Force majeure and reasonable endeavours: Supreme Court on MUR Shipping

The Supreme Court held that a party that called force majeure was not obliged to accept payment in Euros rather than in US Dollars (as provided by the contract). A contractual obligation to use reasonable endeavours to overcome a potential force majeure event could not require the counterparty to accept non-contractual performance. This decision overturned the Court of Appeal judgment, which had held that the party was obliged to accept payment in an alternative currency because that would have overcome the effect of the force majeure event and caused no detriment to it.

Background

Ship owner MUR Shipping (MUR) and charterer RTI Ltd (RTI) entered into a contract in 2016 for the carriage of monthly shipments of bauxite from Guinea to Ukraine. When the U.S. imposed economic sanctions against RTI's Russian-owned parent company in 2018, MUR invoked a force majeure clause on the basis that it would be a breach of sanctions to continue with performance of the contract.

The force majeure provision in question could only be invoked where the relevant "event or state of affairs" could not "be overcome by reasonable endeavours" of the affected party. RTI responded to MUR's notification by maintaining that MUR had not used "reasonable endeavours", arguing that the sanctions would not interfere with their cargo operations, that payment could be made in Euros (with any shortfall due to costs or exchange rate losses borne by RTI), and that, as a Dutch company, MUR were not obliged to implement the US sanctions. MUR responded that the sanctions triggered the force majeure clauses because they restricted payment in US Dollars as required by the contract.

In an arbitration brought by RTI, the tribunal found that, as MUR was not the subject of sanctions itself, there was no reason why performance of the contract could not have continued. However, the tribunal acknowledged that payment in US Dollars was likely to be impractical, as it would have been significantly delayed by US banks' sanctions compliance screening processes. The question then arose as to whether MUR should have accepted RTI's offer to pay in Euros in order to "overcome" the potential force majeure event (which was otherwise made out).

Alternative performance

This question was ultimately considered in four hearings: the arbitral tribunal found that MUR should have accepted payment in Euros, as to do so would have caused them no detriment and the US Dollar payment issue could have been "overcome" by MUR's "reasonable endeavours". The High Court overturned this, but the Court of Appeal reinstated this result by a majority, albeit on a slightly different analysis.

The Supreme Court has now unanimously agreed with the High Court, overturning the Court of Appeal decision and making clear that a "reasonable endeavours" obligation cannot require a party to accept non-contractual performance. The Supreme Court's judgment concludes that an obligation to use reasonable endeavours to stop a force majeure event preventing performance of a contract was an obligation to enable performance of the contract as drafted, not an obligation to alter contractual performance. It could not extend to obliging a party to accept payment in Euros where the contract specified payment in US Dollars.

Comment

Reasonable endeavours obligations are common in force majeure clauses, as the Supreme Court noted. While it may seem unfair that a party can assert a force majeure event where they would suffer no detriment from accepting an alternative performance, an obligation to accept something different to the contractual bargain would introduce uncertainty. How different would performance have to be before a party was allowed to reject it? The Supreme Court noted that parties could expressly word a reasonable endeavours clause to permit non-contractual performance, but the uncertainty of such a provision means few are likely to adopt that course.

It could be questioned whether a reasonable endeavours provision now adds much to a force majeure clause. After all, if the parties can achieve performance of the exact contractual terms through reasonable endeavours, one could ask whether a force majeure event has occurred at all.

In any event, the Supreme Court decision now provides clarity: a "reasonable endeavours" obligation cannot require a party to accept non-contractual performance.