In RTI Ltd v MUR Shipping BV [2024] UKSC 18, the Supreme Court unanimously overturned a decision of the English Court of Appeal and found that “reasonable endeavours" wording in a force majeure clause cannot require the affected party to accept an offer of non-contractual performance by the other party in order to overcome the event or state of affairs to which the "reasonable endeavours" applied.

Background

In 2016, charterer RTI Ltd (“RTI”) contracted with owner MUR Shipping BV (“MUR”) to ship bauxite from Guinea to Ukraine each month. In 2018, when RTI’s parent company became subject to US sanctions, RTI could no longer make payments to MUR in US dollars in accordance with the contract. Even though RTI offered to make all payments in Euros and to cover any exchange rate-related costs, MUR proceeded to invoke the force majeure clause. It argued that the continued performance of the contract would be a breach of sanctions, with the resulting non-payment representing an “event” or “state of affairs” that could not be “overcome by reasonable endeavours from the Party affected.”

RTI commenced an arbitration against MUR to claim for costs associated with chartering replacement vessels. The arbitral tribunal determined that MUR could not rely on the force majeure clause, as it could have been “overcome” by MUR’s acceptance of payment in Euros from RTI. MUR subsequently appealed to the English High Court under section 69 of the English Arbitration Act 1996 on a question of law. The High Court allowed MUR’s appeal. RTI then appealed to the English Court of Appeal.

As covered in our previous note on the Court of Appeal’s decision, in 2022 a 2-1 majority of the Court of Appeal allowed RTI’s appeal. The court held that a force majeure event could be “overcome” by a party’s acceptance of an offer of payment in Euros rather than US dollars as required by the contract. In reaching this conclusion, the majority held that their decision was based on the construction of the specific provision in question, and that a common sense application of the broad and non-technical terms “state of affairs” and “overcome” was necessary to achieving the outcome originally intended by the contract. This decision was subsequently appealed to the Supreme Court by MUR. 

The issue before the Supreme Court

The issue before the Supreme Court was whether the Court of Appeal had been correct to uphold the decision of the arbitral tribunal, which held that MUR could not rely on force majeure because RTI had offered to pay freight in Euros. The primary question was whether the exercise of reasonable endeavours may require the party affected to accept an offer of non-contractual performance from the other contracting party in order to overcome the effects of the event or state of affairs. The Supreme Court considered the issue as a matter of principle, rather than looking at the specific wording of the force majeure clause, observing that reasonable endeavours provisions are commonly featured in such clauses (and if not expressly included, will be implied to the same effect) [26]. As such, the court’s decision is of general relevance. 

MUR’s case was that, absent any express wording, a reasonable endeavours proviso does not require acceptance of an offer of non-contractual performance. RTI’s case was that acceptance of an offer of non-contractual performance will be required if there is no detriment or other prejudice to the party seeking to invoke force majeure, and if it achieves the same result as performance of the contractual obligation in question. 

The decision of the Supreme Court

The Supreme Court unanimously allowed MUR’s appeal. 

The court held that MUR’s rejection of RTI’s offer of non-contractual performance did not constitute a failure to exercise reasonable endeavours and therefore the reasonable endeavours proviso did not prevent MUR from relying on the force majeure clause. It held that there was no doubt that MUR had a contractual right to be paid freight in US dollars, and therefore had a contractual right to refuse to accept any other payment.

The court considered the following principles in its decision:

(1) The object of reasonable endeavours provisos

A party is only excused from performance if a force majeure event directly caused their non-performance. If the failure could have been reasonably avoided by that party, then the causal link is broken. The party must establish that the failure to perform could not have been avoided by the exercise of reasonable endeavours. 

Therefore, the question is whether reasonable endeavours could enable compliance with the terms of the contract – such as payment in US dollars. The question of whether steps could have been taken to achieve different, non-contractual performance is irrelevant. The court viewed that the objective of a reasonable endeavours proviso is to maintain contractual performance, not to “substitute a different performance”. [38]

The court concluded that an offer of non-contractual performance does not overcome the effects of the event or state of affairs, as it does not have the relevant “causal impact”. [40]

(2) Freedom of contract

The principle of freedom of contract is fundamental to the English law of contract. Crucially, the principle of freedom of contract includes freedom not to contract; which includes freedom not to accept the offer of a non-contractual performance of the contract.

(3) Clear words needed to forego valuable contractual rights

In this case, the contract gave MUR the clear right to insist on payment in US dollars and to refuse payment in any other currency. The court found that “clear words”, making clear the circumstances in which it would be required, would be necessary for MUR to be contractually required to forego that right. [45, 46]

RTI’s argument that MUR should have accepted payment in Euros would mean that a reasonable endeavours proviso could, under specific conditions, require a party to give up its valuable contractual right by agreeing to a form of performance that was not stipulated in the contract. The court observed that a party could not be required to do so unless the contract makes clear that the party has given up that right. 

(4) The importance of certainty in commercial contracts 

The court noted that parties need to know with “reasonable confidence” whether or not a force majeure clause can be relied upon at the relevant time. [55] While the concept of reasonable endeavours necessarily creates an element of uncertainty, it would create needless additional uncertainty to depart from the standard provided by the terms of the contract. 

What are the broader implications of this judgment?

This is the first case to expressly determine whether or not reasonable endeavours in a force majeure clause requires the affected party to accept an offer of non-contractual performance from the other party . The judgment reconfirms the importance English law places on certainty and predictability in commercial transactions. 

Sanctions regimes can create significant uncertainty about how pre-existing commercial relationships are affected. The imposition of sanctions could be held to constitute an event of force majeure, but contracts may not provide clear instructions on when or in what circumstances a party may terminate or suspend performance of a contract in such an event. Unclear drafting could mean having to decide between terminating or suspending performance (in potential breach of contract) or continuing to trade (in potential violation of sanctions). However, this judgment now makes clear that when exercising “reasonable endeavours” to overcome the impact of sanctions, a party will not normally be required to accept non-contractual performance. When drafting their initial agreement, parties should pay careful attention to the contents of any force majeure clause and ensure that, any non-contractual performance to mitigate sanctions or other force majeure events is expressly provided for (for example, by including alternative currency provisions).

The court did note that parties may expressly provide for reasonable endeavours to include acceptance of an offer of non-contractual performance. [59] However, if parties are considering this approach, they should carefully consider how such a provision may apply, and whether to define any further restrictions to limit its scope. 

The judgment is available here.