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When Petroleum Review first published news stories relating to Hurricane Harvey, it was too early to assess the impact of the tropical storm on the energy industry, other than to report that oil and gas production operations and refining facilities were shuttered, write Jessica Crutcher and Michael Lennon, Litigation Partners at Mayer Brown. However, more recently, on 29 September 2017, the Houston Chronicle reported on a survey of energy executives taken by the Federal Reserve Bank of Dallas, in which 62% said that they believed any problems for the upstream production and services companies will have been fixed within six months. Fewer than a third opined there would still be a slight impact in six months.
The evidence indicates refineries and pipelines took the brunt of the storm. Hurricane Harvey knocked out 25% of US oil refining capacity. According to a recent Forbes report, refining in Corpus Christi is in the best shape post-Harvey, while conditions deteriorate progressively along the Gulf Coast, with Beaumont/Port Arthur refineries in the worst shape and likely to have the longest recovery. In its coverage of the Dallas Fed survey, the Chronicle reported that nearly 80% of executives expected the tropical storm to still to have a slight or moderate impact on the refining industry in six months time.
However, less knowable are the commercial and contractual domino effects of Hurricane Harvey and there is likely to be a rise in disputes that will trigger force majeure or similar concerns, as occurred in the aftermath of Hurricanes Katrina, Rita and Ike.
Force majeure and related common law or code-based doctrines may be defences to non-performance of a contract where the cause is a natural disaster. In most jurisdictions, a contractual force majeure clause (if there is one), as opposed to any common-law definition, will primarily control the breadth of the defence. Most force majeure clauses cover acts of god like hurricanes and floods. But every contract is different, and its precise language should be the first consideration if a company finds itself potentially unable to perform in the wake of Hurricane Harvey. Any language about foreseeability, mitigation either before and after-the-fact, and notice, are issues companies should pay attention to.
Similar defences are recognised under common law or civil codes across the world. However, because of jurisdictional differences, including a force majeure clause in any significant commercial contract may be a more direct way to maximise predictability in a business relationship when disaster occurs.
Non-contractual force majeure-type defences usually require something approaching true impossibility of performance, not financial inconvenience. However, many jurisdictions interpret standard contractual force majeure clauses approximately the same way. Practically speaking, resolution usually turns on whether the non-performing party could reasonably have avoided the situation through mitigating acts. Best practices include cooperation and timely and honest communications. A non-performing party should also be careful about industry perception performing ones most lucrative contracts, while not performing others on the basis of a force majeure event, may result in negative visibility. Although none of these issues alone may be dispositive, they may have a practical effect on outcome.