Force majeure and reasonable endeavours: navigating choppy waters

Economic sanctions vs. force majeure

In 2018, due to sanctions against Russia, RTI was prevented from making timely payment to MUR in U.S. dollars as contractually required. RTI offered to pay in euros instead and bear any exchange costs suffered by MUR, but MUR insisted that it was entitled to suspend performance under the contract’s force majeure clause.

The contract defined a force majeure event as something that “cannot be overcome by reasonable endeavours”.

Arbitral tribunal, High Court and Court of Appeal can’t agree

An arbitral tribunal found that MUR could have overcome this situation by reasonable endeavours. MUR could simply have accepted RTI’s offer to pay in euros and suffered “no detriment”.

MUR appealed on a question of law to the High Court, which found in its favour. The High Court held that reasonable endeavours did not require a party to accept non-contractual performance. The Court of Appeal disagreed and found that it was sufficient that the force majeure event could be “overcome” in a “practical sense, such that all its adverse consequences would be avoided”. MUR could practically have overcome the force majeure event by accepting RTI’s offer.

Supreme Court restores order

The Supreme Court has now taken a different approach again. The question to be answered was: should the requirement of overcoming by reasonable endeavours extend to acceptance of non-contractual performance?

The Supreme Court said not, based on four principles:

1. The object of reasonable endeavours provisos is to maintain contractual performance, not to substitute a different performance. 
2. The principle of freedom of contract includes freedom not to contract, which in turn includes freedom not to accept the offer of non-contractual performance. 
3. Clear words are necessary for a party to be required to forgo a valuable contractual right, such as the right to refuse non-performance.
4. Uncertainty is to be avoided in commercial contracts. If a party were required to accept non-contractual performance in situations where, say, there is no detriment or the same result is achieved, a degree of evaluative uncertainty is imported.

The Supreme Court stressed that it was not making a finding on the particular use of “overcome” as the Court of Appeal had sought to.  Rather it was making a general finding about reasonable endeavours provisos in force majeure clauses.

The Supreme Court’s judgment is welcome confirmation of the principle that certainty is of paramount importance in commercial contracts and that you cannot be forced to accept payment in a different currency to the contractually agreed one.

Judgment: RTI v MUR Shipping