SW Legal studies in Business

Geological Problem in Mining Not Sufficient to Invoke Force Majeure Clause
Description

Appeals court held that a mining company breached its contract to supply coal to a utility when it quit delivery due to a geological problem that caused problems in mining. The mining company did not properly inform the utility of the nature of the problem, forcing it to pay a higher price for new supplies.

Topic Contracts
Key Words

Breach; Force Majeure; Damages

C A S E   S U M M A R Y
Facts

C.W. Mining (CW) signed an agreement in 2003 to provide Aquila, an electric power company, with 1.5 million tons of coal during 2004-06 with an option for Aquila to extend the contract through 2008. The contract contained a force majeure clause. It stated that if invoked, the party doing so would immediately inform the other party of the problem and obligations would be suspended until the problem was overcome and, if the problem continued for more than six months, the contract could be terminated. CW had many problems: a long strike by about half of its employees; roof collapses that resulted in the Federal Mine Safety and Health Administration ordering one mine to be closed; unexpectedly muddy conditions occurred; and unusual “hot spots” were hit when mining. Hot spots are geological conditions that cause areas of very high temperature in the coal that causes mining to stop or slow way down. CW invoked the force majeure clause due to the strike, which slowed its deliveries. Aquila accepted the smaller-than-expected coal deliveries and told CW it expected the quantities to be made up. Later, CW cancelled the contract, invoking the force majeure clause due to geological conditions—the hot spots. Aquila then contracted with another company for coal, paying a higher price. It sued CW for breach. The trial court rejected the defense of force majeure and awarded Aquila damages of $24 million. CW appealed.

Decision

Affirmed. Aquila was not notified that the hot spots were a significant problem; in fact they had been told the opposite. The fact that a problem existed, and had been noted, is not sufficient to justify invoking the force majeure clause. Aquila did not waive its rights under the contract when it accepted lower-than-expected coal deliveries due to the strike; the contract remained in force as CW provided partial performance, and that was accepted during that period. The labor dispute was a separate matter from the geological problem. As the price Aquila had to pay a new provider was shown to be the market price at that time, it had the right to the damages that were awarded to cover the higher cost suffered due to breach by CW.

Citation

Aquila, Inc. v. C.W. Mining, 545 F.3d 1258 (10th Cir., 2008)

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