MUR Shipping v RTI – The UK Supreme Court rules on limits of “reasonable endeavours” in a force majeure clause

In the eagerly anticipated appeal of MUR Shipping BV v RTI Ltd [2024] UKSC 18, the Supreme Court has overturned a decision of the Court of Appeal (considered here) and confirmed that a “reasonable endeavours” provision in a force majeure clause did not require a party to accept non-contractual performance – absent clear wording to that effect.

The Supreme Court unanimously found that “reasonable endeavours” did not extend to requiring a contractual party to accept payment under the contract in Euros (EUR) when the contract specifically provided for payment in US dollars (USD), even though “it was highly probable that there would have been difficulties in RTI making timely contractual payments in US dollars and that any such payments would have been delayed” due to US sanctions.

The Supreme Court’s decision emphasises the importance the courts place on contractual sovereignty and certainty under English law.

Facts

In June 2016, MUR Shipping BV and RTI Ltd entered into a freight contract (the Agreement) under which RTI agreed to ship, and MUR agreed to carry, consignments of bauxite from Guinea to Ukraine. It was an express term of the Agreement that payments for the freight were to be made in USD. The Agreement contained a force majeure clause which suspended performance obligations for the duration of a force majeure event and precluded liability on the part of either party for any loss, damage, delay or failure in performance caused by such force majeure event.

The criteria for a “force majeure event” included an event or state of affairs that could not be overcome by reasonable endeavours made by the party affected.

In April 2018, RTI’s parent company was targeted by US sanctions. RTI fell subject to the same restrictions as a majority-owned subsidiary of its parent. MUR gave notice of a force majeure event and stated that sanctions prevented it from continuing to perform the Agreement by accepting payment in USD. RTI offered payment to be rendered in EUR, RTI bearing any additional costs or exchange rate losses in converting EUR to USD.

MUR refused to accept payment in EUR and declined to perform its obligations under the Agreement. RTI issued a claim before an LMAA arbitration tribunal for its costs in securing alternative freight for the period of MUR’s non-performance, arguing that the force majeure event could have been overcome by MUR’s “reasonable endeavours”, ie its acceptance of payment in EUR in circumstances where MUR would suffer no detriment or prejudice and acceptance of payment would achieve the correct sum in USD being credited to its account.

Arbitration award

The arbitration tribunal found in favour of RTI on the basis that reasonable endeavours required MUR to accept payment in EUR – a realistic alternative that MUR could have adopted with no detriment to it (as RTI had agreed to pay the costs of currency conversion).

MUR appealed to the High Court under s.69 of the Arbitration Act 1996 (appeal on a point of law).

Commercial Court decision [2022] EWHC 467 (Comm)

The Commercial Court allowed MUR’s appeal and reversed the tribunal’s decision, finding that the reasonable endeavours provision in the force majeure clause did not require MUR to accept non-contractual performance (payment in a different currency to that specified in the Agreement). Accordingly, the Commercial Court held that MUR had been entitled to rely on the force majeure clause to suspend performance and was protected from any consequential liability.

In reaching his decision, Jacobs J found that 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 [2022] EWCA Civ 1406

The Court of Appeal overturned the first instance decision. Males LJ emphasised that the clause should be applied in a “common sense way” which achieved the purpose underlying the parties' obligations.

Males LJ noted that the payment obligation was intended to ensure that MUR received the right quantity of USD in its account at the right time, and RTI’s proposal to pay in EUR and to pay any conversion costs would have achieved that outcome without detriment to MUR. Males LJ therefore found that acceptance of payment in EUR comprised “reasonable endeavours” which would “overcome” the state of affairs in question. Accordingly, the Court of Appeal found that MUR should have accepted this proposal and it was unable to rely on the force majeure clause to suspend its obligations.

The UK Supreme Court’s decision [2024] UKSC 18

The Supreme Court, considering the issue raised as one of general application to be addressed as a matter of principle, allowed MUR’s appeal on the following grounds:

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 a 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 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 non-contractual performance of an obligation.
   
   
3. MUR had a clear contractual right to require payment under the Agreement to be made in USD. As a general principle, parties do not forego valuable contractual rights in the absence of clear intention to do so.
   
   
4. Certainty and predictability are of particular importance in English commercial law. 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 uncertainty.

The Supreme Court acknowledged that parties may, by clear wording, themselves provide for reasonable endeavours to include accepting an offer of non-contractual performance from the other party. However, that was not provided in clause before it, which the Supreme Court observed was of a type commonly found in force majeure clauses, in materially similar terms.

Comment

The Supreme Court’s decision in relation to what constitutes “reasonable endeavours” in a force majeure context endorses a classically English approach, which favours looking to the exact text of the parties’ force majeure clause as the best guide to its correct interpretation. Parties can be confident that compliance with a “reasonable endeavours” provision in a force majeure clause will not require the acceptance of non-contractual performance, even in circumstances where doing so would mitigate or even neutralise the effects of a force majeure event. The only “endeavours” that may be reasonable are those that could alter the event or state of affairs that itself constitute the force majeure.

By the same token, however, the Supreme Court repeatedly made clear that the parties are free to negotiate a different bargain, for example by agreeing a force majeure clause that is not engaged unless it cannot be overcome by acceptance of “reasonable” non-contractual performance, or a contract with performance optionality built in – for example, a provision that payment is accepted in USD or EUR.

In the current geopolitical environment – in which sanctions and supply chain issues have caused commercial parties to become increasingly reliant on force majeure clauses – parties may well take the Supreme Court up on this invitation and seek to mitigate the impact of a force majeure event by negotiating express provisions to this effect in the future.

Parties should be aware that such negotiated provisions may not be a solution enabling them to “overcome” sanctions events. Had the specific contract between MUR and RTI contained terms like the above, it may well have enabled performance (contractual or “reasonable” non-contractual) to continue notwithstanding the US sanctions. However, these terms would be of doubtful assistance if the parties had been facing a force majeure event arising from, say, EU sanctions – which would bind MUR as a Dutch party, regardless of the currency of the transaction.

Drafters and litigators alike should therefore consider the impact of this decision carefully when considering force majeure clauses and the potential impact of sanctions. Do get in touch with your usual DLA Piper contact should you like to discuss the judgment further.