RTI v MUR Shipping – non-contractual performance is no alternative to a force majeure event

Posted: 24/05/2024

The Supreme Court has unanimously ruled in RTI Ltd v MUR Shipping BV [2024] UKSC 18 that where a force majeure clause requires the non-defaulting party to undertake ‘reasonable endeavours’ to overcome the force majeure event, this does not oblige them to accept non-contractual performance.

Background

On 9 June 2016, MUR Shipping BV, the owner, and RTI Ltd, the charterer, entered into a two year contract of affreightment (COA) on an amended Gencon charterparty. Freight payments were payable in USD, and the COA contained the following force majeure clause:

‘36.3 A Force Majeure Event is an event or state of affairs which meets all of 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 acts of God, extreme weather conditions, war, lockout, strikes or other labour disturbances, explosions, fire, invasion, insurrection, blockade, embargo, riot, flood, earthquake, including all accidents to piers, shiploaders, and/or mills, factories, barges, or machinery, railway and canal stoppage by ice or frost, any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges;
d)    It cannot be overcome by reasonable endeavours from the Party affected.’

In April 2018, RTI’s majority shareholder, RUSAL, was added to the OFAC SDN List (RTI was not similarly listed). As a result, MUR gave notice to RTI invoking force majeure and consequently suspending the COA. MUR’s position was that it would be unable to accept freight payments from RTI in USD, given the effect of sanctions on the global banking system.

RTI offered to pay the freight in Euros, including any currency conversion costs, and without detriment to its obligations owing under the COA. MUR refused this offer and insisted that it had a right to receive payment in USD, as contractually stipulated, and further suspend performance of the COA.

Earlier decisions

In June 2018, RTI referred the matter to arbitration for alleged breach of contract. The tribunal, taking a commercial approach, found that whilst the effect of sanctions on the ability to pay freight in USD could not have been avoided, the proposal to pay in an alternative currency was a realistic alternative, and therefore MUR’s case ‘failed because it could have been overcome by reasonable endeavours from the party affected’.

MUR appealed the award to the High Court, which decided that the requirement to exercise reasonable endeavours did not oblige MUR to accept RTI’s offer of non-contractual performance. 

The matter was further appealed to the Court of Appeal, which considered whether the acceptance of freight in Euros would ‘overcome’ the state of affairs and cause no detriment to MUR. On a majority decision, the Court of Appeal found that no detriment would have been caused to MUR by accepting payment in Euros. Rather, what they would obtain from accepting the non-contractual payment would be substantively the same as what they were entitled to under the COA.

The Supreme Court decision

The issue before the Supreme Court was whether MUR was prevented from invoking force majeure because it could not satisfy clause 36.3(d). 

MUR’s case rested on four lines of argument:

• MUR had to show that the force majeure event impeded them in performing the COA, and that this could not have been overcome by reasonable endeavours. Their obligations were to perform their contractual obligations as per the COA, as written, with any reasonable endeavours acting in furtherance of these obligations, rather than in facilitating an alternative mode of performance.
• Freedom of contract includes having the freedom not to accept non-contractual performance.
• Clear wording within the COA would be required to alter the position and deny the parties their express contractual rights.
• Certainty and predictability are paramount in contract law.

The Supreme Court ruled that if parties have contractually agreed on how to perform their obligations, then they are not obliged to accept performance outside of those parameters, even with respect to their efforts to take reasonable steps to avoid triggering a force majeure event. The parties’ entitlement to their contractual rights could only be overcome to the extent that the contract also expressly provided for it. 

Comment

In an increasingly volatile global marketplace, non-performance or varied performance owing to sanctions might be expected to often trigger contractual force majeure provisions. The Supreme Court’s decision stands as a stark reminder to parties of the importance of clarity when drafting force majeure provisions.

As force majeure does not exist as a distinct common law concept, the exact effect of any clause depends entirely on the express contractual wording. Whilst a fully commercial approach might have come to a different conclusion, the Supreme Court is clear that full effect must be given to the exact contractual arrangement agreed between the parties – if the intention had been to allow Euro payments, the COA should have stipulated this clearly.

Such judgments as these tend to shine a light on the difficult compromises that are often made in maritime arbitrations, where balancing strict legal principles against commercial outcomes is often desired. On this occasion, in the tug of war between commercial pragmatism and black letter law, the latter has won. 

This article was co-written with Melwinder Gill, trainee solicitor in the marine, trade and energy team. 

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