In commercial contracts, the purpose of a force majeure clause is to act as a shield against the consequences of certain predefined events that disrupt contractual performance. The recent Supreme Court decision in RTI Ltd v MUR Shipping BV[1], highlights the nuanced interplay between force majeure clauses, reasonable endeavours provisos and fundamental principles of English contract law.
Facts
MUR and RTI entered into a contract of affreightment on an amended Gencon charterparty, for the shipment of bauxite from Equatorial Guinea to Ukraine between July 2016 and June 2018. The contract specified that payments were to be made in US dollars.
Clause 36, the force majeure clause, stated that an event could only be deemed force majeure if it could not "be overcome by reasonable endeavors from the Party affected".
Before the end of the contract, RTI's parent company was sanctioned by the US, making it effectively impossible for it to pay MUR in US dollars. MUR claimed that this constituted force majeure and suspended the nomination of vessels to RTI. In response, RTI offered to:
- make payment to MUR in Euros, which could then be converted into US dollars by MUR's bank on receipt; and
- indemnify MUR for any loss it suffered as a result.
MUR refused to accept payment in Euros and RTI brought a claim against it for breach of contract.
MUR invoked the force majeure clause, while RTI argued that it could have overcome the problem by accepting payment in Euros.
The Key Issue
The key issue was whether the requirement in the clause to exercise reasonable endeavours to overcome the force majeure event imposes an obligation on the affected party to accept non-contractual performance to overcome the force majeure event (namely, payment in Euros instead of US dollars in this case).
Case History
Arbitration
RTI brought arbitration proceedings against MUR for breach of contract. The arbitrators found that in rejecting RTI's offer, MUR had not satisfied the reasonable endeavours proviso in Clause 36. The arbitrators found in favour of RTI and awarded damages for MUR's breach.
High Court
MUR appealed to the High Court, which reversed the arbitration award[2]. The Court held that the reasonable endeavours proviso did not create an obligation requiring MUR to accept an offer of non-contractual performance to be able to rely on the force majeure clause.
Court of Appeal
RTI then appealed to the Court of Appeal, which ruled in its favour by a majority[3]. On examination of Clause 36, it was held that the force majeure event could have been "overcome" by MUR accepting RTI's offer. In doing so, this would have achieved the same result without detriment to MUR and therefore would have constituted reasonable endeavours.
Supreme Court Judgment
MUR appealed to the Supreme Court, which unanimously found in its favour, reversing the decision of the Court of Appeal. In a Judgment handed down on 15 May 2024, the Court held that rejecting RTI's offer of non-contractual performance did not constitute a failure to exercise reasonable endeavours. Consequently, MUR was not debarred from relying on the force majeure clause. In so finding, the Court rejected RTI's argument that the reasonable endeavours proviso meant that a party should accept an offer of non-contractual performance if it involves no detriment to them and it achieves the same result as the contractual performance.
The Supreme Court recognised that reasonable endeavours provisos are regularly found in force majeure clauses, though it treated the issue as a matter of principle, rather than one of interpretation of the specific clause found in this contract of affreightment.
Reasons for judgment:
- Contractual Performance: the Court emphasised that contractual performance meant fulfilling the contract according to its precise terms. The relevant performance in this case was payment in US dollars, not Euros. The objective of the reasonable endeavours proviso is to maintain contractual performance and not to replace it with a different performance altogether.
- Freedom of Contract: parties have autonomy to contract on the terms they choose. This principle extends to the freedom to decline non-contractual performance.
- Preservation of Rights: contracts grant valuable rights to the parties which should remain intact unless expressly waived. Under the terms of the contract in question, MUR possessed the right to demand payment in US dollars. This right could not be relinquished without clear and explicit language to that effect.
- Certainty and Predictability: these are key foundations of English contract law. Adhering to the terms of a contract ensures clarity and minimises uncertainties. MUR's case was that in the absence of clear wording to this effect, a reasonable endeavours proviso does not require accepting an offer of performance in a manner other than that stated in the contract. RTI's proposal entailed a deviation from the contract, a proposition which, if accepted by the Court, would introduce factual and legal uncertainty, requiring a subjective comparison between the non-contractual performance offered and the obligations actually stipulated in the contract.
Comment
This judgment provides valuable guidance on how English courts approach issues of contractual interpretation and reinforces the importance of adhering to the fundamental principles of contract law.
The judgment clarifies the scope of "reasonable endeavours", which can be express or implied in force majeure clauses, and affirms that they do not extend to accepting performance different to that stipulated, even though the net result for the counterparty may be materially equivalent.
In this case, while non-contractual performance might have made sense from a commercial perspective, the Supreme Court prioritised certainty over practicality. The Court emphasised that parties "need to know with reasonable confidence whether or not a force majeure clause can be relied upon at the relevant time, not after some retrospective inquiry". This case serves as a reminder that English courts will uphold the strict terms of the contract, unless there is clear and explicit agreement to the contrary.
Payment issues are common in commercial contracts, and even more so in the context of the rapidly-changing sanctions landscape. If payment issues are likely to occur, then express provision should be made to allow for payment in different currencies in case of a force majeure, or other specified, event. Alternatively, parties can specify that "reasonable endeavours" involves acceptance of an offer of non-contractual performance. However, such clauses should be carefully drafted to ensure they are appropriately caveated.
[1] [2024] UKSC 18
[2] [2022] EWHC 467 (Comm)
[3] [2022] EWCA Civ 1406
