In the wake of the Ukraine crisis and the resulting supply chain/sanctions related issues, force majeure clauses have once taken centre stage in determining the scope of obligations for contracting parties.

A key practical issue that is arising increasingly frequently in commercial contracts is the extent to which parties must seek to find alternatives to comply with their contractual obligations and/or to mitigate their losses. In the recent decision MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm), the English Commercial Court has provided welcome guidance that a requirement to use reasonable endeavours in a force majeure clause does not require an affected party to accept non-contractual performance.

Background

In June 2016, MUR Shipping BV and RTI Ltd entered into a freight contract (the Agreement) under which RTI agreed to ship, and MUR agreed to carry, consignments of bauxite from Guinea to Ukraine. The Agreement contained a force majeure clause which prevented liability on the part of either party for any loss, damage, delay or failure in performance caused by a force majeure event.

The definition of a force majeure event included an event or state of affairs that could not be overcome by reasonable endeavours by the party affected.

In April 2016, RTI’s parent company became subject to US sanctions. MUR invoked the force majeure clause and stated that it would be a breach of sanctions for it to continue to perform its obligations. In particular, MUR stated that sanctions prevented payment to be made in USD, which was an express term of the Agreement. RTI argued that sanctions were inapplicable to MUR and that payment could instead be rendered in EUR.

MUR declined to perform its contractual obligations and RTI issued a claim in an arbitration tribunal for its costs in securing alternative freight.

The tribunal found in favour of RTI on the ground that the definition of a force majeure event included a requirement to use reasonable endeavours to overcome the relevant event. The tribunal held that accepting payment in EUR was a realistic alternative that MUR could have adopted with no detriment to it, as RTI would have paid the costs of conversion.

MUR appealed to the Commercial Court on grounds that reasonable endeavours could not extend to accepting payment in EUR when the Agreement had specified currency in US dollars.

Judgment

The Commercial Court allowed MUR’s appeal, finding that the reasonable endeavours provision in the force majeure clause did not require MUR to accept non-contractual performance (in this case, payment in a different currency to that specified in the Agreement).

Jacobs J held that contractual obligations were not “one factor to be weighed in the balance in deciding the overall question of reasonableness” but were “paramount and determinative.”

He rejected RTI’s argument that the payment obligation was not critical to the loading or discharge obligation (and that payment in EUR was the same in practice as payment in dollars as the funds could be converted), finding that the obligation to pay in a particular currency is an important contractual obligation.

He noted that distinguishing between payment obligations and practical obligations to load and discharge on grounds of importance would be undesirable and lead to uncertainty.

Conclusion

In light of the current political landscape – the imposition of economic sanctions and rising gas and oil prices – parties are once more grappling with force majeure clauses. Often there is a contractual expectation to use reasonable endeavour or a requirement under English law to mitigate losses.

This gives rise to often difficult and practical issues as to how far a party must go to perform its contractual obligations – in other words, to what extent must a party seek to find alternative supplies (for example, by procuring gas and oil from outside Russia) to meet its existing contractual obligations.

MUR is helpful in that the Commercial Court has clarified that it does not and will not expect a party to accept non-contractual performance, even if doing so would mitigate the impact of the force majeure event and allow the continuation of the contract. In finding that express contractual obligations are of paramount importance, and not one of many factors to be considered in deciding what is reasonable, the Commercial Court has made it clear that the courts will favour ensuring contractual certainty.

MUR also highlights the importance of careful drafting in commercial contracts – in industries particularly vulnerable to the imposition of sanctions (such as commodities and shipping), it would be prudent to specify what actions will constitute reasonable endeavours. Providing clear examples of what is reasonable and therefore required would allow parties to be clear of their obligations.