Force majeure clauses in LNG sales and purchase agreements: how do they stand up during the Covid-19 pandemic?

Abstract

During the Covid-19 pandemic companies have declared force majeure on contracts across the energy value chain. LNG Sales and Purchase Agreements (SPAs) are no exception. Courts in several jurisdictions have declared Covid-19 a force majeure event. Governments have issued guidelines on managing Covid-related contract disputes. The stage is set for high-value litigation turning on the validity of force majeure clauses. The purpose of this article is to help make sense of these developments. It will review the theory and application of the law of force majeure and, through comparison of six published LNG SPAs, ‘stress test’ current force majeure provisions. The article will consider how contractual risk is presently allocated in these model contracts, what drafting modifications might be applied to improve coverage, align with current case law, better reflect the market environment, and ensure contractual stability under Covid-19 conditions. The focus is on English law, given that this is the lex fori in the majority of the published contracts.