Force Majeure: Were Supplier Actions "Foreseeable" and "Controllable"?

Arbitration, North America

When a petrochemical plant turnaround took three months longer than the originally planned two months, a downstream customer filed arbitration seeking damages for sourcing an alternative feedstock. The dispute centered on whether or not the extended delay was the subject of unforeseeable circumstances, i.e., force majeure. We presented an expert report that examined whether compressor delivery and installation delays were foreseeable and controllable.

A petrochemical plant entered into an agreement to supply a chemical intermediate as feedstock for a customer's downstream production facility. The petrochemical plant announced-and commenced-a planned shutdown and turnaround that was scheduled to last for 60 days, but took 150 days. The downstream customer filed for arbitration seeking damages for the incremental 90 days during which it had to find alternative sources of feedstock. In its defense, the petrochemical supplier sought protection under the force majeure clause of the supply agreement, alleging that the extended delay in the turnaround was unforeseeable and outside of its control.

An alleged key factor delaying the turnaround was the late delivery of a new compressor from the petrochemical plant's equipment vendor. At the date scheduled to begin the turnaround, the compressor completion was behind schedule. Nonetheless, the plant shutdown proceeded according to the original schedule. Upon start-up, various compressor defects were discovered, the correction of which resulted in additional delay in the plant re-start.

Baker & O'Brien was asked to review contemporaneous documentation to assess the extent to which the potential delivery and start-up delays were foreseeable and whether the actions were prudent - considering all of the other factors at play. Based on the supplier's internal turnaround documentation, as well as correspondence between the supplier and the compressor vendor, Baker & O'Brien examined the causes for the delay in the turnaround completion, whether the compressor delay had a material effect on this delay, and whether the delays were foreseeable. Our opinions were presented in an expert report and the matter settled prior to commencement of arbitration.

Cliff Moore

Senior Consultant

Chemicals and Petrochemicals
Engineering, Procurement, and Construction (EPC) / Standard of Care / Commercial Contracts / Expert Witness Testimony / Arbitration / Commercial Terms Review / Litigation
North America