Supreme court brings clarity on contract agreements

21st June 2024

RTI v MUR Shipping: BV [2024] UKSC

On 15 May 2024, the Supreme Court ruled on a significant case, deciding that parties to a contract are not required to accept an alternative workaround for a force majeure event if there is a “reasonable endeavours” clause. This decision emphasises the court’s preference for certainty over practicality in commercial contracts.

The case involved interpreting a force majeure clause in a shipping contract alongside reasonable endeavours obligations and core principles of English contract law.

A force majeure clause protects parties when a specified event beyond their control occurs, relieving them of their contractual obligations.

Such clauses often include a reasonable endeavours obligation, requiring parties to try to avoid the force majeure event’s effects. However, the Supreme Court ruled that even without this clause, it is implied that a force majeure clause applies only if the affected party cannot resolve the issue through reasonable endeavours.

Background

The contract in question required payments by the charterer to the shipowner in US dollars.

The force majeure clause stated that the specified event would be considered a force majeure event only if it “cannot be overcome by reasonable endeavours from the Party affected.”

Due to US government sanctions, the charterer couldn’t make payments in US dollars, which the shipowner argued was a force majeure event, leading them to suspend shipments. The charterer offered to pay in Euros, which would then be converted into US dollars by their bank, and they also offered to indemnify MUR for any resulting loss. This offer was rejected, sparking a legal battle that reached the Supreme Court.

The Supreme Court’s central finding was that “reasonable endeavours” in a force majeure clause do not require accepting “non-contractual performance.”

Reasons for the decision by the Supreme Court:

  1. Maintaining contractual performance: Reasonable endeavours are meant to maintain, not alter, the contractual performance. Payments were to be made in US dollars, not any other currency.
  2. Freedom of contract: Parties have the freedom not to accept non-contractual performance and to retain their valuable contractual rights.
  3. Clear wording required: Waiving valuable contractual rights requires clear wording.
  4. Certainty and predictability: English commercial law values certainty and predictability. Departing from contract terms creates unnecessary uncertainty and could lead to numerous similar cases, which the courts want to avoid.

Conclusion

The main takeaway is that consideration needs to be taken when drafting force majeure clauses, as they are likely to remain relevant given geopolitical tensions and as the COVID-19 pandemic demonstrated, we don’t know what will happen next in the world.
Practical suggestions going forward are:

  • Considering whether a higher threshold of best endeavours should be used in force majeure clauses.
  • Whether to expressly set out substituted performance in the event of a force majeure event. As this case has shown, if it is not in the contract, the court will not impose an obligation to accept any workaround, even if that workaround is fair and makes sense to accept.
If you are looking for expert help with drafting and reviewing your contracts, including force majeure clauses, we’re here to help – get in touch.

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