CERTAINTY IN UNCERTAIN TIMES: CONSIDERING FORCE MAJEURE

Abstract

Force majeure clauses are particularly relevant to at least two types of oil and gas agreements: operating agreements and long-term contracts. Each type of contract is characteristically exposed to calamitous events that can take many years to manifest. However, force majeure clauses in each type of contract need to reflect the commercial realities and bargain represented by each type of contract.

This paper considers whether the types of force majeure clauses that are used in the Australian oil and gas industry would adequately excuse a party relying on them from performing their obligations under a contract in light of some very real 21st century concerns. The beginning of the 21st century has seen remarkable technological development and the creation of a global village where an isolated event in one part of the world can have a significant effect on the entire world. Therefore, the increased likelihood of a terrorist attack against significant infrastructure (eg. an offshore oil rig or gas pipeline) and the emergence of natural phenomena, particularly widespread viral outbreaks such as the SARS virus can have a devastating effect on industry globally, as is being seen in the airline industry. There is some doubt whether standard contract clauses will automatically treat such circumstances as force majeure events.

The paper suggests that certain drafting conventions ought to be adopted to address 21st century concerns, and particularly to provide practical solutions for these issues.