Force majeure clauses are staples of almost every commercial contract, providing a mechanism which relieves one or both parties of their obligations under the contract if an event (usually called a force majeure event) occurs which is beyond their control and which prevents or delays performance of such obligations. Often, a force majeure clause will require the party affected by the event in question to demonstrate that they have used reasonable endeavours to prevent or minimise the impact of such event, before it can rely on the force majeure clause. But does a reasonable endeavours obligation mean that the affected party must accept non-contractual performance? This was the issue to be decided by the Supreme Court in the case of RTI Ltd v MUR Shipping BV [2024] UKSC 18.

Facts

  • MUR is a shipowner; RTI is a charterer.
  • In 2016, the parties entered an agreement pursuant to which MUR agreed to make monthly shipments of bauxite to Ukraine in return for which RTI agreed to make monthly payments to MUR (crucially) in US dollars.
  • The agreement included a force majeure clause which relieved both parties from performance under the agreement in the event of a force majeure event which was defined as (emphasis added):

… an event or state of affairs which…  is outside the immediate control of the Party giving the Force Majeure Notice; … prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port; … is caused by one or more of acts of God, extreme weather conditions, war, lockout, strikes or other labour disturbances, explosions, fire, invasion, insurrection, blockade, embargo, riot, flood, earthquake, including all accidents to piers, shiploaders, and/or mills, factories, barges, or machinery, railway and canal stoppage by ice or frost, any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges; … [and] cannot be overcome by reasonable endeavors from the Party affected.

  • In 2018, RTI’s parent company was sanctioned by the US government. As a majority-owned subsidiary, RTI was subject to the same restrictions, making payment in US dollars difficult.
  • Accordingly, MUR sent a force majeure notice to RTI, claiming that the sanctions constituted a force majeure event on the basis that RTI was unable to fulfil its contractual obligation to make payment to MUR in US dollars.
  • RTI rejected the notice and, instead, offered to make payment to MUR in Euros and bear any costs incurred by MUR in converting those Euros to dollars.
  • MUR rejected this offer and maintained its right to be paid in dollars. It therefore refused to nominate vessels.
  • In the first instance, RTI commenced arbitration proceedings against MUR for the cost of replacement vessels during the period during which MUR suspended performance. The arbitrators found in favour of RTI, deciding that:

… although the imposition of sanctions on RTI’s parent company causing probable delay by RTI in paying US dollars would otherwise constitute a force majeure event or state of affairs, MUR could not rely on the force majeure clause because that event or state of affairs could have been overcome by MUR’s reasonable endeavours… That was because, although RTI’s contractual obligation was to pay US dollars, MUR should have accepted RTI’s offer to pay in euros … There would have been no detriment to MUR because … RTI had made clear that it would bear any additional costs or exchange rate losses in converting euros to US dollars.

  • MUR appealed this decision to the High Court. The High Court found in favour of MUR on the basis that:

… the contractual right to payment in US dollars formed part of the parties’ bargain. The exercise of reasonable endeavours required endeavours towards the performance of that bargain; not towards a performance directed to achieving a different result which formed no part of the parties’ agreement.

In other words, the reasonable endeavours proviso did not require MUR to accept non-contractual performance of the agreement.

  • RTI appealed this decision to the Court of Appeal. The Court of Appeal found in favour of RTI. It’s decision focused on the use of the word “overcome” in the reasonable endeavours provision in the force majeure clause, finding that:

… the word “overcome” does not necessarily mean that the contract must be performed in strict accordance with its terms; and that the finding that the force majeure state of affairs could have been overcome by the exercise of reasonable endeavours was one with which the court should not interfere.

  • Finally, MUR appealed this decision to the Supreme Court. The Supreme Court found in favour of MUR, maintaining the principle set out in the Bulman and Vancouver Strikes cases that “’reasonable endeavours’ to overcome a force majeure event do not include accepting an offer of non-contractual performance absent clear wording to that effect”. 

Comment

The facts of this case are interesting as, on first glance, RTI appeared admirable in their desire to attempt to find a commercially viable workaround to the occurrence of a potential force majeure event. Of course, in real life commercial relationships, parties often need to work together with similar desires in mind. However, the Supreme Court’s judgment indicates that such workarounds should not interfere with performance of the agreed terms of a contract as this could “introduce unwarranted uncertainty and would thereby, it might be said, undermine the expectations of reasonable business people. It is not unmeritorious or unjust to insist on contractual performance, all the more so if being precluded from doing so would introduce uncertainty contrary to the expectations of reasonable business people”.

The court was reluctant to interfere with the parties’ freedom to contract and the importance of contractual certainty. It is open to contracting parties to set out in their contract the options they consider acceptable in circumstances such as those in this case. It is therefore worth considering different eventualities at the outset and, if issues in the performance of the contract arise, have close regard to the wording of the contract in light of the prevailing factual circumstances when deciding next steps.