline overheated and caused an explosion. Due to the blast, Freeport LNG plant had to be shut for about eight months from 8 June 2022 until February 2023. Initially, Freeport LNG declared force majeure on 9 June 2022, but by the end of that month, after it was found that the explosion occurred due to inadequate operating and testing procedures, it has withdrew the force majeure notice, thus admitting its fault on the incident.
2. The Event Invoked As Force Majeure Was The Only Effective Cause That Delayed, Interfered With Or Prevented The Affected Party To Perform Its Contractual Obligations3
In English law, this is called the "causation requirement".
The force majeure clause of LNG MSPAs lists the events that may constitute force majeure: e.g.
(a) flood, atmospheric disturbance, lightning, storm, hurricane, cyclone, typhoon, tornado, earthquake, tsunami, landslide, perils of the sea, soil erosion, subsidence, washout, pandemic or other acts of God;
(b) war (whether declared or undeclared), riot, civil war, piracy, blockade, insurrection, acts of public enemies, civil or military disturbances, sabotage or act of terrorism, quarantine restriction;
(c) fire, explosion, breakdown, freezing, breakage of or accident to, or the necessity for making repairs or alterations to any of the seller`s facilities or equipment, unless such event occurred due to the seller`s failure to properly maintain such facilities or equipment;
(d) strikes, lock out, or other industrial disturbances or labour disputes;
(e) chemical or radioactive contamination or ionising radiation;
(f) compliance by the affected party with an act, regulation, order or demand of a competent authority or of any person purporting to be or act for a competent Authority;
(g) in relation to an FOB delivery only, any circumstances relating to the loading of the LNG vessel at the loading port and/or seller`s facilities, which affects the ability of the seller to deliver the LNG at seller`s facilities; and
(h) in relation to an Ex-Ship delivery only, any circumstances relating to the unloading of the LNG vessel at the unloading port and/or receiving facilities or relating to the transportation of the LNG, which affects the ability of the buyer to receive, unload or use the LNG to be delivered under the Master Sale and Purchase Agreement.
However, the fact that a listed event occurs does not automatically allow a contracting party to declare force majeure as an excuse to avoid the performance of the contractual obligations.
The affected party may declare force majeure only if the event in question truly delays or temporarily prevents it to perform its contractual obligations4. In the case of a dispute, the party who claimed force majeure has the burden to prove that.
In the English case Seadrill Ghana Operations Ltd. v. Tullow Ghana Ltd5, the company Tullow Ghana Ltd. declared force majeure notwithstanding that the event invoked did not delay or in any way prevent it to perform its contractual obligations. Therefore, the English Commercial Court held that Tullow Ghana Ltd. could not rely on the occurrence of the event for failure to perform its contractual obligations.
3. The Effects Of The Event Invoked As Force Majeure Could Not Have Been Reasonably Avoided or Overcome By The Affected Party Through Reasonable Endeavours
In English law, the obligation to use reasonable endeavours is an obligation to take all reasonable steps which a reasonable and prudent operator, acting in its own interests, would take to overcome the effects of the force majeure event6 and to enable the performance of the contractual obligations7.
If a party claims that a force majeure event delays or prevents it to perform the contractual obligations, it must also prove that it has taken all reasonable steps that a reasonable and prudent operator would have taken to eliminate, overcome or minimize the effects of the force majeure event or that there were no reasonable measures that it could have taken to eliminate, overcome or minimize the effects of the force majeure event.
A party cannot claim force majeure based on the mere occurrence of an event listed in the force majeure clause of the LNG MSPA as an excuse for failure to perform the contractual obligations, unless it has taken reasonable steps to eliminate, overcome or minimize the effects of the respective event.
The Force Majeure clause of the LNG MSPA template used by the US LNG suppliers provides that:
"To the extent that the Party affected by an event of Force Majeure fails to use commercially reasonable efforts to overcome or mitigate the effects of such event, it shall not be excused for any delay or failure in performance that would have been avoided by using such commercially reasonable efforts."
In a dispute arising from the declaration of force majeure, if it can be shown that the party who claimed force majeure could have taken reasonable steps to eliminate or overcome the effects of the event invoked as force majeure, the cause of the failure to perform the contractual obligations will be considered to be the affected party`s inadequate response to the force majeure event, rather than the force majeure event itself8.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Gas Trade Review Edition No.7.
Endnotes:
1. See Sub-clause 15.1 of GIIGNL Master LNG Sale and Purchase Agreement Template, 2024 Edition.
2. See the English case Lauritzen A/A v Wijsmuller B.V., [1989] EWCA Civ 6; [1990] 1 Lloyd`s Rep.1
3. See Seadrill Ghana Operations Ltd. v. Tullow Ghana Ltd., [2018] EWHC 1640 (Comm)
4. In English law, the event invoked as force majeure must be the only effective cause that delayed or prevented the affected party to perform its contractual obligations. See Seadrill Ghana Operations Ltd. v. Tullow Ghana Ltd., [2018] EWHC 1640 (Comm)
5. [2018] EWHC 1640 (Comm)
6. See IBM United Kingdom Ltd. v. Rockware Glass Ltd., [1980] FSR 335
7. Clause 1 of GIIGNL Master LNG Sale and Purchase Agreement Template, 2024 Edition, stipulates that "Reasonable and Prudent Operator means a Person seeking in good faith to perform its contractual obligations, and in so doing, and in the general conduct of its undertaking, exercising that degree of skill, diligence and foresight which would reasonably and ordinarily be expected from a skilled and experienced operator engaged in the same type of undertaking under the same or similar circumstances and conditions."
8. See RTI Ltd v. MUR Shipping BV, [2024] UKSC 18, [2024] 1 Lloyd`s Rep 621, [2024] Bus LR 1492, [2024] 4 All ER 623, [2025] AC 675, [2024] 2 WLR 1350