Force Majeure in Post COVID-19: The Implication for Future Energy Law Contracts

Published date01 August 2020
Date01 August 2020

The outbreak of COVID-19 pandemic with possible first origin in the wet animal market in Wuhan, China, in early December 2019,1 and its subsequent global spreading by human mobility is arguably one greatest contemporary challenge, surpassing global climate change. There have been remarkable disruptions in economic and commercial activities, with the energy sector in severe financial crisis as oil prices dipped below $0 on Monday, 20 April 2020,2 due to low demand amid containment lockdown measures and related safety policies of various governments worldwide.

To a further extreme, contractual concerns have been raised as the performance of obligations in existing energy contracts, especially time-bound oil and gas supply has visibly become impracticable. Thus, contracting parties now invoke3 and are more likely to declare force majeure clauses gradually. There are emerging divergent debates considering whether COVID-19 is an acceptable, legitimate excuse for force majeure. This scenario certainly heralds impending financial risk challenges, and of course, litigation or arbitration conflict, so long as such debates are unsettled. Therefore, oil and gas parties would need to address pandemic-related force majeure in future energy law contracts conceivably.

The rationale behind this study has arisen amid controversies over COVID-19, as an excuse for force majeure in existing oil and gas contracts. The study, following an introduction, offers a brief age-long philosophical underpinning of force majeure and its current debates. It argues that COVID-19 can legitimately constitute an excuse for force majeure for existing energy contracts, depending on a particular case. The section further suggests likely future implication of force majeure for energy law contracts. Overall, a brief conclusion is drawn.

Understanding Force Majeure: Current Debates and its Effect for Future Energy Law Contracts The Philosophy of Force Majeure

The Canadian Supreme Court in Atlantic Paper Stock Ltd v. St. Anne-Nackawic advanced a most straightforward meaning of force majeure as an act of God, which ‘…generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond the control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill’.4 Therefore, force majeure is a contractual clause by which contracting parties mutually agree...

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