'Substantial litigation' to follow FM declarations after Harvey - US consultancy

Author: David Haydon

2017/09/20

HOUSTON (ICIS)--The US oil and gas industry is likely to experience a large quantity of force majeure litigation and contract disputes due to recent hurricanes in the US Gulf Coast, legal services firm Mayer Brown said on Wednesday.

The firm compared the situation created by Harvey to that of Hurricanes Katrina, Rita and Ike, which all caused massive disruptions to business.

Those events also resulted in substantial legal proceedings over the enforcement of contract force majeure clauses both in Texas and Louisiana.

“It is impossible to predict how many active litigations will arise in the energy space as a result of force majeure-type issues related to Hurricane Harvey,” Mayer Brown partner Jessica Crutcher said. “The impact and disruption is significant and still being assessed.”

However, Crutcher noted that many disputes, real or potential, are expected to be resolved privately in pre-litigation.

For issues that reach litigation, Crutcher said that resolution depended on the nature of the dispute.

“Some disputes (such as those with mandatory arbitration provisions that include a short timeline for dispute resolution) may be resolved more quickly,” she said. “Others, if not settled prior to trial, may take several years before they fully navigate the trial and appellate process and reach a final, non-appealable resolution.”

Typical contractual requirements include the event be unforeseeable, beyond a party's control, and actually have an effect on performance, among other stipulations, the firm noted.

If performance of a contract is made impossible due to storm activity, Mayer Brown said, consulting the relevant contracts for any governing force majeure language should be the first step, followed by alternative means of performance and communication with contracting parties.