As explained in our last blog about dispute resolution provisions in oil and gas, Brodies has recently launched the Contracting Compass initiative, which provides insight on issues of English law relevant to oil and gas contracts. The initiative comprises a series of seminars, with each accompanied by a dedicated white paper.
Recognising that the landscape of the contract is sometimes difficult to navigate, each seminar and paper highlights a key clause from the contract, focuses on particular points of English law and commercial practice most relevant to the clause concerned, and heightens awareness of the landscape as a whole.
In the first of four topics to be covered in the 2017 Contracting Compass series, we focused on Frustration and Force Majeure.
Frustration occurs when a supervening event, not caused by the default of either party (and for which the contract does not make provision), so significantly changes the nature of the obligations of the parties, from what was considered when the contract was entered into that it would be unjust to force the parties to perform.
At common law, the effect of frustration is that the contract is brought automatically to an end on the occurrence of the frustrating event, whether that suits the parties or not. Both parties are then released from further performance of their obligations.
If the contract makes provision for a particular event occurring, the event will be dealt with in accordance with the contract and the doctrine of frustration will not apply. The best course of action is to avoid the harsh effects of frustration by including a well-drafted force majeure clause in your contract. Force majeure literally translates as "superior force" and a force majeure clause seeks to address the occurrence of certain events which are outwith the parties' control.
From a practical perspective, it is important for a force majeure clause to be carefully considered and drafted with a view to regulating the contractual relationship in a way which is consistent with commercial intent. Remember, Force Majeure does not have a recognised meaning in English law - it is whatever you want it to be. It is therefore important to define Force Majeure and be aware that the courts will generally give these clauses a narrow construction. For further suggestions on how to draft a force majeure clause see our white paper on Frustration and Force Majeure..