Earlier this year, the High Court of England and Wales held in MUR Shipping BV v RTI Ltd[1] that an obligation to undertake ‘reasonable endeavours’ to overcome a force majeure event did not require the claimant to accept non-contractual performance – namely acceptance of payment in euros rather than US dollars (see our previous blog post on the judgment). Last week, in a majority decision[2], the Court of Appeal allowed the defendant’s appeal, finding that the force majeure event could (and should) have been overcome by acceptance of the non-contractual performance proposed by the defendant and, accordingly, the claimant was not entitled to suspend its obligations under the terms of the force majeure clause. In reaching that conclusion, the majority emphasised that this decision was not concerned with general principles regarding the scope of reasonable endeavours obligations (as the High Court decision had been) but was rather concerned with the proper interpretation of the specific wording of the force majeure clause in question.
Background
The contract was a charterparty between the ship owners, MUR Shipping BV (‘MUR’), and the charterers, RTI Ltd (‘RTI’). The payment terms, which were central to the dispute, required the charterers to pay for the freight in US dollars within 5 days of loading. The contract contained a force majeure clause, in which a force majeure event was defined as an event that met 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 …any rules or regulations of governments or any interference or acts or directions of governments … restrictions on monetary transfers and exchanges;
d) It cannot be overcome by reasonable endeavours from the Party affected.’
In April 2018, the US’s Office of Foreign Assets Control added the majority owners of RTI to the Specially Designated Nationals and Blocked Persons List. MUR sent RTI a force majeure notice, asserting (among other things) that the US sanctions would prevent payment in US dollars, as required under the contract, and that would prevent MUR from loading further cargo.
RTI rejected the force majeure notice, proposing that it could make payment in euros that MUR’s bank could transfer into US dollars immediately upon receipt, with RTI bearing any currency exchange costs.
Tribunal and High Court decisions
The dispute was submitted to arbitration. The arbitral tribunal found that accepting payments in euros was a realistic possibility and would have presented ‘no disadvantages’ to MUR. Accordingly, MUR’s case failed because the situation could have been overcome by its reasonable endeavours.
MUR appealed on the question of law: did the reasonable endeavours obligation require MUR to accept payment in euros instead of the contractually specified US dollars?
The High Court held that as the contract required RTI to make payment in US dollars, MUR was entitled to insist on payment in that currency. As US dollar payments would be delayed as a result of the sanctions, MUR was not required to load the cargo in circumstances where payment would almost certainly not be made in accordance with the contract. Loading was accordingly delayed by the sanctions, which were outside MUR’s control, and MUR was therefore entitled to rely on the force majeure provisions in the contract.
The Court of Appeal’s decision
Lord Justice Males, giving the lead judgment, stated that the Court was not concerned with reasonable endeavours clauses in general, or even with force majeure clauses in general; it was only concerned with the interpretation of the specific wording in the force majeure clause. The question the Court had to answer was whether the acceptance of RTI’s proposal regarding payment would ‘overcome’ the state of affairs caused by the imposition of sanctions.
The majority determined that acceptance of RTI’s proposal would have achieved precisely the same result as performance of the contractual obligation to pay in US dollars, namely the receipt in MUR’s bank account of the right quantity of US dollars at the right time. As the arbitral tribunal had found, RTI’s proposal would have presented ‘no disadvantages’ to MUR. Accordingly, acceptance of RTI’s proposal would overcome the force majeure event unless ‘overcome’ necessarily meant that the contract must be performed in strict accordance with its terms. In the majority’s view, it did not; the term ‘overcome’ was broad and non-technical and should be applied in a common-sense way which achieved ‘the purpose underlying the parties’ obligations’. On that basis, the Court held that acceptance of RTI’s proposal would have overcome the state of affairs caused by the imposition of sanctions.
As Lord Justice Males emphasised, the result of this finding was not that MUR was required to accept payment in euros – it was still entitled to insist on payment in US dollars in accordance with the contract – it was that MUR was unable to rely on the provisions of the force majeure clause to suspend its obligations.
Takeaways
While the Court of Appeal’s judgment appeals to common sense, the obvious benefit of the High Court’s judgment was certainty.
Parties in a potential force majeure situation will now need to analyse any proposals regarding alternative, non-contractual performance to determine whether it achieves the purpose underlying the parties’ obligations. It is unclear from this judgment how flexible parties will be required to be. As Lord Justice Arnold envisaged in his dissenting judgment: suppose the contract required carriage to port A which was strike-bound and the party invoking the force majeure clause was presented with an offer by the other party to divert the vessel to port B – which would not in fact be detrimental because the goods being carried were required at place C equidistant between port A and port B – would the party invoking the force majeure clause be required to accept the offer? One could argue both ways.
One way to avoid such uncertainty would be to specifically exclude non-contractual performance in a force majeure context.
[1] [2022] EWHC 467 (Comm)
[2] MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406
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