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RTI Ltd v MUR Shipping BV [2024] UKSC 18

Key point

This landmark case in the interpretation of force majeure clauses clarifies the scope of the “reasonable endeavour” proviso which the Supreme Court found does not include a requirement on a contracting party to accept an offer of non-contractual performance.

Background Facts

On 9 June 2016, MUR Shipping BV (“MUR”) and RTI Ltd (“RTI”) entered into a contract of affreightment for the carriage of bauxite (“Contract”). Under the Contract, MUR agreed to carry bauxite monthly from Conakry in Guinea to Dneprobugsky in Ukraine from 1 July 2016 to 30 June 2018, and RTI agreed in exchange to make monthly payments to MUR in US dollars.

The Contract included a force majeure clause that provided that neither Owners nor Charterers would be liable to the other “for loss, damage, delay or failure in performance caused by a Force Majeure Event.” Crucially the clause also stated that an event would not constitute a Force Majeure Event if it could “be overcome by reasonable endeavours from the party affected”.

On 6 April 2018, RTI’s parent company (United Company Rusal plc.) was sanctioned by the US Government. Although RTI was not on the sanctions list itself, it was a majority-owned subsidiary of a listed entity meaning that it was subject to the same restrictions as its parent. This created difficulties for RTI in fulfilling its contractual obligation of making timely payment to MUR in US dollars. Any such payments would have likely been delayed due to the need for banks to initially stop the transfer to confirm whether the transaction complied with US sanctions requirements.

On 10 April 2018, MUR served a force majeure notice on RTI to say that the sanctions prevented the payment in US dollars as required under the Contract. RTI rejected the force majeure notice and offered not only to pay MUR in euros instead, which would then be converted into US dollars by MUR’s bank on receipt, but also to cover any additional costs or exchange rate losses suffered by MUR as a result. MUR rejected this offer, maintaining its right to payment in US dollars, and suspended performance under the force majeure clause of the Contract.

Arbitration, High Court, and Court of Appeal

In June 2018, following MUR’s suspension of performance under the Contract, RTI commenced arbitration against MUR for breach of contract. MUR said that it was permitted to suspend performance in accordance with the force majeure clause in the Contract, while RTI argued that MUR could not rely on this clause since it was not actually a Force Majeure Event as it could have been overcome by “reasonable endeavours”, reasonable endeavours in this case being the acceptance of RTIs’ offer of payment in Euros. Finding that RTI’s offer was a realistic alternative which MUR could have accepted without detriment, the arbitrators ruled that MUR was in breach of contract and awarded RTI damages.

MUR then appealed to the High Court which allowed the appeal holding that the reasonable endeavours proviso did not include a requirement for MUR to accept payment in a currency other than the one stated in the Contact. RTI then appealed to the Court of Appeal which, by majority, reversed the High Court’s decision on a similar basis to the arbitration tribunal, namely that accepting RTI’s offer would have achieved the same result and would have involved no detriment to MUR.

Supreme Court Appeal 

The Supreme Court allowed an appeal unanimously holding that MUR was not in breach of contract and any finding of the contrary would be wrong as a matter of contractual principle. It concluded that MUR’s rejection of RTI’s offer to accept payment in Euros did not constitute a failure to exercise reasonable endeavours and, therefore, MUR could rely on the force majeure clause to suspend performance under the Contract. The Supreme Court based its judgement on 4 key principles.

The court firstly assessed the object of the reasonable endeavours proviso finding that this would be to “maintain contractual performance, not to substitute it with a different performance” [36]. In other words, the appropriate question would be whether steps can be taken to ensure that the contract is performed according to its terms rather than by some different, non-contractual, performance [37] - [38]. As such, under the reasonable endeavours proviso, contractual performance could only have been overcome if MUR’s exercise of reasonable endeavours resulted in the payment of US dollars to be made without delay [39].

Secondly, the court considered the contractual principle of freedom of contract whereby parties have the freedom to contract on the terms which they chose. The court emphasised that this freedom inherently includes the freedom to not contract which must extend to the freedom to not accept an offer of non-contractual performance [42].

Thirdly, the court made note of the contractual principle that clear words are generally needed to forego valuable contract rights and that, therefore, there would need to be express wording stating the contrary for MUR’s right to insist on payment in US dollars to be waived [45] - [45].

Fourthly, the court considered the importance of certainty in commercial contracts explaining that RTI’s case would result in a number of questions causing legal and factual uncertainty particularly in respect of the required assessment of ‘detriment’ for the party accepting the non-contractual performance. This would result in an unacceptable level of uncertainty where parties need to know with reasonable confidence whether they can rely upon the force majeure clause in their contract “at the relevant time, not after some retrospective inquiry” [55].

The court also held that MUR’s case was also supported by authorities which provided strong support for its case including Bulman & Dickinson v Fenwick and Company [1984] 1 Q.B. 179 and the Vancouver Strikes case [1963] AC 961 which provided support for the argument that, when it comes to exception clauses, parties are not obliged to give up their contractual rights even in cases where it would be reasonable to do so [60] - [75]. In contrast, the cases advanced by RTI were held to be weak authorities not providing support for RTI’s case [76]-[101].

Comment

The Supreme Court’s decision is welcomed as it reinforces the importance of certainty and ensures for commercial predictability which is fundamental to contracting parties who need to be able to know immediately whether they can rely upon the force majeure clause in their contract.

It is clear now that commercial parties cannot be required to accept non-contractual performance, even if external factors make contractual performance challenging. This is of particular importance where supply chain disruptions, and the rise in sanctions and economic restrictions on cross border transactions in the current geopolitical climate, have resulted in an increased reliance on force majeure clauses. This case emphasises that parties need to consider such risks early on and negotiate clear terms to that effect in order to avoid unforeseen liabilities and disputes.