Texas law service contracts uncertain during Hurricane Ida

Following the devastating impact of Hurricane Ida, a lingering question is whether the effects of this Gulf storm will be sufficient to excuse delay or failure to deliver. Many parties in the oil and gas, petroleum services, and energy infrastructure industries that were impacted by the storm are using Texas law in their service contracts, and in most cases these parties will find some level coverage under the provisions of force majeure provisions in their contracts.

Indeed, a number of oil and gas industry giants have already declared force majeure in their business dealings in the past two weeks – Royal Dutch Shell, the largest oil producer in the Gulf of Mexico; offshore drilling contractor Noble Corporation; and OxyChem, from Occidental Petroleum, to name a few. Whether the storm will be enough to excuse any delay or non-performance will largely depend on the circumstances of the delay or non-performance and the exact wording of their force majeure clauses.

Force majeure language is the key

In the unlikely event that a contract does not contain a force majeure clause, the force majeure defense will not be available. Texas courts do not apply a common law doctrine of force majeure in the absence of a force majeure provision in a contract. If there is no force majeure clause, there is no force majeure defense to non-performance. In certain circumstances, there may be an impossibility of performance defense (sometimes referred to as goal frustration or impossibility of performance) available.

Look carefully at the wording

Most force majeure provisions contain a definition and enumerated list that the parties agree to be force majeure events, and Texas courts will respect the intent of the parties and rely on contractual language.

Parties trading in the Gulf of Mexico typically include “named and numbered tropical storms” or hurricanes as force majeure events in their listed lists. If for some reason “hurricane” or similar language is not listed, to invoke force majeure a party may have to rely on related terms such as “flood” or “power failure” or full terms such as “act of God”, “natural disaster” or “act of governmental authority” (assuming emergency government action in the aftermath of the hurricane). Under maritime law, Courts routinely allow parties to raise a “force majeure” defense if they can demonstrate that they took reasonable precautions in the circumstances to avoid non-performance.

The extent to which a party can rely on a defense of force majeure will also depend on other limitations that the parties may or may not write into their contracts. The specific wording of the force majeure provision will be important. For example, is a mere delay in performance excusable while non-performance is not? Does performance have to be literally impossible?

Pay attention to notice provisions

Any notice provisions in the contract can be lifesaving. Care should be taken to meet the notification requirements necessary to trigger the application of a force majeure provision.

No Force Majeure Provision Applicable – Consider Impossibility of Performance

If a party cannot invoke a force majeure defense, all is not lost. A party may still be able to invoke the “impossibility of performance” or “frustration of purpose” defense, which is recognized in Texas for contracts for goods and services.

In Texas, we are experiencing unprecedented weather conditions. With each occurrence, industries learn – and force majeure provisions are adjusted to include new conditions. Hurricanes are no exception. Where the parties depend on operations in the Gulf of Mexico, we should expect force majeure provisions to contain “hurricane”, “named and numbered tropical storms”, “severe weather” or similar terms.

Danielle Kinchen also contributed to this article.

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