Force Majeure clauses – Why you should carefully consider the wording when using in commercial contacts

Force majeure clauses rose to prominence during the COVID-19 pandemic and continue to be a major bone of contention when contracts are negotiated. Most recently, the case of MUR Shipping BV v RTI Ltd highlights the implications for parties whose force majeure clauses require them to use “reasonable endeavours” to mitigate or overcome an unforeseen event.

The UK Supreme Court handed down judgment on 15 May 2024, unanimously allowing MUR’s appeal and restoring the original judgment given in the Commercial Court. The appeal related to the interpretation of a force majeure clause in a contract between MUR Shipping (MUR) and RTI Ltd (RTI). This clause allowed one party to terminate the contract without liability on the occurrence of specified events that were outside of their reasonable control. 

The overarching question the Court was asked to consider was: where a force majeure clause contains a condition requiring the party which is affected by unforeseen event to exercise reasonable endeavours to overcome it, can the proviso require the impacted party to agree to accept non-contractual performance?

Background 

In 2016 the parties entered a contract whereby MUR agreed to make monthly shipments of minerals from Guinea to Ukraine between 1 July 2016 and 30 June 2018. RTI agreed to make monthly payments in US dollars for these shipments. The contract between the parties provided that an unforeseen event would only qualify as a force majeure event if “it cannot be overcome by reasonable endeavours from the Party affected”.   

In April 2018, MUR invoked the force majeure clause when its parent company Rusal became subject to US sanctions. As a majority-owned subsidiary they were subject to the same restrictions. Specifically, MUR noted that the sanction prevented them receiving payment in US dollars, as required by the contract. 

RTI disputed that the sanctions applied and offered to make payment in Euros instead, as well as paying any additional cost associated with the currency conversion. MUR rejected this proposal, and the dispute proceeded to arbitration where it was decided that RTI’s offer to make payment in Euros was a realistic alternative as it would not, in the tribunal’s view, have been prevented by the US sanctions. It was held that MUR should have accepted this offer under the “reasonable endeavours” obligation in the force majeure clause. 

MUR appealed to the Commercial Court, which ultimately disagreed with the Tribunal’s decision. The Commercial Court held that an offer which amounted to non-contractual performance (i.e. making payment in Euros as opposed to US dollars) does not need to be accepted to meet the “reasonable endeavours” obligation under the force majeure clause. RTI appealed this decision to the Court of Appeal. 

The Court of Appeal reverted to the Tribunal’s decision that the “reasonable endeavours” obligation in the force majeure clause required MUR to accept payment in Euros, despite their contractual right to receive US dollars as payment. The Supreme Court subsequently granted MUR permission to appeal this decision.    

Findings and implications of the Supreme Court’s Decision 

The Supreme Court took a different approach to the Tribunal and Court of Appeal. The judgment raises a “fundamental point of principle” that does, in theory, apply to all force majeure clauses, clarifying the interpretation of “reasonable endeavours” provisions within commercial contracts. 

The Supreme Court decided unanimously to restore the judgment made in the Commercial Court. Concern was raised that if the decision of the Court of Appeal was upheld, this would ultimately undermine the value of parties’ contractual rights and the importance of certainty in commercial contracts from the outset. The Supreme Court stressed the importance of certainty and predictability in commercial contracts. Subsequently, in the absence of clear wording, a reasonable endeavours obligation does not mean that a party must accept a non-contractual solution in order to resolve an issue. The Supreme Court took the view that “the principle of freedom of contract includes the freedom not to contract.”

This decision provides a reminder to parties to carefully consider the wording of force majeure clauses contained in commercial contracts. When drafting a force majeure clause that provides for it to be overcome by reasonable endeavours, parties should consider what exactly this means when a force majeure issue arises. It is clear from the Supreme Court’s judgment that this includes any reasonable steps that a party may take to ensure contractual performance, but only within the boundaries of the contract itself.