A recent unanimous decision in RTI Ltd v MUR Shipping BV [2024] UKSC 18, the English Supreme Court has recently overturned an earlier Court of Appeal ruling, and restored a High Court judge’s decision that where there is contractual requirement to exercise reasonable endeavours to overcome a force majeure event, those provisions do not oblige the affected party to accept an offer of non-contractual performance.
The Supreme Court appeal concerned the interpretation of a force majeure clause in a 2-year contract of affreightment (COA) between MUR Shipping BV (Owners) and RTI Ltd (Charterers). Under the terms of that COA freight payments were payable in USD. In April 2018, RUSAL, the majority shareholder of the Charterers was added to the US OFAC Specially Designated Nationals (SDNs). As a result, Owners gave notice to Charterers they would be unable to accept USD freight payments from Charterers due to the effect of those sanctions on the banking system. Charterers offered to pay the freight in Euros, including absorption of any currency conversion costs. This offer was refused by Owners who insisted that it had a right to receive payment in USD, as expressly provided for in the COA. Owners’ subsequently suspended performance of the COA, invoking the provisions of the COA’s force majeure clause:
“36.3 A Force Majeure Event is an event or state of affairs which meets all of the following criteria:
a) It is outside the immediate control of the Party giving the Force Majeure Notice;
b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;
c) It 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;
d) It cannot be overcome by reasonable endeavours from the Party affected.”
Earlier Decisions
Charterers referred the dispute to arbitration, alleging breach of contract by Owners. The arbitration tribunal found in Charterers’ favour, on the basis that the proposal to pay in an alternative currency was a realistic alternative that amounted to ‘reasonable endeavours’ to overcome the effects of the purported force majeure event without any detriment to Owners. As such Owners were obliged to accept Charterers’ proposal.
Owners appealed the award in the High Court ([2022] EWHC 467 (COMM)). The High Court reversed the Tribunal’s original decision, finding that Owners were not required under the ‘reasonable endeavours’ provision to accept Charterers’ proposal of non-contractual performance (payment in Euros instead of the contractually specified currency). As such, Owners had been entitled to suspend performance without any liability to Charterers.
Charterers further appealed to the Court of Appeal, who on a majority decision of 2 to 1, reaffirmed the original decision of the Tribunal. The consenting judges found that, as a matter of fact the proposal to pay in Euros would have overcome the effects of the force majeure event, as it would have ultimately achieved substantively the same result as payment in the contractual currency (USD).
Owners appealed the matter to the Supreme Court.
Supreme Court
The primary issue before the Supreme Court was, in the absence of any express wording to the contrary and based on the facts, whether the “reasonable endeavours” provision found in Clause 36(d) prevented Owners from invoking the force majeure provisions. The Supreme Court agreed with Owners and held that the ‘reasonable endeavours’ provision did not oblige Owners to accept an offer of non-contractual performance. Consequently, Owners were entitled to rely on the provisions of force majeure clause and were not in breach of the COA terms in suspending performance of the contract.
The Supreme Court based its decision on four ‘considerations of principle’:
- The primary purpose of the “reasonable endeavours” provision was to maintain performance of the contract according to the agreed terms. It was not the purpose of that provision to permit the agreed contractual terms to be varied or altered.
- The principle of ‘freedom of contract’ also extends to ‘freedom not to contract’, or in this case the ‘freedom not to accept an offer of non-contractual performance.
- Clear words are needed to forgo valuable contractual rights.
- Certainty and predictability are fundamental principles of English contract law.
In summary, the Supreme Court held where the parties have contractually agreed on the manner of performance of their respective obligations, they should not be required to accept non-contractual performance, even if it would seem to make commercial sense to accept such non-contractual performance as being reasonable steps taken to avoid the invocation of the force majeure provisions. If the parties had intended that the entitlement to their contractual rights could be overcome, then they had been free to expressly provided for same.
This is an important decision for the Club’s Assureds, whether they be acting in the capacity of Disponent Owners or Charterers. Assureds should keep in mind that unlike many civil law countries, there is no standalone doctrine of force majeure under English law. Force majeure provisions will only be applicable where expressly provided for and the English courts will apply contracts strictly according to the agreed terms. This decision of the Supreme Court’s should be taken as a reminder that contractual parties need to take a considered approach when drafting and/or agreeing to force majeure provisions.
In a wider context, although maritime tribunals may sometime seek to take a more pragmatic commercial approach to disputes, the Supreme Court’s decision reaffirms the position that strict legal principles should be applied to commercial contracts.
