Oil & Gas: Force Majeure in model clauses

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The recent outbreak of COVID-19 coupled with a sudden and dramatic drop in the oil price has already begun to test the operation and efficacy of force majeure (“FM”) provisions in oil and gas industry contracts. For example, a force majeure provision was invoked by Delek this week to obtain an interim injunction in respect of the repayment of £46 million loan, citing that the “deep crisis” in the markets, due to COVID-19 and the Saudi Arabian and Russian tensions, constituting force majeure. Whilst this decision is not one of the English courts, it is an interesting indication of the application of force majeure provisions and how such events interact globally.

There is no single ‘industry standard’ FM clause, and so each contractual FM clause must be carefully considered in its contractual context to determine how it operates.

With many oil and gas industry contracts based on industry model forms, such as LOGIC, OGUK, AIPN, we consider below the impact of COVID-19 and the oil price drop.

Basis of Force Majeure – a reminder

In English law there is no principle of ‘force majeure’ (rather a principle of frustration). As such, whether a contract caters for ‘force majeure’, what constitutes ‘force majeure’ and its consequences is a matter to be freely negotiated and agreed between the parties.

As a matter of usual drafting practice and contractual interpretation “force majeure” refers to an event beyond the control of the parties which frustrates or delays the performance of a contractual obligation to the extent that that obligation cannot be performed or is subject to a delay. There are three key aspects to look out for in considering a specific FM provision:

  1. What particular event(s) have the parties agreed will comprise FM under their contract? For example, are FM events specifically described (and limited) in the contract or has a wider “catch-all” provision been used;
  2. What has been agreed is the consequence if an FM event occurs? Does it entirely excuse parties from their obligations under the contract, or cause such obligations to be suspended until the force majeure event subsides, or perhaps give rise to a right to terminate after the passage of a certain period of time;
  3. What is the necessary causal link between the FM event and the impact on a party’s ability to perform? Must the “but for” test be met, so that the party seeking to rely on the FM provision must show it would otherwise have performed its obligations?


LOGIC standard form contracts all employ an “exhaustive list” approach i.e. they list all of the events/types of events that comprise FM for their purposes. That list does not include reference to “epidemic”, pandemic or disease nor any reference to changes in one or other parties’ financial circumstances or in the economy generally. However, it is worth bearing in mind that the LOGIC general terms do include within the definition of FM “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”. It may therefore be significant in relation to those contracts whether local or national Government introduce relevant legislation in relation to COVID-19 or simply continue to issue ‘guidelines’.

Even if that requirement can be met, LOGIC general terms also contain a number of other requirements which must be met before a party can claim relief on the basis of the FM provisions. Those include a requirement for a causal link between the claimed FM event and the failure to perform in respect of which relief is sought.

Oil and Gas UK (OGUK)

The OGUK Model Form JOA and CTIA each contain a broader definition of force majeure, which is defined as “any cause beyond the reasonable control of” the Parties which prevents or hinders them from complying with their obligations (except obligations (subject to certain other requirements that the party concerned has acted reasonably and/or could not have prevented the FM event). This is a far less prescriptive approach than that adopted in LOGIC contracts and may provide more flexibility in arguing that various events, such as COVID-19, fall within the scope of the provision. That said, parties should pay attention to the requirements as to the necessary “reasonable” behaviour of the relevant party as well as the “beyond the reasonable control” test (the detail of these requirements are slightly different between the two model forms).

In addition the OGUK Model Form CTIA (2019) provides a list of specific examples that will comprise FM, including “epidemics” and (separately) “any unforeseen change in law, order, rule, regulation, act, restraint…of any governmental body or authority…(whether or not legally valid)” (provided the tests as to reasonable control/reasonable behaviour described above are also met). There may be scope for argument whether (for example) devolved or UK Government guidance on social distancing, working from home and restricting non-essential travel falls within that express provision. However, it is also worth noting that the model form also expressly excludes as FM (i) a party’s financial hardship/inability to make a profit; (ii) loss of customers, loss of market share or reduction in demand; and (iii) failure by a contractor to perform. That may make arguments based on the low oil price difficult.

