Force Majeure Event Clauses – A Risk Sharing Strategy in Charterparty for Offshore E & P Rigs and Shipbuilding Contracts

Abstract

This article was first published in the ICMA Proceedings 2012, and is being revisited in context of ongoing pandemic to demonstrate that the principle of Force Majeure remains unchanged for Offshore & Marine Industry. The question in the minds of every enterprise engaged in long term Oil & Gas industry contracts, “Is COVID-19 Pandemic a Force Majeure Event?” Who decides it and whether it is provided in the contract? Contracts are considered as the sole governing mechanism or agreed legal authority for governing relationships between the parties, under the principle of pacta sunt servanda or sanctity of contracts. Thus, contracts once executed cannot be changed due to post-contract events, except by an agreement between the parties. Therefore, if a pandemic like COVID-19 is not an identified event of an FME clause, then the current crisis raises serious questions and shakes the jurisprudence of international contract laws.

Force Majeure Events (“FME”) a French term, represents Unknown, Unprecedented, Unexpected and Unavoidable events, having a negative impact on obligations and responsibilities under the contracts between the parties. In Chinese Contracts Law, it is noted that “force majeure means any objective circumstances which are unforeseeable, unavoidable and insurmountable.” In Common Law jurisdiction there is no specific definition of force majeure but is interpreted from the clauses provided in a contract and arguments based on the doctrine of frustration. The frustration may or may not be the direct outcome of a force majeure event. In conclusion, the article demonstrates that FME Clause is a risk sharing strategy between the parties to a contract and not an act of God.

Keywords: Force Majeure, Pandemic, Epidemic, Act of God, Frustration, Act of Nature, Charterparty, Risks Management, Offshore & Marine, OSV, Drilling Rigs, Shipbuilding, Rig Building

JEL Classification: K32, K4, Q5, F6