Commercial Contracts and Force Majeure – UK Supreme Court decision

On 15 May 2024, the Supreme Court handed down judgment in RTI Ltd v MUR Shipping BV [2024] UKSC 18, unanimously reaffirming the principle that a "reasonable endeavours" obligation in a force majeure clause does not mean accepting non-contractual performance.

The dispute involved a contract hiring a ship to carry goods between the shipowner (MUR) and the charterer (RTI). The contract stipulated that the charterer would pay the shipowner in US dollars for its services. The contract included a force majeure provision that required the affected party to take reasonable endeavours to overcome a force majeure event. Two years after the contract commenced, the US Office of Foreign Assets Control applied financial sanctions on charterer’s parent company which had the effect of preventing the shipowner from receiving payment in US dollars without significant delay.  As a result, the shipowner notified the charterer, that a force majeure event had occurred, preventing the charterer making timely contractual payments in US dollars. The charterer rejected the notice and offered to pay the shipowner in Euros, bearing any additional costs or losses from exchange rate conversions. The shipowner insisted on its contractual right to payment in US dollars and suspended performance under the force majeure clause, leading to arbitration.

The arbitrator decided that force majeure had not occurred, as the shipowner accepting payment in Euros would satisfy the shipowner’s "reasonable endeavours" obligation, thus curing the force majeure event. The decision was taken to the High Court, which overturned the decision in favour of the shipowner. The charterer appealed to the Court of Appeal (which allowed the charterer’s appear 2;1). 

The Supreme Court, in its unanimous decision in favour of the shipowner, held that the requirement to exercise reasonable endeavours, whether implied or explicitly stated in a force majeure clause, does not extend to accepting non-contractual performance. Without specific terms allowing for it, parties are not required to forgo their contractual bargains. 

The Supreme Court highlighted that the freedom to contract, including the freedom not to contract, extends to refusing performance not envisaged in the contract. The Supreme Court clarified that no particular significance can be attached to the word “overcome” and reiterated that a force majeure clause generally applies if the party invoking it can show that the event or situation was beyond its control and could not be avoided by taking reasonable steps.

This judgment highlights the importance of clear drafting and understanding in force majeure clauses, which have received more focus in contracts post-COVID-19. Clear, and precise language that provides parties with certainty of their obligations is crucial when drafting or entering commercial contracts. Courts may not be inclined to make substitutions to the contractual bargain struck between parties at the time of contract formation. 

If you have any questions about force majeure clauses or other commercial contractual provisions, please contact Joanna Bouloux, Kris Kelliher, or Prateek Sharma.