Force majeure and reasonable endeavours to overcome
Mur Shipping v RTI (High Court) [2022]
Those whose contracts have been affected by the latest sanctions that have been introduced recently by many governments might be interested in this case which considered what a party might be required to do in order to be able to successfully invoke a contractual force majeure clause which required the party affected to take reasonable endeavours to overcome the force majeure situation.
Facts:
Mur Shipping, the owners of a ship ("the Owners") concluded a shipping charter with RTI ("the Charterers") for the transport of cargos of bauxite over a 24 month period. The US government subsequently applied sanctions to RTI's parent company. This led to the Owners invoking a force majeure clause by sending a force majeure notice ("FM Notice").
The force majeure clause was as follows:"36.1. Subject to the terms of this Clause, neither [the] Owners nor Charterers shall be liable to the other for loss, damage, delay or failure in performance caused by a Force Majeure Event as defined. 36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria: a) It is outside the immediate control of the Party giving the Force Majeure Notice; b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port; c) It is caused by… any rules or regulations of governments or any interference or acts or directions of governments, restrictions on monetary transfers; d) It cannot be overcome by reasonable endeavors from the Party affected.
In the FM Notice the Owners (‘the Party affected’) said that it would be a breach of sanctions for the Owners to continue with the performance of the charter as the sanctions would prevent dollar payments as required under the Contract. The Charterers offered to make payment in Euros but when this was declined, they obtained alternative ships and brought a claim for the additional costs incurred.
Decision:
The High Court held in favour of the Owners. It said that it is established case law that a party is not required to accept performance which is not in accordance with the provisions of the contract or obliged to agree variations to a contract in order to circumvent the effect of a force majeure or similar clause.
The judge dismissed the argument from the Charterers that the force majeure clause was only concerned with contractual obligations which directly concerned loading and discharging. The force majeure clause could be invoked where the force majeure event in question indirectly caused loading or discharge to be delayed or prevented. In this respect the Owners were probably slightly fortuitous.
The currency of payment was contractually agreed: a payment in US$. The obligation to pay in the agreed contractual currency was an important contractual obligation. There was no contractual option for the charterers to make payment in another currency and the Owners were not obliged to accept payment in Euros. The court rejected an argument that it is not for the court to assess whether the refusal to accept alternative performance is ‘reasonable’ as that would, according to the judge, mean that the contract is “necessarily beset by uncertainty”.
The judge also held that: Although there is authority that the force majeure event must be the sole cause of the failure to perform, taking a reasonable decision (not to proceed with performance because of the risks associated with receiving payment) as a reaction to a force majeure event does not break the chain of causation so as to prevent reliance on a force majeure clause.
The notice of force majeure given by the owners was sufficient, particularly given the 48 hour deadline for giving notice; it claimed force majeure and identified the sanctions and their impact on both cargo loading and payment. “A force majeure notice need not contain or be equivalent to a detailed legal submission, particularly bearing in mind that it must be served in a short time-frame”.
Points to Note:
- The ‘reasonable endeavours’ obligation seemingly did not require the contracting party to accept an alternative means of performance. This would seem to contrast with an ordinary breach situation where it must be arguable that a contracting party would be under an obligation to take reasonable steps to mitigate its loss and this might include accepting an offer of alternative performance.
- This was a somewhat unusual case due to the nature of the force majeure event. Attempting to circumvent sanctions would not have been risk free. Sanctions are not something one would normally expect the courts to require a party to take any active steps to circumvent. This contrasts with most other force majeure circumstances where one might perhaps expect the courts to require a contracting party to be more pro-active.