Finding a practical solution where a force majeure event arise may be reasonable and pragmatic, but if this contradicts the express contract terms the affected party is not obliged to accept this. In a recent ruling on 15 May 2024, the Supreme Court has provided clarity on the use of "reasonable endeavours" in force majeure clauses, emphasising that it does not compel parties to accept non-contractual performance.
Background
This ruling arose from a shipping contract dispute between MUR Shipping BV (the "shipowner") and RTI Ltd (the "charterer"), shedding light on some essential principles governing contract law.
The case focussed on a force majeure clause, triggered by the shipowner when US government sanctions affected the charterer, impeding its ability to satisfy the contractual requirement to pay the shipowner in US dollars for the monthly shipments of bauxite from Conakry in Guinea to Dneprobugksy in Ukraine. Under the contract the affected party was required to exercise reasonable endeavours to overcome the force majeure event. The charterer proposed a practical, but non-contractual solution, to make payments in Euros, with an indemnity for the currency conversion costs. This was rejected by the shipowner and the shipments suspended.
Legal battle
The subsequent legal battle reached the Court of Appeal, which favoured the charterer, arguing that the shipowner failed because the force majeure event could have been overcome by reasonable endeavours from the charterer. It was held that "overcome" should be given its ordinary, non-technical meaning, which meant that if the non-contractual solution would solve the problem without detriment to shipowner, it would be a reasonable endeavour which the shipowner ought to have accepted.
Supreme Court decision
However, the Supreme Court unanimously overturned this decision, stressing the following fundamental legal principles.
1. The freedom of contract: underscoring parties' autonomy to set terms and reject non-contractual performance.
2. The importance of clear and certain commercial terms: clear and certain terms are crucial in contract law, and a party cannot be compelled to waive contractual rights without explicit language setting the conditions that need to be fulfilled.
3. The purpose of reasonable endeavours clauses: in cases of force majeure the affected party must show that the force majeure event directly caused their inability to perform according to the contract's terms. Reasonable endeavours provisions aim to maintain contractual performance, not to substitute it with alternative arrangements.
The Supreme Court reaffirmed the object of reasonable endeavours clauses is maintain contractual performance, not altering it, is a principle, supported by established case law. This confirmed the shipowner's argument that, absent explicit contractual language, reasonable endeavours clauses do not mandate acceptance of non-contractual performance, ie. accepting payment in Euro rather than US dollars.
Comments and conclusion
The ruling serves as a vital clarification for businesses navigating force majeure clauses and underscores the importance of clear, predictable contract terms. By upholding parties' contractual autonomy and promoting certainty in commercial transactions, the Supreme Court's decision provides invaluable guidance for future contractual disputes.
In conclusion, the Supreme Court's ruling in RTI Ltd v MUR Shipping BV [2024] UKSC 18 reaffirms foundational legal principles and provides essential clarity on the use of reasonable endeavours in force majeure clauses, ensuring a fair and predictable framework for contractual relationships.
If you have any questions or would like to delve deeper into any of these insights, please don't hesitate to get in touch.
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