Overcoming a force majeure event
MUR Shipping v RTI (Court of Appeal) [2022]
The principle of force majeure and when it can validly be invoked continues to receive a great deal of attention.
Facts:
The facts are as reported in our April 2022 Update report http://www.trglaw.com/news347.html
The only question that the Court of Appeal was required to consider was whether the force majeure event or state of affairs could be validly overcome by acceptance of payment in euros rather than US dollars as prescribed by the contract. In other words, would RTI’s proposal to pay freight in euros and to bear the cost of converting those euros into dollars overcome the state of affairs caused by the imposition of sanctions on the charterers’ parent company and did it have to be accepted by the shipowner, MUR?
Decision:
The Court of Appeal, by a 2:1 majority verdict, overturned the original High Court decision that a party invoking a force majeure clause was not obliged to accept non-contractual performance in order to circumvent the effect of the force majeure. The contract defined a force majeure event as one that could not be overcome by reasonable endeavours. The court considered whether acceptance of payment in euros would have overcome the asserted force majeure event (international sanctions which prohibited a shipowner from accepting payment in the contractually stipulated currency of US dollars). This was, it said, a matter of contract interpretation.
The court held that "overcome" did not mean that the contract had to be performed in strict accordance with its terms. The word "overcome" should be applied in a common sense way and suggested that it meant to achieve the purpose underlying the parties' obligations (here, that the shipowners received the right quantity of US dollars in their bank account at the right time). It is also an ordinary and acceptable use of language, said the court, to say that a state of affairs is overcome if its adverse consequences are completely avoided.
The majority judges in the Court of Appeal appear to have simply assumed that the acceptance of payment in an alternative currency and then getting it converted at no cost to itself required no ‘endeavours’ at all on the part of the shipowners let alone ‘reasonable endeavours’. As the leading judge said, “it would have been a very straightforward matter for MUR to accept the proposal, requiring no exertion on its part”. Accordingly, the shipowners could not validly invoke the force majeure clause and were obliged to accept payment in the alternative currency.
Points to Note:
- The decision reinforces the established position that whether a force majeure clause can be invoked will depend on the clause's precise wording and the specific circumstances facing the parties.
- The decision is a somewhat unusual one since it will not always be possible for some form of non-contractual performance to suffice in achieving the purpose underlying the contract. The decision emphasises that a degree of flexibility may be required and there will be occasions when you cannot simply refuse to accept anything other than the performance strictly mandated by the contract, particularly where that involves little or no effort, no expense and substantially achieves the purpose of the transaction.