Anastasia Walsh — International Energy Consultant
The LNG industry witnessed its first upsurge of force majeure notices in response to COVID-19. This was initiated when CNOOC issued force majeure notices on suppliers for volumes that were anticipated in the first quarter of 2020. The second influx of notices came from Indian LNG importers GAIL, Petronet & Gujurat State Petroleum Corp.
Force majeure refers to unexpected external circumstances that are beyond a party’s control and that prevent or impede the performance by such party of its contractual obligations.
English law is the common choice for long-term LNG SPAs and under English law there is no common law principle of force majeure. Therefore, relief under the clause will only be available if a force majeure clause is incorporated in the relevant LNG SPAs.
The archetypal force majeure clause should include:
- The general standard of force majeure — the event beyond the reasonable control of the affected party that could not have been foreseen, avoided or mitigated by such a party taking reasonable steps.
- A list of potential scenarios that will constitute force majeure should the general standard be triggered. E.g. Acts of God, Acts of Government, Pandemic or Epidemic. This list is non-exhaustive.
- A list of potential scenarios that will not qualify as force majeure even if the general standard is triggered. E.g. Financial hardship, negative profit, market changes of troughs in demand.
- An obligation to mitigate the consequences or force majeure to guarantee resumption of performance in the quickest time feasible.
- The procedure for notifying the other party and the level of detail required in the notice.
The burden is on the party claiming force majeure to demonstrate factually and evidentially that the event in question constitutes a valid force majeure under the concerned LNG SPA. This will depend on the particular facts of the case and the terms of the SPA.
The event must prevent or significantly impede a arty from performing its contractual obligations — so the mere inclusion of the phrase ‘pandemic’ or ‘epidemic’ is not necessarily determinative therefore parties need to pay attention to drafting and negotiating force majeure clauses.
