Court of Appeal considers whether “reasonable endeavours” to mitigate force majeure event extend to acceptance of non-contractual performance
In MUR Shipping BV v RTI Ltd  EWCA Civ 1406, the English Court of Appeal held that a force majeure event could be overcome by a party’s acceptance of an offer of payment in Euros rather than US dollars as required by the contract. In this case, the force majeure event arose from US sanctions restricting dollar payments.
In 2016, charterer RTI Ltd (“RTI”) contracted with owner MUR Shipping BV (“MUR”) to ship bauxite from Guinea to Ukraine each month. In 2018, when RTI’s parent company became subject to US sanctions, RTI could no longer make payments to MUR in US dollars in accordance with the contract. Even though RTI offered to make all payments in Euros and to cover any exchange rate-related costs, MUR proceeded to invoke the force majeure clause. It argued that the continued performance of the contract would be a breach of sanctions, with the resulting non-payment representing an “event” or “state of affairs” that could not be “overcome by reasonable endeavours from the Party affected.”
RTI commenced an arbitration against MUR to claim for costs associated with chartering in replacement vessels. The arbitral tribunal determined that MUR could not rely on the force majeure clause, as it could have been “overcome” by MUR’s acceptance of payment in Euros from RTI.
The decision of the English High Court
MUR subsequently appealed to the English High Court under section 69 of the English Arbitration Act 1996 on a question of law. The question on appeal to the High Court was whether MUR’s “reasonable endeavours” obligation required it to accept payment in Euros in order to “overcome” the “state of affairs” created by US sanctions. The High Court allowed MUR’s appeal on the basis that it did not: MUR was not bound to accept variation of the contract nor to agree to non-contractual performance in mitigation of a force majeure event. RTI appealed to the English Court of Appeal.
The decision of the English Court of Appeal
A majority of the Court of Appeal allowed RTI’s appeal. Whilst they accepted that the contract stipulated that payments were to be made in US dollars, the majority held that as the purpose of that payment obligation was to provide MUR as the shipowner with the right quantity of dollars in its account at the right time, RTI's proposal achieved that objective with no detriment to MUR and therefore overcame the state of affairs caused by the imposition of sanctions. In reaching this conclusion, the majority held that their decision was based on the construction of the specific provision in question, and that a common sense application of the broad and non-technical terms “state of affairs” and “overcome” was necessary to achieving the outcome originally intended by the contract.
Arnold LJ, however, dissented, arguing that the parties should not give up their legal rights unless the contract expressly provided for this (the Gilbert-Ash principle), and therefore, MUR was entitled to strict contractual performance given the absence of such express provisions.
What are the broader implications of this judgment, including in relation to 2002 ISDA Master Agreements?
Subject to any appeal to the Supreme Court, this judgment shows that under English law, when parties are seeking to rely on a force majeure clause, depending on the construction of the clause in question, parties cannot necessarily insist on performance in compliance with the strict requirements of the contract. Instead, courts will scrutinise the force majeure clause in question to see if a common sense approach can be adopted that enables the strict requirements of the contract to be departed from so long as the initial purpose of the contract is honoured, without detriment to the “affected Party”.
The 2002 ISDA Master Agreement was not considered in MUR Shipping BV, and the wording of the force majeure provision in the contract in question differs from that in the “Force Majeure Event” provision at section 5(b)(ii) of the 2002 ISDA Master Agreement.
Nevertheless, the Court of Appeal’s judgment may impact on how the “Force Majeure Event” provision in the 2002 ISDA Master Agreement is to be interpreted, and it raises the question of whether the “prevention, impossibility or impracticability” of performing an obligation to make a payment or delivery, receive a payment or delivery, or comply with a material term of the Agreement can be overcome through varied contractual performance without detriment to the other party.
If this approach is not narrowly confined, much will turn on whether detriment is caused to the non-defaulting party; this will be hard to predict and has the potential to create significant uncertainty. For example, there may be a situation where payment is delayed but the contract provides for default interest, and the affected party does not require urgent payment of the monies. Here, payment would be late but not necessarily amount to a breach of contract on the basis that adverse consequences to the innocent party would be avoided. In MUR Shipping BV, the Court emphasised the importance of the payment being received on the due date. However, it is not clear whether the same approach would be adopted in other contexts.
There are two categories of case in which the "Force Majeure Event " provision is potentially applicable and which may be affected by MUR Shipping BV: (1) where performance has become due and (2) where performance is due in the future but, if it were due today, performance would be prevented, impossible or impracticable. MUR Shipping BV suggests that, in each case, it may be possible to overcome a problem by rendering a different contractual performance. This will depend on the circumstances, in particular on whether there is any detriment to the party to which performance is due in light of the contractual purpose. For example, payment on the due date but in a different currency is unlikely to be problematic if a straightforward currency conversion is possible, resulting in the receipt of the right amount in the contractual currency on the due date. If a payment or delivery would be made late, in most circumstances this is unlikely to overcome the impediment (notwithstanding the payment of default interest) because the timing of payments is generally of great importance under a derivative transaction. However, where the "Force Majeure Event" provision is potentially triggered by a future performance, and the problem would be resolved by the due date, it is likely that this would involve the impediment being overcome.
Parties should therefore exercise caution when seeking to rely on force majeure clauses.
It remains to be seen whether this decision will be appealed to the Supreme Court.
The judgment is available here.