Force Majeure: Court Of Appeal Finds Party Was Required To Accept Non-Contractual Performance In Exercising Reasonable Endeavours To "Overcome" Force Majeure Event

• Published date: 08 November 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Herbert Smith Freehills
• Author: Mr Chris Bushell, Susannah Cogman, Rachel Lidgate and Tamsin Rankine-Fourdraine

The Court of Appeal has held, by a majority, that a shipowner was not entitled to rely on a force majeure clause in a shipping contract where its charterer's parent company became subject to US sanctions: MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406.

The decision turned on the wording of the force majeure clause, which required that the force majeure event could not be 'overcome by reasonable endeavors' on the part of the affected party. The High Court had held that, in exercising reasonable endeavours, the shipowner was not obliged to accept anything other than contractual performance (see our post on that decision).

The Court of Appeal disagreed, finding that the clause required the shipowner to accept a proposal involving payment in an alternative currency, which did not extend to full contractual performance, but which achieved precisely the same result as it: (i) fulfilled the underlying purpose of the relevant obligation; and (ii) caused no detriment to the shipowner. However, it was clear that, had these criteria not been met, the shipowner would have been entitled to rely on the force majeure clause.

The court emphasised that each case will turn on the drafting of the relevant clause as applied to the factual matrix. Parties must therefore be cautious in seeking to rely on previous decisions regarding the interpretation of a force majeure clause.

Background

Our post on the decision of Jacobs J in the Commercial Court (linked above) sets out the background of the case in greater detail. Briefly, however, in June 2016 the shipowners (the 'Owners') contracted with the charterers (the 'Charterers') to carry monthly shipments of bauxite from Guinea to Ukraine, with payment to be made in US dollars.

The contract provided that neither party would be liable for loss, damage, delay or failure in performance caused by a 'Force Majeure Event', defined as an event or state of affairs which met various criteria including: 'd) It cannot be overcome by reasonable endeavors from the Party affected'.

On 6 April 2018, the Charterer's parent company became subject to US sanctions, with the consequence of prospective difficulties and delays for payments in US dollars. The Owners relied on this as a Force Majeure Event. As an alternative solution, the Charterers offered to make payment in euros, which could be immediately converted to dollars by the Owners' bank. They also agreed to bear any additional costs or exchange rate losses (the 'Proposal'). The Owners...