Thought you’d heard the last of force majuere cases arising from Winter Storm Uri? Think again.
In Marathon Oil Company v. Koch Services LLC. the question was how to measure damages suffered by Koch for Marathon’s failure to deliver gas.
Under a Base Contract Marathon was obligated to deliver gas at the Bennington Hub. The damages for undelivered gas would be calculated based on a formula utilizing a spot price, which was “under the listing applicable to the geographic location closest in proximity to the Bennington Hub”. Was that location the “OGT Pool index”, 41 miles away measured as the crow flies? Or was it “NGPL Texok index”, which was 128 miles away because it is the closest geographic location that gas can access by pipeline from Bennington Hub. In other words, should it be measured by pipeline length?
Marathon argued that the context of the contract, pertaining to transportation of gas, implied that the measurement must be based on downstream path-of-travel. The court rejected the argument that measurement must be downstream; the contract was direction neutral. Legal treatises suggest that ordinarily, the shortest straight line would govern most contracts, but sometimes the ordinary, usual and shortest route of public travel may be utilized where the context so indicates. An example is distance provisions in the FMLA, where the focus is on employees’ ability to take advantage of the statute’s protections.
The court concluded that the context of the contract at issue did not indicate that the parties intended a different method than the straight-line distance, which was “the most natural reading”. FYI, the location was a big deal given the difference in spot prices at the two alternatives.
In Sinclair Refining and Marketing LLC v. NextEra Marketing, LLC. the force majeure provision in a gas contract read:
“Notwithstanding [earlier sections] in no event shall an interruption in, failure of, or unavailability of Gas from, Seller’s normal sources of Gas supply be considered an event of force majeure under this Section 11 as long as Gas is available and trading on the open market at pools or hubs in the Buyer’s market area and from which such Gas could be readily transported to Buyer’s location”. (my emphasis)
More expensive gas was in fact trading on the open market during the time in question but NextEra elected not to buy it to cover its delivery obligations.
What did “available” mean under the contract? According to the Cambridge Dictionary, gas is “available” if it is able to be bought or used. Per Merriam Webster, “available” means “present or ready for immediate use in the context of resources”. None of the definitions hit the standard for practicability for which NextEra argued.
The court concluded that NextEra was asking it to add the word “readily” before “available” to create a new contract. To do that the court would have to rewrite the parties’ contract, which the court declined to do. The force majeure clause was not an “out” for NextEra’s failure to meet its delivery obligatons.
Mom’s musical interlude.
[View source.]