Association of International Petroleum Negotiators (AIPN)

Like the OGUK Model Forms, the AIPN Model Contracts adopt a “catch all” approach in combination with a list of specific events which will amount to FM. “Epidemics or plague” are specifically included in the AIPN LNG model form Sale and Purchase Agreement (2012) and the AIPN model Gas Sales Agreement (2006) as identifiable occurrences that will amount to an FM event. Some other AIPN model forms, including the Well Services and International Model Petroleum Service Contract, do not include that reference but do provide (for example) that “interference by any government authority” or “regulation having the force of law” will constitute force majeure.

It is noteworthy that the AIPN model from Joint Operating Agreement (2012) does not contain a standard force majeure definition, but rather parties must select from a series of options when drafting each contract. JOAs based on the AIPN model form are therefore likely to contain bespoke FM definitions that address the risks that the parties foresaw at the time they entered into the arrangement.

Other industry-specific contracts

A hybrid approach is also taken by certain bespoke contracts such as the Supply Time “Charter Party for Offshore Vessels” (2017). Epidemics or pandemics are not specifically listed as FM events, although “government requisition, control, intervention, requirement or interference” does comprise an FM event, as does “any other similar cause [to those specifically listed] beyond the reasonable clause of either party” will constitute a force majeure event. That may be broad enough in some cases to encompass, for example, restrictions placed upon travel.

The BP Oil International Limited General Terms and Conditions for Sales and Purchases of Crude Oil and Petroleum Products (2015) state that “neither the Seller nor the Buyer shall be liable for failure to perform…insofar as that party proves that the failure was due to an impediment beyond its control”. Compliance with any “ordinance…order, demand or request” from any local or other “authority” may also be deemed a force majeure event.

“Sole cause”

Depending on the precise terms of the FM provision, it may also be necessary to consider whether the COVID-19 outbreak is the event which has caused to the non-performance or delay in respect of which a party seeks to be excused. English law is far from straightforward on the approach to causation in FM clauses. One school of thought divides FM clauses into frustration clauses and exclusion clauses where (i) if the obligation to perform is suspended or discharged upon the happening of specified events by the FM clause it is treated as a contractual frustration clause and it is not necessary to apply a “but for” test (i.e. it is not necessary to demonstrate that ‘but for’ the FM event the contract would have been performed[2]); and (ii) the obligation to perform is not discharged but the usual consequences of failure to perform are excluded in the FM clause it is treated as exclusion clauses, so that there is a need to meet the “but for” test.

However, the Court of Appeal has more recently given guidance that: “It is simply a matter of construing the words of the clause.” (See page 65, 2019 Edition, CMS Annual Review on Developments in English Oil and Gas Law).

For example, the use of the phrases such as “resulting from” and “directly affect the performance of either party” were likely to be supportive of the “but for” test, as they were indicative of exclusionary wording where the ‘but for’ test applies.

In practice, some contracts based on the industry standard forms described above will likely fall within the first category, so that the ‘but for’ test may be significant. In current circumstances there may be a variety of potentially interlinking factors including the recent drastic decrease in oil price and the COVID-19 pandemic which may make it difficult to determine the specific event causing the contractual non-performance or delay. Whilst oil price fluctuation is often explicitly or implicitly excluded from force majeure provisions[2], the existence of an excluded event alongside the potential included force majeure event may make establishing force majeure more complex that it might otherwise be. Added to such complexity will doubtless be a debate about whether any alleged competing causes (such as oil price falls) are, indeed, independent or are part of a single chain of events resulting from the same ultimate cause.

If a potential force majeure event (for example the COVID-19 outbreak) is not the sole cause it is important to consider issues of how the FM clause deals with causation before taking drastic steps. In Seadrill Ghana Operations Limited v. Tullow Ghana Limited [2018] EWHC 1640 (Comm) seeking to terminate a rig contract for force majeure, in a falling oil market, cost Tullow USD 254 million in damages when the court decided that termination for force majeure was not permissible. (see page 63, 2018 Edition, CMS Annual Review on Developments in English Oil and Gas Law).

Events such as the global COVID-19 epidemic serve as a reminder of the importance of careful, tailored drafting of such provisions. Whilst model forms provide a skeleton, they will not be suitable in all cases and a bespoke provision will often be required. It should also be noted that model forms are frequently supplemented or amended and the model form provided will often not be suitable for the purposes of the specific contract. Thought must also be given to what the contract should specifically exclude or include as force majeure in the circumstances of the precise relationship the parties want to establish.


[1] EWHC 1640 (Comm)



[2] LOGIC contracts do not specify oil price fluctuations in the exhaustive list of force majeure events