Introduction

At the end of May 2024, the Supreme Court handed down an important final decision in the long-awaited proceedings of RTI Ltd (Respondent) v. MUR Shipping BV (Appellant) [2024] UKSC 18, unanimously overturning the Court of Appeal's decision. The decision makes it clear that where a contract includes a provision under which "reasonable endeavours" can be used to overcome a force majeure event, the scope of reasonable endeavours is limited by the contract and so the affected party can refuse to accept non-contractual solutions offered to overcome the force majeure event.

A force majeure clause relieves a party from its obligation to perform under a contract on the occurrence of specified events that are beyond the control of the parties, such as acts of God or war. In the current period of global instability, force majeure clauses are being deployed by contracting parties far more frequently. The central issue in this case was whether a party seeking to rely on a force majeure clause is required to accept an offer of non-contractual performance made by the other party to overcome the effects of the force majeure event.

Following a rollercoaster journey through the courts, the Supreme Court reached a decision founded in key principles of English contract law – certainty and freedom of contract. This case has divided commentators and some might continue to argue that the decision to reinforce contractual certainty has resulted in an uncommercial outcome. However, ultimately, a decision that required reasonable non-contractual performance to be accepted to address a force majeure event would perhaps have achieved a fairer outcome, at the expense of certainty in other cases.

Factual background

A shipowner, MUR Shipping BV (MUR) and charterer, RTI Ltd (RTI), had entered into a contract under which MUR would ship cargoes of bauxite from Guinea to Ukraine on a monthly basis between 1 July 2016 and 30 June 2018. The contract provided that RTI would make freight payments to MUR in US dollars.

The contract contained a force majeure clause which provided that: (a) neither party would be liable to the other for loss, damage, delay or failure to perform caused by a Force Majeure Event (as defined in the contract); and (b) an event was only a Force Majeure Event if it could not be "overcome by reasonable endeavours from the Party affected".

On 6 April 2018, RTI's parent company became subject to US sanctions. Four days later, MUR gave notice under the force majeure provision on the basis that payment in the contractual currency (US dollars) was prevented by the sanctions. RTI rejected the notice, offered to make payments in euros and to indemnify MUR for any additional costs and exchange rate losses. However, MUR rejected this offer and insisted on its right to payment in US dollars, and therefore suspended performance due to force majeure preventing payment in the agreed currency. A few weeks later, following OFAC extending certain permissions, MUR resumed its nomination of vessels under the contract and thereafter accepted payment from RTI in euros (which, on receipt, were converted to US dollars by MUR's bank).

Although the parties resumed performance, it remained in dispute whether MUR had been entitled to suspend performance based on force majeure. RTI commenced arbitration, beginning a journey which ultimately took the parties to the Supreme Court. Whilst in the end the Supreme Court decided unanimously that MUR had been entitled to rely on force majeure and was not required to accept performance outside the contract to address the relevant force majeure event, the solution to this argument swung back and forth at each appeal stage and divided the Court of Appeal, illustrating the challenge of what, on its face, appeared a simple issue.

Stage 1: arbitration proceedings – not entitled to rely on force majeure – reasonable endeavours require affected party to accept non-contractual performance

RTI commenced arbitration against MUR for a breach of contract, claiming the cost of chartering replacement vessels during the period of MUR's suspended performance. The tribunal found in favour of the charterer, concluding that MUR was in breach – it could not rely on the force majeure clause because the force majeure event could have been overcome by MUR accepting RTI's offer to pay in euros. Although the contractual obligation was to pay in US dollars, the tribunal considered that the exercise of reasonable endeavours required MUR to accept RTI's offer to pay in euros. There would not have been any detriment to MUR because of the indemnity offered by RTI and the observation that subsequent payments had been made in euros without issue.

Stage 2: High Court decision – entitled to rely on force majeure – reasonable endeavours do not require affected party to accept non-contractual performance

MUR appealed to the High Court on a point of law under section 69 of the Arbitration Act 1996. The question before the court was whether reasonable endeavours extended to accepting non-contractual performance – in this case, payment in euros rather than US dollars. After careful consideration of the authorities, the High Court allowed the appeal, finding that an obligation to exercise reasonable endeavours to overcome the effects of a force majeure provision did not "require the Owners to sacrifice their contractual right to payment in US$, and with it their right to rely on the force majeure clause".

Stage 3: Court of Appeal – not entitled to rely on force majeure – reasonable endeavours require affected party to accept non-contractual performance

RTI then appealed to the Court of Appeal who ultimately held (two to one, with Arnold LJ dissenting) that the shipowner was not entitled to rely on force majeure, thereby overturning the decision of the High Court and reinstating the arbitrators' award.

The Court of Appeal approached the question as one of construction of the force majeure clause in the specific contract (rather than being of wider application) and, in particular, the part of the clause which defined a "force majeure event" as one which could not be overcome by reasonable endeavours of the affected party. Giving the leading judgment, Males LJ identified that the real question in the case, and for the court, was whether acceptance of RTI's proposal to pay freight in euros and to bear the conversion cost would "overcome the state of affairs caused by the imposition of sanctions …" and whether, to overcome the state of affairs, it was essential for the contract to be performed and payment to be made in US dollars. The conclusion of the majority of the Court of Appeal was that this was too narrow an interpretation of the provision – the terms "state of affairs" and "overcome" are broad and non-technical, and the clause should be applied in a common sense way. Applying this rationale, the Court of Appeal concluded that, provided the solution had the effect of ensuring that MUR received its entitlement to the right quantity of US dollars in its bank account at the right time, notwithstanding the payment was made by non-contractual means, the state of affairs was overcome, and MUR was not entitled to rely on force majeure. In reaching this conclusion, the court recognised that RTI's proposal would achieve the same result as performance of the obligation to pay in US dollars and that MUR would suffer no detriment.

