Our German Desk
The English Supreme Court’s decision in RTI Ltd v MUR Shipping BV [2024] UKSC 18 has demonstrated the effect sanctions may have on a contract as a force majeure event and clarified the parameters of “reasonable endeavours” to overcome the event (a frequent requirement of force majeure clauses).
Background
The parties (respectively RTI and MUR) entered into a Contract of Affreightment (Contract) for cargo transported to Ukraine by MUR. The Contract required RTI to pay in US dollars. However, when US sanctions were imposed on RTI’s parent company, it could no longer pay in US dollars as US dollar payments would be routed through the US, and the US banks would delay or stop the payments on the basis that they would or were likely to be in breach of sanctions.
RTI proposed to pay MUR in Euros, and to cover the cost of currency conversion. This was rejected by MUR, which invoked the Contract’s force majeure clause on the basis the Contract could not be performed as it could not be paid in US dollars.
The force majeure clause excused contractual performance where an event outside of the affected party’s control (i.e. a force majeure event) prevented it from performing its contractual obligations, which event could not be overcome by “reasonable endeavours”.
Litigation history
RTI was initially successful in arbitration proceedings; RTI’s offer to pay in an alternative currency was held to be a “reasonable endeavour” that would have overcome the force majeure event without detriment to MUR.
MUR appealed to the High Court, and successfully argued that “reasonable endeavours” did not require a party to accept non-contractual performance or a variation to the terms of the contract. (See our article on the judgment.)
RTI was again successful in the Court of Appeal, which took a practical approach and considered the force majeure event could be overcome without requiring strict contractual performance. Payment in an alternative currency would be of no detriment to MUR (with RTI bearing the cost of conversion).
Supreme Court
MUR successfully appealed to the Supreme Court, which unanimously overturned the Court of Appeal’s decision.
The Supreme Court held that a reasonable endeavours clause does not require a party to accept non-contractual performance by another party, even if it would be reasonable to do so. The longstanding general principle of freedom to contract includes the right to not accept the offer of non-contractual performance.
A reasonable endeavours clause, the Court said, should principally be concerned with steps that could be taken by an affected party to obtain or allow for contractual performance, rather than steps taken to provide an alternative (non-contractual) performance. Given the contractual obligation to pay in US dollars, the offer to pay in a different currency was not a reasonable endeavour to obtain contractual performance, but a type of substituted performance.
The Court considered that if non-contractual solutions could prevent parties invoking force majeure clauses, it would weaken the parties’ contractual rights. This weakening was neither viable nor desirable in a commercial environment; certainty is an important element, and parties particularly needed to know what their force majeure clauses meant and what they could be relied on to cover.
As a general principle, the Court reaffirmed that clear wording is needed for a party to forego a contractual right such as MUR’s right to insist on payment in US dollars only (which was not present here).
Our comment
This decision is an affirmation of long-standing contractual principles and, given the frequency with which force majeure clauses are now invoked, carries some important takeaway points to bear in mind.
- Force majeure clauses are common, and usually define a “force majeure event” (or similar) as an event which cannot reasonably be prevented by the parties and which excuses performance going forward. It is fairly typical for the clause to require that there be no “reasonable” avoidance of the force majeure event for the force majeure clause to be triggered.
- “Reasonable” avoidance does not require a party to accept non-contractual performance as a ‘way around’ what would otherwise be a force majeure event.
- Where it is not obvious what steps could reasonably be taken by an affected party to obtain contractual performance, this can create significant practical uncertainty as to whether the contract can still be performed and if so how. Our advice should be sought promptly.
- In drafting and negotiating contracts, parties may wish to allow for a wider range of options or methods to perform contractual obligations (while still ensuring the contract is drafted unambiguously); again, contract-specific advice should be obtained.
If you have any questions about force majeure or contracts of affreightment, please get in touch with our Trade & Transport Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
