MUR SHIPPING BV V RTI LTD [2022] EWCA CIV 1406

HEADLINE SUMMARY

A recent appeal to an arbitration award in a shipping case shows that something other than strict contractual performance may still be accepted to mitigate a force majeure event.

COMMENTARY

This decision is a reminder that whether force majeure (FM) can be invoked to excuse non- performance of contractual terms depends on both the language of the contract and the circumstances of the parties and, when construing such terms, the courts have the discretion to broaden or limit the scope of FM provisions.

When entering new contracts, parties should consider whether FM provisions are contractually certain and workable (and where possible build in alternatives for overcoming an event).

In the context of the increasing use of sanctions, the ongoing Ukraine-Russia conflict and continued disruption to supply chains, parties contracting internationally may have to deal pragmatically with their counterparties to achieve their commercial goals. Flexibility in approach and an openness to alternative dispute resolution can avoid drawn-out litigation and FM events from formally occurring.

FACTUAL BACKGROUND

A shipping dispute arose between a shipowner (MUR) contracted by the charterer (RTI) to freight bauxite from Guinea to Ukraine when RTI's parent company was placed under international sanctions. MUR relied on an FM provision to suspend its obligations under contract, stating that performing its obligations would breach US sanctions given that payment was expressly required by the contract to be made in US Dollars.

RTI rejected the notice saying that sanctions did not prevent the cargo from being shipped and that in any event MUR could receive payment in Euros in the alternative. In arbitration, the Tribunal ultimately found that the 'state of affairs' could be overcome by reasonable endeavours if MUR accepted alternative payment in Euros and would be at no disadvantage for doing so.

The decision was appealed to the Commercial Court which reversed that finding on the basis that the parties were contractually required to use USD and that in exercising reasonable endeavours to overcome a state of affairs, a party is not required to accept anything not agreed in the contract.

RTI then appealed to the Court of Appeal. The Court of Appeal focused on the specific wording of the FM clause and the requirement of a contracting party to exercise “reasonable endeavours" to overcome the FM state of affairs. Ultimately the court decided that agreeing to the proposal to accept payment in Euros would have amounted to reasonable endeavours by MUR to overcome the state of affairs caused by the FM event.

By accepting RTI's proposal the same result would be achieved as performance of the contractual obligation, and at no detriment to MUR, overcoming the state of affairs brought about by sanctions. Accordingly, the court decided that MUR could not invoke FM.

KEY LEGAL POINTS

The leading judgment made clear that "each such clause must be considered on its own terms"; the case was decided more on a matter of common-sense interpretation of non-technical language, and less on exploring the merits of general legal principles.

Males LJ emphasised that his judgment was not concerned with reasonable endeavours clauses or FM clauses in general.

Key Contact

James Damarell and Louis Jani