Force Majeure: is it "reasonable" for parties to accept non-contractual performance?

As a result of recent global events, force majeure clauses have become of particular interest for the construction industry in respect of assisting parties to recover losses and minimise project delay.

But if a contract includes a provision stating that the parties should use "reasonable endeavours" to overcome force majeure provisions, are parties bound to accept non-contractual performance? That was the question considered by the Supreme Court in the case of RTI Ltd v MUR Shipping BV [2024] UKSC 18.

Factual background

RTI Ltd ("RTI") entered into a contract with MUR Shipping BV ("MUR") to ship freight from Guinea to Ukraine each month, with the contract expressly providing that payment was to be made in USD. The contract contained a clause stating that either party could suspend performance without liability following a force majeure event provided it could not be “overcome by reasonable endeavours from the Party affected”.

On 6 April 2018, the US Government imposed sanctions against RTI's parent company, affecting RTI's contracts. Four days later, MUR issued a notice under the force majeure provisions to RTI, stating that MUR could no longer accept payment in USD due to the sanctions, that a force majeure event had occurred and performance of the contract was now impossible.

RTI refused to accept the notice, offering to pay in euros and to indemnify MUR against costs arising as a result of being paid in a different currency, such as conversion costs. MUR rejected this offer on the basis that the contract entitled it to receive payment in USD and suspended performance. Later, following the relaxation of certain sanctions, MUR resumed performance and accepted payment from RTI in euros.

Dispute

RTI commenced arbitration proceedings against MUR for breach of contract, seeking to recover costs incurred in securing alternative freight during MUR's non-performance, arguing that the contract's force majeure provisions could only be triggered if the impediment to performance could not be overcome by MUR's "reasonable endeavours", i.e. MUR incorrectly suspended performance and should have accepted payment in euros.

The arbitrators decided that accepting payment in euros would not have caused MUR any detriment, and as a result, MUR could not rely on the force majeure provisions in the contract and was in breach of contract.

Supreme Court decision

Following further decisions in the High Court (following MUR's appeal) and the Court of Appeal (following RTI's appeal), MUR appealed to the Supreme Court.

The Supreme Court held that MUR could not be compelled to accept an offer from RTI to make payment in a way that was not agreed upon in the contract – i.e. it was beyond the scope of "reasonable endeavours". MUR was therefore entitled to issue a force majeure notice and to suspend performance. The principles on which the Court's decision was based include:

• The purpose of reasonable endeavours provisions is to require a party to a contract to take reasonable steps to ensure that the contract is performed according to its terms. Such a provision does not require parties to take steps to secure performance outwith the contract's terms – i.e. payment in euros not USD.

• Freedom of contract includes the freedom not to contract. MUR did not contract to accept payment in euros from RTI. Accordingly, MUR were entitled not accept performance of something that they did not agree to, as forcing them to accept it would be denying them their freedom to contract in their own terms.

• RTI's argument was that MUR was required to give up its contractual right to receive payment in USD. However, there was no provision of the contract saying as such, and the court held that clear words are needed for parties to forego contractual rights.

• The importance of certainty in commercial contracts necessarily means that any requirement to accept performance outwith the contract will create uncertainty if it requires parties to consider whether that performance will be detrimental, or will achieve the same result as the contract terms.

What does this mean for the industry?

The disruption caused by the Covid-19 pandemic, the war in Ukraine, and international sanctions, have all highlighted the importance force majeure clauses and the managing of unforeseen events in construction contracts. Contractual provisions about the management of costs and delays arising from forces majeure have become a keen concern for employers, contractors, and subcontractors alike, and guidance on how to handle this type of event is to be welcomed. The court's comments in this case provide assurance to parties that they are not required to accept non-contractual performance, and highlight the importance of drafting contracts with clear provisions on how to deal with a force majeure event, to ensure the clearest and most certain solutions.