A recent decision from Justice Robert Reed of the Manhattan Commercial Division in J.P. Morgan Ventures Energy Corporation v. Miami Wind I, LLC, Goldthwaite Wind Energy LLC demonstrates how parties have the ability to excuse contractual non-performance in a well drafted force majeure clause.
Background
Plaintiff J.P. Morgan Ventures Energy Corporation (the “Buyer”) is an energy trading company. Defendants Miami Wind I, LLC (Miami Wind) and Goldthwaite Wind Energy LLC (Goldthwaite Wind) (collectively the “Sellers”) own windfarms in Texas. The Sellers executed hedge agreements (“Agreements”) with the Buyer. The Sellers were unable to sell and deliver the bargained for quantity of energy to the Buyer from February 13, 2021 through February 19, 2021, a period in which Winter Storm Uri caused below-freezing temperatures in Texas. As such, the issue before the court was “whether a winter storm…during that time period triggered the force majeure provisions in the hedge agreements, thereby excusing the Sellers’ non-performance.”
The Agreements
The Agreements defined “Force Majeure” as follows:
“an event or circumstance which prevents the Claiming Party from performing its obligations . . . which event or circumstance was not anticipated as of the date the Power Transaction was agreed to, which is not within the reasonable control of, or the result of the negligence of, the Claiming Party, and which, by the exercise of due diligence, the Claiming Party is unable to overcome or avoid or cause to be avoided”.
Further, the Agreements explicitly excluded the following from the definition of “Force Majeure”:
“(i) the loss of Buyer’s markets; (ii) Buyer’s inability economically to use or resell the Product purchased hereunder; (iii) the loss or failure of Seller’s supply; or (iv) Seller’s ability to sell the Product at a price greater than the Contract Price”.
For purposes of force majeure clauses, the court agreed with the Buyer that the following are not sufficient to trigger the Agreements’ clause:
- “Sellers’… inability to generate electricity at their respective windfarms during the storm” which is a term that was specifically excluded from the definition of the clause;
- “An increase in the price of energy” which was not an unanticipated event because the parties anticipated price fluctuation as it is the underlying purpose of the contract. The court further reasoned that the financial considerations brought about by the storm were not bases for non-performance under a contract as financial hardships alone do not trigger force majeure clauses; and
- “Impact of weather on the ability of a windfarm to produce electricity” which also was not considered as an unanticipated event because it was not specifically included within the definition of the clause.
While the court found that the windfarm’s ability to generate electricity during winter storm did not trigger the force majeure provisions in the Agreements, the court nonetheless denied Buyer’s motion for summary judgment. The court found that “as the Sellers point out in their opposition papers, “one potentially critical issue is whether the nonperforming party even could have delivered during the time period in which it was claiming force majeure”. The court further reasoned that the Buyer failed to submit evidence that it was, in fact, possible for the Seller to deliver the energy under the parties’ Agreements. As such, Buyer J.P. Morgan failed to satisfy its burden in demonstrating the absence of genuine issues of material fact.
Upshot
Whether an event will excuse non-performance under a force majeure clause depends on how such events are defined in a contract. The cases cited by the court stand for the proposition that where the parties themselves have explicitly outlined the force majeure clause in their agreement, that outline dictates the scope of the clause. As such, parties should cautiously draft force majeure clauses and carefully consider the kind of breach that a force majeure event may trigger.