Governmental request is not force majeure if prompted by the defaulting party
A recent decision on the interpretation of a force majeure clause in a contract relating to the handling and supply of crude oil shows that for a party to rely upon a 'request of a governmental authority' in a force majeure clause, such request must be made independently of the party that receives the request, and the force majeure event must be beyond the control of the affected party.
This case concerned the interpretation a force majeure clause in a contract relating to the handling and supply of crude oil. The defendants ("Okta") owned an oil refinery in Skopje, (the capital of the Former Yugoslav Republic of Macadonia) ("FYROM"). The claimants ("Jetoil") a Greek company entered into a contract with Okta in 1993, which gave Jetoil the exclusive right to handle and supply crude oil to Okta.
Jetoil brought an action for damages for breach of the 1993 contract alleging that Okta failed to allow Jetoil exclusively to handle and supply crude to Okta. Okta accepted that they had been in breach of the 1993 contract but contended that the reason for the breach was due to two letters they received from the FYROM government dated November 1999 and in May 2001 requesting that they should not perform the 1993 contract.
Okta contended that the force majeure provision of the 1993 contract entitled them to avoid any liability for their admitted failure to perform the contract. The clause stated that neither party would be responsible for failure to perform the agreement, when such failure was attributable to "acts or compliance with requests of any government…beyond the control of the affected party". Jetoil claimed that the failure to perform the contract was not due to the request of the FYROM government, but rather that Okta had decided to contract with another Greek oil company. Jetoil claimed that Okta had managed to persuade the FYROM Government to issue the "request" not to perform the contract with Jetoil and indeed evidence came to light during the hearing that Okta had requested the FYROM Government to send the letters and had met members of the Government on several occasions to discuss the matter. Okta's lawyers had even submitted a draft of the second letter to the government outlining the Government's position on the matter.
At first instance and appeal, the Judge found that the requests not to perform the 1993 contract were not governmental in nature and that the failure to perform the contracts was not due to the requests, and therefore Okta could not rely on the force majeure clause.
It is clear that for a party to rely upon a "request of the governmental authority" in a force majeure clause, such request must be made independently of the party that receives the request, and the force majeure event must be something which is beyond the control of the party affected. In this case, "the letter was instigated by Okta, was drafted by them and presented to government to sign. There was no evidence that the government gave any independent consideration to the issue at all". As a result the request was held to be not beyond Okta's control.
For further information please contact Bob Palmer at robert.palmer@cms-cmck.com or on +44 (0)20 7367 3656.
