The Supreme Court has delivered the final word on the long-running case RTI Ltd v MUR Shipping BV UKSC 18. Many readers will be familiar with the facts but briefly MUR had entered into a Contract of Affreightment with RTI to ship bauxite in bulk to Ukraine. The contract provided for payment for the shipments to be made in US dollars. However, at some point, the parent company of RTI was made subject to US sanctions, which prevented payments in the contractual currency.

The contract had a force majeure clause, which MUR invoked due to the impossibility of US dollar payments as a consequence of the sanction’s issues with RTIs parent company. However, the force majeure provisions defined a “Force Majeure Event”, amongst other things, as an event that could not be “overcome by reasonable endeavours from the Party affected“.

RTI had, in fact, said that the payment could be made in Euros, including factoring in any currency losses. This, RTI argued, would mean no detriment to MUR and would effectively overcome the event. The original Arbitration Tribunal agreed. However, on appeal to the Commercial Court, Jacobs J, overturned that decision. On a further hearing at the Court of Appeal, that decision was overturned on a 2 to 1 majority. The Court held that to “overcome” an event doesn’t necessarily mean that performance of the contract must be done on its strict terms. Payment in Euros of the equivalent correct amount of US dollars was, therefore, a pragmatic solution which overcame the state of affairs.

The Supreme Court, in allowing MUR’s appeal, has taken a different view, and has favoured certainty over pragmatism. In particular, the Court asked the question as to whether, in exercising reasonable endeavours, it requires a party affected by the “event” to accept non-contractual performance, in this case, MUR accepting Euros instead of US Dollars. In summary, the Court concluded at Paragraph 102.

“There are good reasons of principle supporting MUR’s case that “reasonable endeavours” to overcome a force majeure event do not include accepting an offer of non-contractual performance absent clear wording to that effect.”

Whilst the Court accepted that the concept of “reasonable endeavours” brought with it an element of “uncertainty“, it also held at Paragraph 55:-

Parties need to know with reasonable confidence whether or not a force majeure clause can be relied upon at the relevant time, not after some retrospective inquiry.

Source: Skuld