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The English High Court rendered its judgment in the case Seadrill Ghana Operations Limited v. Tullow Ghana Limited 1 on July 3, 2018 in respect of a dispute under of a long-term drilling contract between Seadrill and Tullow regarding the use of the semi-submersible drilling rig "WEST LEO" for offshore operations in Ghana. The contract was signed in 2012 and was expected to last until June 2018. However, in December 2016, Tullow claimed to terminate the contract for force majeure . In doing so, it sought to rely on an international law of the sea ("ITLOS") order which prevented "new drilling" in the field of TENs, which was one of the areas in which Tullow operated.
Seadrill disputed Tullow's right to terminate for force majeure, but agreed that the contract had been terminated for the convenience of Tullow.2 Under the contract, Seadrill would be entitled to pay a 60% early termination fee the period of the contract. The total amount in dispute exceeded US $ 270 million
Force Majeure
The term "force majeure" does not have any recognized meaning in English law. Courts will review the precise wording of the relevant contractual term agreed upon by the parties to determine its effect. In this case, the contractual clause stipulated that a case of force majeure would excuse a part of a non-performance only if: (1) it temporarily delayed or prevented the affected party from fulfilling the terms of the contract ; 2) it was beyond the control of the party that prevailed; and (3) the affected party has made reasonable efforts to mitigate or avoid its effects. When the affected party was Tullow and that she had been prevented from performing a contract period due to such an event for 60 consecutive days, she had the right to terminate the contract. Among the force majeure cases identified was a moratorium on drilling imposed by the government. "The judge concluded that the ITLOS order, coupled with a subsequent letter from the Government of Ghana to Tullow, urged him to comply with the order
Questions to the judge's decision on force majeure
After determining that there was a moratorium on drilling, the judge then had to consider among other things (1) when the moratorium on drilling took effect? (2) if Tullow had been prevented from performing any of its contractual obligations (3) if so, if this was caused by the drilling moratorium and (4) if the drilling moratorium was to be the only effective cause for Tullow to be able to invoke force majeure?
When did the drilling moratorium take effect?
the relevant event giving rise to the moratorium on drilling – the ITLOS – is produced early 2015, it is only 39 in October 2016 that the moratorium became a case of force majeure because, according to Tullow, its effects were felt. Thus, Tullow claimed that the drilling moratorium was the only " legal cause " of his inability to fulfill his obligations
This argument was not accepted by the judge who concluded that the moratorium took place in May 2015 when the government invited Tullow to comply with the ITLOS ordinance. Nothing that happened in October 2016 has changed the position with respect to this decree and the government has not given new instructions.
Was the moratorium on drilling a real cause of Tullow's inability?
The judge had difficulty with Tullow's argument that they had been prevented from fulfilling their contractual obligations, namely to provide a drill program at Seadrill, but badumed that They were prevented from doing so in order to examine the important question of causality ie what was the cause of Tullow's inability to perform drilling programs under the contract?
It is well established in law that there must be a clear causal connection between the relevant event of force majeure and the non-compliance with the contractual obligation. The judge referred to the existing authorities on this subject and reiterated that the question is " sensitive to the legal context in which the question arises " and should be " resolved by reference to common sense. ] "
Looking at the post in October 2016, the judge concluded that there were" two real causes "of Tullow not being able to provide Seadrill with a drilling program. He acknowledged that the drilling moratorium was at least partly responsible for Tullow's inability to continue drilling, but Tullow did not obtain the government's authorization to drill additional wells in the Jubilee field (its "flagship badet"). ") In accordance with the Jubilee Field Development Plan (" GJFFDP ") It was common ground that the ITLOS ordinance had no impact on Jubilee Field and that the defect of 39; obtain the approval of the GJFFDP was not a moratorium on drilling.
The judge therefore considered whether the inability to perform had two causes: one being the force majeure, and the other no, a party could rely on his rights under the force majeure clause? The judge concluded that it was a matter of law. a question of interpretation of the relevant clause and the underlying factual matrix The judge concluded that " Tullow is not in a position to avail himself of the force majeure clause despite the fact that A case of force majeure prevented him from using West Leo to fill the EN10 [a particular well] in RTE. Any other finding would mean that Tullow could terminate the contract under section 27 when the actual cause of his breach was not a force majeure within the meaning of the clause. "
Nevertheless, the Judge then considered the second question as to whether, if the relevant event was a case of force majeure, Tullow exercised" [19459004ReasonableEfforts "to remedy or avoid it In order to decide this question, the Judge stated that" "should be taken into account in all matters relating to the question of it is reasonable to expect that one party takes certain steps to avoid or circumvent a case of force majeure. the questions are determining " depend on the contractual context, " and it was not strictly speaking an objective or subjective criterion, but would depend on an badysis of the specific factual and contractual details of the # 39; s case. It was incumbent upon Tullow to demonstrate that she had done all that was reasonably possible to avoid or circumvent the force majeure. Higher expenses or increased risk of unprofitable results did not make an action unreasonable.
In addition, the judge also concluded that it was necessary to consider the commercial interests of the other party. It was therefore "reasonable" in the context of this case that Tullow considered Seadrill's interest in having " instructions for West Leo to drill a well not affected by the moratorium. as to whether or not such work was a realistic option at the relevant time and two experts testified about it. Finally, the judge ruled that the relevant work was available in four wells – TW-01 (in the TEN domain) and J-13, J-15 and J-36 (in the Jubilee field). In some cases, these wells were proposed by Tullow to his partners a few months before the termination as available and valuable work. On this basis, Tullow had not done all that was reasonably possible to overcome the event of force majeure (though there had been one in the first place.)
Requirement of "true and correct" invoices
The judgment also examined whether the requirement that the invoices be " true and correct " was violated when the VAT was imputed which was not due and that there was failure to deduct the withholding tax. The judge held that it would be " absurd " to conclude that " because the VAT was not charged to anything on the bill " and that, in fact, it was for Tullow to comply with the relevant laws and deduct the withholding tax, not Seadrill. As such, the invoices were true and correct within the meaning of the contract. This again demonstrates the court's reluctance to allow purely technical defenses to avoid the commercial reality of the contract.
Risky Business
In the first line of his judgment, the judge stated that Oil drilling is a risky business "In his judgment, he found that circumstances which, according to Tullow, prevented them from performing their contractual obligations arose in cases where the risks were properly borne by Tullow.) In concluding, the judge therefore ruled in favor of Seadrill in concluding that the contract had been terminated for the convenience of Tullow rather than for force majeure, Tullow was ordered to pay Seadrill an amount of USD 273 million representing agreed early termination fees and waiting charges (plus interest and legal fees).
Haynes and Boone CDG, LLP Associate Glenn Kangisser acted as lead counsel Seadrill Ghana Operations Ltd, and was badisted by partners Amanda Larrington and Maren St randevold.
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