Case Law: MUR Shipping v RTI [2022] EWCA Civ 1406

Contract of affreightment - Sanctions - Force majeure - Exercise of reasonable endeavours - Dollar payments required by the contract - Offer to pay in euros - Whether sanctions could have been overcome by acceptance of non-contractual performance.

Background

In 2016, MUR (the owners) entered into a Contract of Affreightment (COA), with RTI (the charterers), for the monthly shipment of bauxite from Conakry, Guinea to Dneprobugksy, Ukraine.

In 2018, the US sanctions regulatory body (OFAC), added Rusal (the charterers’ parent company) to the US sanctions list, as a result of which the owners sought to rely on the force majeure clause of the COA to suspend performance.  They argued that continuation of performance would be in breach of sanctions, while OFAC’s designation would prevent the charterers from making freight payments in US dollars as required under the COA.

The charterers offered to pay freight in euros instead, while also covering the banking charges that the owners would incur when converting form euros to US dollars.  The owners did not accept the charterers’ proposal.

Arbitration

The issue went to arbitration and the tribunal considered whether the force majeure clause was triggered in the circumstances, despite the charterers’ proposal to pay in euros.

The force majeure clause in the COA provided that force majeure is an event which ‘cannot be overcome by reasonable endeavors from the party affected.’

The tribunal found in favour of the charterers and held that had the charterers not made a proposal to pay freight in euros, the owners might have succeeded in relying on the force majeure provision in the COA.

High Court decision

The decision was appealed to the High Court on a point of law and, specifically, ‘whether reasonable endeavors [by the party affected, i.e. the charterers]… can include accepting payment in € instead of the US$ for which the contract provides’.  The court found in favour of the owners and held that:

1. The owners were not under an obligation to accept the charterers’ proposal for payment of freight in euros;
2. The owner were entitled to its strict contractual right to receive payment in US dollars; and,
3. The offer made by the charterers was a non-contractual performance.

Court of Appeal decision

The charterers sought permission to appeal and the Court of Appeal by a majority of 2-1 found in favour of the charterers, reinstating the arbitration award.  The court held that:

1. the owners’ acceptance of payment in euros would have overcome the force majeure event, in that they would be receiving the equivalent amount of US dollars in their bank account at the right time, which would have presented no detriment or disadvantages to them; and, 
2. the word ‘overcome’ was not to be construed as meaning that the contract had to be performed in strict accordance with its terms (i.e. for freight to be paid in US dollars).

Comment

The Court of Appeal decision serves as a reminder that the courts will interpret force majeure clauses by reference to the actual language and words chosen by the parties.  In doing so, it also adopted a pragmatic approach.  The word ‘overcome’ in the clause was found to be sufficiently broad to allow non-contractual performance, which would achieve the purpose of the contract without detriment to the parties.

However, the decision could encourage a range of ‘creative’ non-contractual solutions being offered by, for example, sanctioned entities wishing to keep contracts alive.  The decision could fuel debate and legal actions regarding the interpretation of similar force majeure clauses and whether proposed alternative ‘solutions’ fall within the scope of ‘reasonable endeavours’.

• Link to the Court of Appeal judgment can be found here
• Link to commentary by Stephenson Harwood can be found here
• Link to commentary by Reed Smith can be found here

Category: Caselaw