Force Majeure

Hess Corp. v. ENI Petroleum, US, LLC, 435 N.J. Super. 89 (App. Div. 2014).  ENI entered into a “Base Contract,” a form widely used in the oil industry, under which ENI would supply natural gas to Hess and provide the gas at a specified delivery point, the Tennessee 500 Pool.  The “Base Contract” did not, however, contain all the details of the parties’ arrangement.  Instead, the details were contained in “Transaction Confirmation” forms for each month’s sale of gas.

The Transaction Confirmation form for April 2008 was the center of this case.  Though that form left blank the identity of the “Transporter” of the gas to ENI for delivery at the Tennessee 500 Pool, as the parties had done in prior Transaction Confirmations too, and stated “None” under “Special Conditions,” ENI intended to rely on a particular transporter, Enterprise, which supplied gas to the Tennessee 500 Pool through a particular pipeline, the Independence Trail Pipeline.  On April 8, 2008, however, a leak was discovered in the Independence Trail Pipeline.  As a result, Enterprise could not deliver.

ENI announced that it was suspending delivery and invoked the force majeure clause of the Base Contract.  That clause defined “force majeure” as “any cause not reasonably within the control of the party claiming suspension,” and specifically included “interruption and/or curtailment  of Firm transportation and/or storage by Transporters.”

Hesa rejected that invocation of force majeure.  Hess noted that the Tennessee 500 Pool is fed by multiple transporters.  Thus, the leak in the Independence Trail Pipeline did not preclude the delivery of gas at the agreed location.  ENI conceded that it had other gas that fed into the Tennessee 500 Pool, but claimed that all that gas was committed to other customers.

Hess ended up buying the gas it needed on the spot market, at a cost more than $300,000 higher than the contract price.  Hess then sued ENI for that sum.  After a trial, the Law Division agreed with Hess.  ENI appealed, but the Appellate Division affirmed after reviewing this purely legal issue de novo.

Though New York law applied, Judge Haas provided a useful discussion of force majeure generally. The documents were unambiguous.  ENI was “required to have gas available in the Tennessee 500 pool for plaintiff, regardless of how it got there.”  Judge Haas cited a Texas case under the same industry Base Contract in support of affirmance.

Since the documents did not identify Enterprise or the Independence Trail Pipeline as the sole source of the gas that ENI was obligated to provide, there was no force majeure.  ENI could and should have gotten gas from another source that fed the Tennessee 500 Pool.  The fact that the force majeure clause referred to “Transporters,” in the plural, confirmed that the inability of just one Transporter to deliver gas to the Tennessee 500 Pool did not qualify as force majeure.