(EnergyAsia, March 22 2011, Tuesday) — Australia’s energy and minerals sectors need to re-assess, revise or perhaps totally re-negotiate their force majeure provisions in key contracts based on lessons learnt from managing recent weather impacts, according to a senior lawyer from Minter Ellison, a leading commercial law firm based in Melbourne.

The caution comes as many of the country’s largest and mid-tier oil, gas and minerals producers, and owners of related export infrastructure, count the emerging full cost, liability and contractual exposure from operations shut down temporarily or permanently amid the massive floods, rain and storm damage that have swept Australia since New Year’s Day.

Addressing the ‘Excellence in Oil and Gas’ forum in Sydney last month, Stephanie Rowland, senior associate at Minter Ellison’s Perth office, said many natural resources firms are seeking shelter from further financial impact by enacting force majeure provisions as northern Australia continues to face a challenging climate conditions.

Force majeure clauses in contracts relieve a participant from liability under a joint operating agreement where their failure to perform is caused by a ‘force majeure’ event, such as natural causes beyond a participant’s control..

Ms Rowland said: “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we have now is an environment where potentially, force majeure clauses in force for some years, have been rendered outdated almost overnight simply because their scope and detail either fails or insufficiently addresses the liabilities on both sides of a contract, of such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.

“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?”

Ms Rowland said the scope of such a review or negotiation – which should apply to any party within a force majeure contractual environment – could include more detailed and additional extra conditions recorded into key 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.

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