Seadrill Ghana Operations Ltd v Tullow Ghana Ltd

A force majeure clause excuses non-performance only to the extent that the specified event caused the failure to perform. Where force majeure and a non-force-majeure event are concurrent effective causes, the party cannot rely on the clause if the non-force-majeure event caused the relevant non-performance. A reasonable-endeavours obligation in a force majeure clause requires consideration of the other party’s interests. Commercial expense, reduced profitability or inconvenience may be relevant, but will not by themselves establish that reasonable endeavours have been used. The obligation may require alternative contractual performance, subject to the particular risks and circumstances. Proper notice is generally a condition precedent to reliance on the clause.

Seadrill Ghana Operations Ltd claimed approximately US$277.4 million under a contract under which it hired the West Leo drilling rig to Tullow Ghana Ltd. Tullow terminated the contract and withheld hire, relying on a contractual force majeure clause referring to a government-imposed drilling moratorium.

The moratorium followed an order made during Ghana’s maritime boundary arbitration with Côte d’Ivoire. Tullow also lacked government approval for planned drilling in the Greater Jubilee Field, following an FPSO technical problem. The principal issues were whether the moratorium caused Tullow’s inability to provide further drilling programmes and whether Tullow had used reasonable endeavours to avoid or circumvent the force majeure. The court also determined disputes concerning Ghanaian VAT and withholding tax.

1. Force majeure and causation. The government’s letter of 4 May 2015, read with its later clarification, constituted a government-imposed drilling moratorium. It took effect in May 2015 and prevented new drilling in TEN, although completion of already-spudded wells remained possible. The relevant force majeure condition under clause 27.8 required both a qualifying occurrence and prevention of contractual performance for 60 consecutive days.
2. The court assumed, without deciding, that the obligation to provide a drilling programme under clause 18.1 could constitute a term or condition for this purpose. Causation was to be assessed in its contractual context and by a broad common-sense approach, following ENE Kos v Petroleo Brasileiro [2012] 2 AC 164 and The Eurus [1998] 1 Lloyd’s Reports 351.
3. Both the moratorium and the failure to obtain approval for the Greater Jubilee Plan were effective causes of the lack of drilling instructions in October 2016. The latter event was not force majeure. Under the wording of clause 27.1, Tullow therefore could not rely on the moratorium to excuse its failure to perform. The conclusion was consistent with Intertradex v Lesieur [1978] 2 Lloyd’s Reports 509, though the ultimate question remained one of contractual construction.
4. Reasonable endeavours. The obligation required Tullow to use reasonable endeavours to ensure that the force majeure did not prevent contractual performance or, if prevention occurred, to mitigate its effects. Tullow could consider its commercial interests, but could not disregard Seadrill’s interest in receiving drilling instructions. The contractual obligation was not a business option allowing Tullow to choose a method of performance solely for its own benefit. The approach was informed by Ross T Smyth & Co Ltd v W N Lindsay Ltd [1953] 2 Lloyd’s Reports 378, B&S Contracts v VG Publications [1984] ICR 419, Brauer & Co v James Clark [1952] 2 AER 497 and Reardon Smith Line v Ministry of Agriculture, Fisheries and Food [1963] AC 691.
5. Tullow failed to prove that it had used reasonable endeavours. It should have instructed West Leo to perform workovers on J13 and J15, complete J36, and complete TW01. It was not required to complete EN13, because that work risked being futile while the linked well remained barred, or to undertake or offer work on MTA wells operated by another company.
6. Notice and tax. Notice was a condition precedent, but Tullow’s March 2016 notice was timely and validly given by email. VAT was not chargeable on standby services supplied after the rig left Ghana, but was chargeable on the termination-for-convenience invoice. Withholding tax was payable on Ghanaian standby services and on the termination invoice, but not on standby services supplied outside Ghana.
7. Seadrill was entitled to judgment for the sums claimed, subject to the exclusion of VAT from standby invoices for the period after 10 November 2016. The parties were invited to agree the order.