Party Entitled To Rely On Force Majeure Clause Where Counterparty's Parent Company Became Subject To US Sanctions

• Published date: 23 March 2022
• Subject Matter: International Law, Litigation, Mediation & Arbitration, Export Controls & Trade & Investment Sanctions, Trials & Appeals & Compensation
• Law Firm: Herbert Smith Freehills
• Author: Mr Chris Bushell, Susannah Cogman, Anna Pertoldi and Maura McIntosh

The Commercial Court has held that a shipowner was entitled to rely on a force majeure clause in a shipping contract where its charterer's parent company became subject to US sanctions - allowing an appeal from an arbitration award on a point of law under section 69 of the Arbitration Act 1996: MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm).

The decision is of particular interest as the court allowed reliance on force majeure despite the fact that the sanctions did not directly bite on the shipowners, but rather would be likely to delay US dollar payments which in turn meant that shipowners were not prepared to go ahead with performance of the contract. The two key points arising from the court's decision are as follows:

1. In exercising reasonable endeavours to overcome the impact of a force majeure event, a party is not obliged to accept anything other than contractual performance. In this case, for example, the shipowners were not required to accept payment in Euros rather than the contractual currency of US dollars.
2. There is no requirement that a force majeure event directly prevents or delays performance, without any intervening decision-making process on the part of the party relying on the clause. A party's decision, taken in reaction to a force majeure event, will not necessarily break the chain of causation between the force majeure event and the non-performance, at least where the decision is reasonable.

Background

In June 2016 the appellant ship owners (the "Owners") contracted with the respondent charterers (the "Charterers") to carry monthly shipments of bauxite from Guinea to Ukraine. The contract contained a force majeure clause which provided that neither the Owners nor the Charterers would be liable to the other for loss, damage, delay or failure in performance caused by a "Force Majeure Event", which was defined as an event or state of affairs which met all of the following criteria:

"a) It is outside the immediate control of the Party giving the Force Majeure Notice;
b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;
c) It is caused by one or more of acts of God, extreme weather conditions,., any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges;
d) It cannot be overcome by reasonable endeavors from the Party affected."

On 6 April 2018, the...