In his dissenting judgment, Arnold LJ agreed that RTI's offer would have solved the problem concerning payment brought about by the sanctions issue and that the solution was not detrimental to MUR. However, he disagreed that, under the meaning of the clause, the "state of affairs" would be "overcome" by offering a solution which did not provide for contractual performance. Without clear express words, the force majeure clause did not extend to requiring the affected party to accept non-contractual performance.

Final stage: Supreme Court – unanimous decision. MUR entitled to rely on force majeure – reasonable endeavours do not require affected party to accept non-contractual performance

On 15 May 2024, the Supreme Court handed down its unanimous judgment allowing MUR's appeal, favouring the line of contractual certainty. The judgment is of considerable interest, not just for academic reasons given it settles the debate after a series of conflicting decisions, but also as it provides a clearer path for those facing force majeure challenges, making it clear that reasonable endeavours obligations are set within contractual boundaries, unless the contract contains clear wording which would include, within reasonable steps, wider obligations allowing for performance outside the contract.

The central question before the Supreme Court on appeal was "whether the exercise of reasonable endeavours may require the party affected, if it is to be entitled to rely on the [force majeure] clause, 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". In considering the appeal, the Supreme Court confirmed that the issue was of general application and importance, as it concerned a common feature of force majeure clauses (contrary to the narrow approach adopted by the majority in the Court of Appeal).

The analysis undertaken by the Supreme Court focused on the following four key principles – three of which might be said to be the fundamental pillars of contract law:

• The objective of reasonable endeavours provisos

The Supreme Court agreed with the submissions of MUR's counsel – that the justification for reasonable endeavours provisos is causation. Force majeure clauses and, in particular, a reasonable endeavours proviso ensure that a party is excused from contractual performance where a force majeure event is genuinely the cause of the impediment to contractual performance, rather than the cause being the affected parties' failure to take reasonable steps to overcome a force majeure event. Reasonable endeavours provisos are not concerned with actions that could have been taken to achieve an alternative, non-contractual performance, even if non-contractual performance achieves the same ultimate outcome, rather whether reasonable steps can be taken to secure contractual performance.

In the present case, the relevant question was whether MUR could have taken any reasonable steps to enable the payment of US dollars without delay. It was not whether it should have accepted the offer of non-contractual performance, being payment in euros. That offer did not overcome the specific impediment to contractual performance, even if it achieved the same ultimate outcome. In terms of causation, the offer did not have the relevant causal impact.

• Freedom of contract

The second key principle relied upon by the Supreme Court was that of freedom of contract. The point was a simple on – freedom of contract extends to freedom not to contract which means parties are free not to accept an offer of non-contractual performance. If there were such an obligation, it would not sit well with the fundamental principle as it would make this freedom conditional.

• Clear words are needed to forego valuable contractual rights

The Supreme Court identified that the effect of RTI's argument was that, in certain circumstances and due to the reasonable endeavours clause, MUR was required to forgo its valuable contractual right to receive timely payment in US dollars. However, there was no express provision to this effect, which in the judgment of the Supreme Court would have been required. If MUR were required to forego valuable contractual rights and, instead, accept non-contractual performance, then the contract should and could have dealt with this expressly. It did not.

• Importance of certainty in commercial contracts

The Supreme Court was clear in its judgment that the answer to the question before it needed to be aligned with the principle that certainty and predictability are of particular importance in English commercial law. RTI's case was not set within the contractual framework, meaning it was factually and legally uncertain – and would require consequent evidential enquiries – including on whether the non-contractual performance was detrimental or prejudicial to the party required to accept it, or indeed whether any level of detriment or prejudice would make non-contractual performance unreasonable, or whether performance did in fact achieve the same outcome as contractual performance. In all cases, these questions would need to be answered (and answerable) immediately. Contracting parties need to know with a degree of confidence whether a force majeure clause can be relied upon when the relevant event happens, rather than at some point in the future after determination of these consequential issues.

In contrast, MUR's case was straightforward. The steps to be reasonably taken to achieve performance were to be within the boundary of the contract. The inquiry as to what was reasonable would therefore be limited. In the view of the Supreme Court, it followed that MUR's case was to be preferred.

In considering the question of certainty, the Supreme Court also considered arguments made for RTI based on commercial reasonableness which had found some favour in the Court of Appeal. On the facts, RTI had offered a solution which would have resulted in MUR receiving payment in US dollars as expected, but via non-contractual means. Instead, from RTI's perspective, if MUR was not required to accept the "reasonable" but non-contractual solution offered, the force majeure event meant that MUR could get out of a contract it no longer wanted to perform. From RTI's perspective, MUR was taking advantage of the force majeure event and this did not seem just. However, the view of the Supreme Court was clear: "It is not unmeritorious or unjust to insist on contractual performance, all the more so if being precluded from doing so would introduce uncertainty contrary to the expectations of reasonable business people."

Commentary

Standing back at the end of what might be described as a rollercoaster journey through the courts and extensive debate along the way, the Supreme Court decision is perhaps unsurprising. The decision adheres to established principles of contractual interpretation and emphasises the sanctity of the contract and the importance of using clear language, including in force majeure clauses, to ensure that the boundaries of performance are well stated and, therefore, easily understood. The decision is relevant to anyone who is party to a commercial contract containing a force majeure or similar clause which might operate to exclude or amend contractual performance. The decision reinforces that, unless there is clear wording to different effect, such clauses should be interpreted to maintain contractual performance according to their terms, rather than providing a basis to substitute different performance.