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C. Stephen Stack, Jr. is an associate who concentrates his practice
in the areas of commercial litigation, general litigation and defense of
tort claims against governmental entities.
Watson & Jones, P.A.
2829 Lakeland Dr., Suite 1502
P.O. Box 23546
Jackson, Mississippi 39225-3546
601.939.8900 Phone
601.932.4400 Fax
C. Stephen Stack, Jr.
In the world of complex contract
negotiations, it is not uncommon for
boilerplate clauses such as so-called
"force majeure" provisions to receive
scant attention. After all they say
essentially the same thing, right? These
common clauses essentially free both
parties from liability or obligation when
an event beyond the control of the
parties, such as a war, strike, crime or
weather event, occurs.
The recent decision of the United
States Court of Appeals for the Fifth
Circuit in Ergon-West Virginia, Inc. v.
Dynegy Marketing & Trade
, 706 F.3d
419 (5th Cir. 2013) serves as a reminder
to contract lawyers that careful, or
careless, drafting of force majeure
provisions may prove to be of vital
Hurricanes Katrina and Rita
slammed into the Gulf Coast in August
and September of 2005, wreaking
havoc on the oil and gas industry. Many
suppliers and purchasers of natural
gas found themselves in a position of
examining the force majeure provisions
of their contracts to determine whether
non-performance was excused. Two
such contracts were those entered into
by two sister companies ("Buyer 1" and
"Buyer 2" or collectively "the Buyer
Companies"), respectively, with the
seller in Dynegy ("Seller").
Under both contracts, Seller agreed to
deliver a daily contract quantity (DCQ)
of natural gas to specified delivery points
which the Buyer Companies agreed to
purchase at a set price. Each contract
contained a force majeure provision
excusing a party's performance when
it was rendered unable to meet its
contractual obligations due to certain
designated events beyond its control. In
the aftermath of the hurricanes, Seller
failed to deliver the DCQ under both
contracts. Seller's internally designated
suppliers which it was using to supply
the Buyer Companies (but which were
not identified in either contract or known
to the Buyer Companies) had declared
force majeure pursuant to their contracts
with Seller. Seller notified both Buyer
Companies that it was invoking the force
majeure clause under the respective
contracts and took the position its failure
to deliver the DCQ was thereby excused.
As a result, the Buyer Companies were
forced to procure gas on the open market
at a higher price than that specified in
the contracts. The Buyer Companies filed
suit seeking recoupment of the additional
sums paid for the replacement gas.
The Buyer Companies' position at
trial was that the respective contracts'
force majeure provisions required Seller
to attempt to secure replacement gas,
which Seller admitted that it did not even
attempt to do.
The force majeure provision of the
Buyer 1 contract stated in pertinent part
(emphasis added):
In the event of either Party hereto
being rendered unable, wholly or in
part, by force majeure to carry out its
obligations under this
North America
Avoiding Potential Pitfalls in Drafting
Force Majeure Provisions