The English Court of Appeal construes a force majeure clause – MUR Shipping BV v RTI Ltd
Key takeaways
The Court of Appeal has decided that a contract party should have accepted payment under the contract in euros, as proposed by the paying party, rather than insisting on the US dollar currency provided for in the contract, to overcome a force majeure event. The decision emphasises that the effect of force majeure clauses is highly fact-sensitive and dependent on the specific wording used in the contract.
Facts
In June 2016, MUR Shipping BV and RTI Ltd entered into a freight contract (the Agreement)1 under which RTI agreed to ship, and MUR agreed to carry, consignments of bauxite from Guinea to Ukraine.
The Agreement contained a force majeure clause which prevented liability on the part of either party for any loss, damage, delay or failure in performance caused by a force majeure event. The definition of a force majeure event included an event or state of affairs that could not be overcome by reasonable endeavours by the party affected.
In April 2016, RTI's majority shareholder became subject to US sanctions. MUR notified a force majeure event and stated that it would be a breach of sanctions for it to continue to perform its obligations under the Agreement. In particular, MUR stated that sanctions prevented payment from being made in US dollars, which was an express term of the Agreement. RTI argued that sanctions were inapplicable to MUR and that payment could instead be rendered in euros. It specified that it would bear any additional exchange rate losses incurred by MUR in converting euros to US dollars.
MUR refused to accept payment in euros and declined to perform its obligations under the Agreement. RTI then issued a claim in an arbitration tribunal for its costs in securing alternative freight.
Arbitral award
The arbitral tribunal found in favour of RTI on the grounds that the definition of a force majeure event in the Agreement included a requirement to use reasonable endeavours to overcome the relevant event. The tribunal found that accepting payment in euros was a realistic alternative that MUR could have adopted with no detriment to it, as RTI would have paid the costs of currency conversion. MUR appealed to the High Court pursuant to section 69 of the Arbitration Act 1996 (appeal on a point of law).
Commercial Court decision
The Commercial Court allowed MUR's appeal, finding that the reasonable endeavours provision in the force majeure clause did not require MUR to accept non-contractual performance (in this case, payment in a different currency to that specified in the Agreement). Accordingly, MUR had been entitled to rely on the force majeure clause.
In reaching his decision, Jacobs J found that the parties' contractual obligations were not "one factor to be weighed in the balance in deciding the overall question of reasonableness" but were "paramount and determinative."
Court of Appeal decision
RTI was granted permission to appeal to the Court of Appeal. Males LJ, giving the leading judgment, (Arnold LJ dissenting) allowed the appeal.
Males LJ emphasised that the court was not concerned with reasonable endeavours or force majeure clauses in general, but rather the specific force majeure clause that MUR had sought to rely on. He noted that the terms used in that force majeure clause, such as "state of affairs" and "overcome", were broad and non-technical terms and that the clause should be applied in a common-sense way which achieved the purpose underlying the parties' obligations.
In this context, the judge noted that the purpose of the payment obligation was to ensure that MUR, as the shipowner, had the right quantity of dollars in its account at the right time. RTI's proposal would have achieved that outcome without detriment and would have "overcome" the state of affairs in question. Accordingly, MUR should have accepted this proposal (notwithstanding that it was not required under the express terms of the contract to accept payment in euros) and as it had failed to do so, it was unable to rely on the force majeure clause to suspend its obligations.
Comment
When relying on force majeure clauses, parties should now be aware that a strict refusal to accept non-contractual performance may not always be defensible where the clause defines a force majeure event by reference to an obligation to use "reasonable endeavours", or similar wording. Given commercial parties' increasing reliance on force majeure clauses in the context of geopolitical events such as supply chain disruptions and the imposition of sanctions, this decision reinforces the need for careful drafting of such clauses, and for caution to be exercised when invoking, or responding to the invocation of, force majeure rights.
1 [2022] EWCA Civ 1406
