Weather causes rethink of force majeure

A senior resources lawyer has predicted the provisions of force majeure could be changed, following the use of the clause by many mining companies as a result of the recent spate of terrible weather conditions.

Several mining companies declared force majeure, which allows them to miss scheduled delivery and supply agreements due to circumstances beyond their control, because of floods and cyclones near the mine sites.

While many mines were shut down as a result of the weather, the industry contributed millions of dollars and countless man hours to the recovery efforts.

The miners are still counting the cost of the damaging weather, and say it could be some time until the full affects are known.

Stephanie Rowland, a Minter Ellison Lawyers senior Associate, said more force majeure declarations are possible as northern Australia faces continued bad weather.

Rowland told the “Excellence in Oil and Gas” forum today that the widespread weather problems across Australia has resulted in force majeure being a “top of mind” consideration.

Perth-based Rowland said the damage from the weather has damaged not only mine sites, but offshore installations, deliverability and even the morale or personnel and regional communities.

“What we have now is an environment where potentially, force majeure clauses in force for some years, have been rendered outdated almost overnight simply because their scope and detail either fails or insufficiently addresses the liabilities on both sides of a contract, of such large-scale and in some cases, unpredictable and unexpected impacts,” she said.

“The result is that force majeure provisions have reclaimed the spotlight as a serious ‘re-risk’ to project, product supply and corporate confidence.

“Those re-risks may be exacerbated if overseas parties – and therefore jurisdictions – are involved.

“Australia’s resources sector is left facing a question – was it adequately prepared and were its interests adequately safeguarded, regardless of natural weather circumstances?

She said lessons needed to be learnt about managing such weather impacts and revisions or renegotiations of force majeure provisions may be necessary.

“It may also be useful if any such revision, at least at the broader industry level, invites input from external but related stakeholders,” Rowland said.

 “We saw in the Brisbane floods, how quickly issues of insurance liability – often a secondary casualty of disputed force majeure claims – comes down to the absolute finite details and interpretation of a contract.

“In the wake of such disasters and potential long-term dispute resolution, there is no better time for Australia’s resources sector – whether oil, gas or hard rock mining – to sit down and rejuvenate with crystal clear clarity and intent, its force majeure protocols.”

Rowland went on to say the review or renegotiations could include more detailed provisions regarding force majeure and have additional conditions placed on the agreements.

“While any number of non-weather incidents can trigger force majeure, the extraordinary climatic start to 2011 has exposed force majeure as potentially a whole new legal and corporate ball game – and there should be no expectation by risk analysts in the resources sector that the need for revision will subside any time soon,” Ms Rowland said.

Image: The Australian

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