RTI Ltd v MUR Shipping BV

A reasonable endeavours proviso in a force majeure clause does not, without clear wording, require the affected party to accept an offer of non-contractual performance. The inquiry concerns reasonable steps capable of maintaining or restoring performance according to the contract’s terms.

This approach reflects causation, freedom of contract and commercial certainty. A party should not be required to surrender a valuable contractual right unless the contract clearly provides for that consequence. The parties may expressly require acceptance of alternative performance, and contractual performance itself may permit alternative methods.

A contract of affreightment required freight to be paid in US dollars. After sanctions were imposed on the charterer’s parent company, the shipowner invoked a force majeure clause because timely US-dollar payments were likely to be delayed. The charterer offered to pay in euros and bear the conversion costs.

Arbitrators held that the shipowner should have accepted the offer. Jacobs J reversed that decision in [2022] EWHC 467 (Comm). A majority of the Court of Appeal restored the award in [2022] EWCA Civ 1406, Arnold LJ dissenting.

The central issue was whether reasonable endeavours to overcome a force majeure event may require acceptance of non-contractual performance.

1. Appeal allowed unanimously. Lord Hamblen and Lord Burrows delivered the joint judgment, with which Lord Hodge, Lord Lloyd-Jones and Lord Richards agreed. The majority decision of the Court of Appeal was reversed.

2. A force majeure clause ordinarily applies only where the relevant event was beyond the affected party’s reasonable control and its effects could not be avoided through reasonable steps. This requirement, whether express or implied, concerns causation. The force majeure event must cause the failure to perform; it does not do so where reasonable steps could have preserved performance according to the contract’s terms.

3. Reasonable endeavours are therefore directed towards maintaining or restoring contractual performance. They do not require steps securing a different, non-contractual performance. The euro proposal would not have removed the banking impediment affecting timely payment in US dollars. It instead offered a substitute for the performance which the contract required.

4. Freedom of contract includes freedom to refuse non-contractual performance. A party should not be required to surrender a valuable contractual right unless clear words, whether express or arising by necessary implication, show that intention. The clause contained no words requiring the shipowner to accept payment in a different currency. The parties remained free to draft a clause requiring acceptance of alternative performance.

5. The rule also promotes certainty and predictability in commercial contracts. A test based on whether alternative performance caused detriment or achieved an obligation’s underlying purpose would create uncertain inquiries about the nature, degree and timing of detriment, and about potentially multiple contractual purposes. Parties must be able to assess promptly whether force majeure protection is available.

6. Bulman & Dickson v Fenwick & Co and the Vancouver Strikes case strongly supported the conclusion that an affected party need not surrender a contractual entitlement. The authorities concerning mitigation and frustration did not justify a contrary rule. Those doctrines address different questions, while cases involving alternative means of contractual performance do not establish a duty to accept non-contractual performance.

1. United Kingdom Supreme Court: In [2024] UKSC 18, unanimously allowed the shipowner’s appeal and reversed the Court of Appeal’s decision.
2. Court of Appeal: In [2022] EWCA Civ 1406, the majority allowed the charterer’s appeal and restored the arbitral conclusion that the force majeure clause was unavailable. Arnold LJ dissented.
3. High Court: In [2022] EWHC 467 (Comm), Jacobs J held that reasonable endeavours did not require acceptance of non-contractual performance and overturned the relevant conclusion of the arbitrators.
4. Arbitration: The arbitrators awarded damages to the charterer, holding that the shipowner could have overcome the relevant state of affairs by accepting euro payments without detriment.