Force majeure and reasonable endeavours: a turbulent contractual tale

Background

In 2016, RTI Ltd (“RTI”), as charterers, entered into a contract of affreightment (“COA”) with MUR Shipping BV (“MUR”), as owners, for the shipment of monthly consignments of bauxite from Guinea to Ukraine. Freight was payable in US dollars.  The COA provided that neither party would be liable to the other for loss in the event of a force majeure “event” or “state of affairs” which could not be “overcome by reasonable endeavours from the Party affected”.  While such an event or state of affairs was in operation, the obligation of each party to perform the contract was to be suspended.

In April 2018, when RTI’s parent company became subject to US sanctions, RTI could no longer make payments of freight to MUR in the contractual currency.  RTI offered to make all payments in Euros and to cover any currency losses but MUR proceeded to invoke the force majeure clause, asserting that it was prevented from receiving payments in US dollars.  

RTI commenced arbitration against MUR claiming the cost of chartering replacement vessels during the period of MUR’s suspension of performance under the COA.  The tribunal determined that MUR could not rely on the force majeure clause, as the “event” or “state of affairs” could have been “overcome” by MUR’s acceptance of RTI’s offer to pay freight in Euros and such acceptance would have caused MUR no detriment.

MUR appealed the arbitration award on a point of law (under section 69 of the Arbitration Act 1996) to the English High Court which set aside the arbitration award.  However, on RTI’s appeal to the Court of Appeal, a 2 to 1 majority upheld the award and found that MUR should have accepted RTI’s alternative payment proposal and it was unable to rely on the force majeure clause to suspend its obligations.  This decision was subsequently appealed to the Supreme Court by MUR.

The decision of the Supreme Court

The Supreme Court treated the appeal as raising a “fundamental point of principle” that would in theory apply to all force majeure clauses which commonly contain (either expressly or impliedly) a reasonable endeavours proviso. In overturning the Court of Appeal’s decision and finding in MUR’s favour, the Supreme Court addressed four issues of principle:

1. A “reasonable endeavours” provision contained in a force majeure clause does not require a party to accept non-contractual performance in the absence of clear wording to that effect.  The purpose of such a provision is to require a party to take reasonable steps to enable a contract to continue to be performed, not to take reasonable steps to secure some different, non-contractual, performance.  

2. The fundamental principle of freedom of contract includes freedom not to contract, which extends to the freedom not to accept an offer of a non-contractual performance.

3. Parties should not be required to forego valuable contractual rights, such as the right to receive payment in a particular currency and accept an offer of non-contractual performance unless there is clear language in the contract requiring this.

4. MUR’s approach promoted certainty and predictability, which are of particular importance in English commercial law¹.  Any requirement to accept non-contractual performance which requires the parties to assess whether such a change is detrimental, or whether it will achieve the same result as performance of the contractual obligation in question, creates “considerable legal and factual uncertainty”.  

Comments

The Supreme Court’s decision emphasises the importance of contractual sovereignty and certainty under English law. Parties can now be confident that compliance with a “reasonable endeavours” proviso in a force majeure clause will not require the acceptance of non-contractual performance, even in circumstances where doing so would mitigate or even, arguably, neutralise the effects of a force majeure event.

The Supreme Court however recognised that parties are free to negotiate a different bargain and may, by clear wording, themselves provide for reasonable endeavours to include accepting an offer of non-contractual performance from the other party. With the rise in global sanctions and supply chain disruptions, commercial parties may well take the Supreme Court up on this invitation and seek to mitigate the impact of potential force majeure events by negotiating express provisions to this effect.

¹ As recently observed by the Supreme Court in JTI Polska sp z oo v Jakubowski [2023] UKSC 19.