Natalia Chi
A recent decision by Judge Robert Reed of the Manhattan Commercial Division in JP Morgan Ventures Energy Corporation v. Miami Wind I, LLC, Goldthwaite Wind Energy LLC demonstrates how parties have the ability to excuse contract and non-performance in a well-worded force majeure clause.
Background
The Plaintiff JP Morgan Ventures Energy Corporation (the “Purchaser”) is an energy trading company. Defendants Miami Wind I, LLC (Miami Wind) and Goldthwaite Wind Energy LLC (Goldthwaite Wind) (collectively the “Sellers”) own wind farms in Texas. The Sellers have entered into hedging agreements (“Agreements”) with the Buyer. The Sellers were unable to sell and deliver to the Buyer the agreed amount of power from February 13, 2021 through February 19, 2021, when Winter Storm Uri caused freezing temperatures in Texas. Thus, the question before the court was “whether a winter storm … during that time period triggered the force majeure provisions in the hedging agreements, thereby excusing the sellers’ default.”
The Accords
The Accords defined “Force Majeure” as follows:
“an event or circumstance which prevents the Claimant from performing his obligations . . . which event or circumstance was not foreseen on the date on which the Transaction of Power was agreed, which is not within the reasonable control of, or the result of the negligence of the Plaintiffs, and which, through the exercise of due care, the The requesting party is unable to overcome or avoid or have others avoided”.
Furthermore, the Agreements explicitly excluding the following from the definition of “force majeure”:
“(i) the loss of Buyer’s markets; (ii) the Purchaser’s inability to use or economically resell the Product purchased under this contract; (iii) loss or failure of Seller’s supply; or (iv) the ability of the Seller to sell the Product at a price higher than the Contract Price”.
For the purposes of the force majeure clauses, the court agreed with the Buyer that the following are not sufficient to trigger the clause of the Agreements:
- “…Sellers Failure to Generate Electricity at Their Respective Wind Farms During Storm” which is a term that has been expressly excluded from the definition of the clause;
- “A rise in the price of energy” which was not an unforeseen event because the parties expected the prices to fluctuate as it is the underlying purpose of the contract. The court also held that the financial considerations caused by the storm did not constitute grounds for breach of contract as financial hardship alone does not trigger a force majeure clause; and
- “Impact of weather on the ability of a wind farm to produce electricity” which, moreover, was not considered as an unforeseen event because it was not specifically included in the definition of the clause.
While the court held that the wind farm’s ability to generate electricity during the winter storm did not trigger the force majeure provisions in the agreements, the court still denied the buyer’s motion for summary judgment. The court found that “as the sellers point out in their opposition documents, ‘a potentially critical question is whether the defaulting party could have even delivered during the time period in which it invoked force majeure.’ The court further argued that the ‘Buyer has not submitted evidence that it was, in fact, possible for Seller to deliver the energy under the Agreement. As such, Buyer JP Morgan has failed to discharge its burden of demonstrating the absence of genuine questions of material fact.
Result
Whether an event will justify non-performance under a force majeure clause depends on how those events are defined in a contract. The cases cited by the court support the contention that where the parties themselves have explicitly outlined the force majeure clause in their agreement, that outline dictates the scope of the clause. Therefore, parties should carefully draft force majeure clauses and carefully consider the type of breach that a force majeure event may trigger.
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