Business Law

Business Law

Interesting Problem

On June 1, 2009, Bin Laden releases the following message to Al Jezeera and the international press: "We are planning extraordinary action to retaliate against the wicked so-called Western democracies. We will confound international trade, and bring the Western imperialist regimes to their knees. We will use chemical and biological weapons. If, to achieve our goal, we must destroy the commercial infrastructure, including bridges, canals, and tunnels, we will do so."

On June 3, 2010, Oil's Well Company, a Texas-based U.S. Corporation, which drills for crude in Kuwaiti oil fields and ships out of a Kuwaiti port, enter into a written contract with Petrochem Corp., a British refiner and retail seller of gasoline. The contract provides in part: "Oil's Well agrees to ship to Petrochem 1 million barrels of light sweet crude at $100 per barrel. Delivery will be made in Liverpool by tanker on September 30, 2010. Oil's Well will bear the expense of shipment."

Both parties understand implicitly that the tanker will pass through the Suez Canal, because this route is by far the shortest, and in all previous contracts between Oil's Well and Petrochem (there have been 25), shipment was made via the Suez Canal. Although the contract does not so specify, the cost of shipping from Kuwait to Liverpool will be about $1 million.

On June 5, 2010, massive explosions rock the Suez Canal reducing it to rubble. Bin Laden announces that he ordered the attack on the canal. Engineers predict that shipping through the canal will not resume for at least one year, the amount of time needed to effect necessary repairs. Oil's Well tries to renegotiate terms with Petrochem, but Petrochem insists on delivery according to contract terms.

Oil's Well researches alternative routes to ship the crude oil to Liverpool. The most efficient alternative route is around the Cape of Good Hope. Using this route it can make timely shipment under the terms of the contract, but because of time pressure and the greatly lengthened route of shipment, the additional shipping cost to Oil's Well would be $9 million above the original $1 million. Exclusive of the costs of shipping from Kuwait to Liverpool, Oil's Well's total costs are $90 per barrel. This contract, under its original terms, would have accounted for one-third of Oil's Well's annual profits.

The president of Oil's Well, Thad N. Zwelle, asks you if his company has a legal way of avoiding the contract. Analyze the facts and law and present Thad with all arguments and counter-arguments that might reasonably be raised by both parties to