In the recent case of MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406, the Court of Appeal held that the claimant could not rely on a force majeure clause. The decision turned on the construction of a small part of a single subclause, and commercial parties would do well to take heed of the different possible interpretations that led to the dispute reaching the Court of Appeal where there was not even a unanimous verdict. The decision is also a useful reminder that a force majeure clause should not be dismissed as a boilerplate or reduced to an afterthought.
Background
The parties entered into a contract for the carriage of goods by sea. The contract provided that a monthly total of the goods would be carried in smaller batches. This necessitated a conveyor belt-like stream of ships loading each batch and a corresponding stream of payments per batch. RTI was to make payments under the contract in US dollars.
Towards the end of the contract, the United States imposed sanctions on the majority owner of RTI. Shortly afterwards, MUR sent RTI a force majeure notice stating that it would not be loading further cargoes as it considered that doing so and accepting dollar payments for those cargoes would constitute a breach of sanctions. RTI disputed this and offered to make future payments in euro and to bear the costs of conversion into US dollars. MUR maintained its position for some 15 days until permission was given to maintain contractual activities, after which loadings resumed and MUR began to accept euro payments which were converted into US dollars on receipt.
The arbitration and the first instance appeal
The parties referred a dispute to arbitration. One of the issues was whether MUR could rely on the force majeure clause. The contractual definition of a force majeure event was an event or “state of affairs” which met a number of criteria including that “it cannot be overcome by reasonable endeavours by the Party affected”. The arbitrators found that the offer by RTI to pay in euro was a “completely realistic alternative” to paying in US dollars. As a consequence, MUR could not rely on the force majeure clause because a force majeure event could have been “overcome by reasonable endeavours of the party affected” (i.e. accepting the offer to pay in euro).
MUR appealed to the High Court on the question of whether “reasonable endeavours” obliged it to accept payment in euro. The High Court held that it did not because payment in euro would not be contractual performance and the exercise of reasonable endeavours did not require a party to accept non-contractual performance. RTI appealed to the Court of Appeal.
The Court of Appeal’s decision
By a 2-1 majority, the Court of Appeal found that MUR could not rely on the force majeure clause. The justices agreed that they were not required to construe reasonable endeavours or force majeure clauses in general but were concerned with this clause in particular, which had to be considered on its own terms.
Giving leading judgment, Lord Justice Males noted that the real question was whether the proposal to pay in euro and bear the conversion costs would overcome the “state of affairs” caused by the imposition of sanctions. Requiring strict compliance with the obligation to pay in US dollars was too narrow an approach on the construction of the contract. That required only that MUR should receive the correct quantity of US dollars at the correct time. A mechanism achieving that should be regarded as overcoming the “state of affairs” resulting from the sanctions unless the word “overcome” necessarily meant that the contract must be performed strictly in accordance with its terms, which in his view, it did not. Lord Justice Newey agreed.
Lord Justice Arnold disagreed, however, and took the same view as the High Court. He considered that the “event or state of affairs” could not be “overcome” by paying in euro as this constituted non-contractual performance. If the parties wished the clause to extend to the requirement to accept non-contractual performance, this required clear expression which was not present.
Comment
Commercial parties can sometimes dismiss force majeure clauses as boilerplates. However, a well drafted and appropriate force majeure clause can save a party significant losses and/or relieve it from undesirable performance obligations. This case should remind parties that force majeure clauses can be the subject of several levels of arbitral and/or judicial scrutiny, and they should therefore be treated as the important clauses they are.
It is also notable that the outcome of this case turned on the interpretation of a very specific part of a sub-provision of a force majeure clause. There is often scope for disagreements about the meaning of clauses in contracts, and, as here, these disagreements can go beyond the parties to the judiciary and lead to costly and time-consuming litigation. Contracting parties would do well to remember this and to build as many layers of protection into their contracts as possible to ensure that they can manage the risk of arguments regarding adverse judicial interpretation of a particular clause.
Alasdair McDowell