In a majority decision, the Court of Appeal has overruled the High Court regarding whether a shipowner (MUR) was entitled to rely on a force majeure clause as suspending its obligation to load cargo for a charterer (RTI). Under the contract of affreightment, a force majeure event was defined as an “event or state of affairs” which (among other things) “cannot be overcome by reasonable endeavours from the Party affected”.
This is the case of MUR Shipping v RTI Ltd. We summarised the background to the dispute when we reported on the High Court decision earlier this year. Legal proceedings began when RTI sought to recover from MUR the additional costs of having to charter ships from third parties for a period when MUR suspended its services and would not deal with the RTI cargo. At the time, a company associated with RTI was sanctioned by the USA, leading to prospective difficulties and delays in RTI paying MUR in US dollars as the contract required.
The case so far…
An arbitration panel concluded that MUR’s case on force majeure succeeded in all respects apart from whether the force majeure event could have been “overcome by reasonable endeavours” by MUR; namely, by accepting RTI’s proposal to pay in (non-contractual) euros, to be converted to (contractual) US dollars as soon as the euros were received by the bank, and to bear any costs of currency conversion. The arbitrators awarded RTI over US $2m.
The High Court disagreed with the arbitrators. It held that the contract required payment in US dollars and MUR was not obliged, by the exercise of reasonable endeavours, to accept non-contractual performance to circumvent the effect of the force majeure clause.
The Court of Appeal’s majority decision
Despite finding some of the arbitrators’ reasoning “problematic”, the narrow scope of the appeal meant that the only issue for the Court of Appeal to decide was: could the force majeure event or state of affairs have been “overcome” by reasonable endeavours by MUR as the party affected? Yes, according to the majority.
In the lead judgment, Lord Justice Males noted that there was some debate as to precisely what the relevant force majeure event was in this case but found, implicitly from the arbitrators’ reasoning, that it was the imposition of sanctions on RTI’s associated company causing probable delay in payment being made in US dollars.
The Court decided that the force majeure clause should “be applied in a common sense way which achieves the purpose underlying the parties’ obligations”. Acceptance of RTI’s proposal to pay in euros and cover the currency conversion costs would have achieved precisely the same result as performance of the contractual obligation to pay in US dollars, namely the receipt in MUR’s bank account of the right quantity of dollars at the right time with no detriment to MUR. Thus RTI’s proposal would have overcome the force majeure state of affairs.
The dissenting view
Lord Justice Arnold dissented from the majority and agreed with the High Court decision that MUR was entitled to insist upon its strict contractual right to receive payment in US dollars. In his judgment, if the parties had intended the force majeure clause to extend to a requirement to accept non-contractual performance, clear express words were required and there were none.
Although the outcome of this case has changed, the key take away remains the same: whether or not a party is entitled to rely on a force majeure clause will turn on its specific wording and the facts of the case. Always obtain legal advice before declaring force majeure, or after receiving a force majeure notice from a counterparty.
[W]e are not concerned with reasonable endeavours clauses in general, or even with force majeure clauses in general. Each such clause must be considered on its own terms.