(RTI Ltd (Respondent) v MUR Shipping BV (Appellant) [2024] UKSC 18)

Reasonable business people may ask themselves this question when a counter-party cannot fulfil a term of the contract and instead proposes an alternative option that it says should be adopted according to the contract.

The UK Supreme Court has recently decided that a party to a contract does not have to accept another party’s non-contractual performance (in this case receiving payment in Euros instead of US Dollars) in order to demonstrate it has made ‘reasonable endeavours’ to overcome an event of force majeure (unless there is clear wording requiring the party to do so).

What is force majeure?

Force majeure is a legal term used when it is impossible for one (or all) parties to a contract to perform its obligations under that contract because of an event that is beyond its reasonable control, such as an act of God or a war for example.

It became prevalent in contractual fallouts following the Coronavirus pandemic and is now firmly back on the radar of commercial entities and lawyers alike.

What is a reasonable endeavour?

As the name suggests, reasonable endeavour is the pursuance of a reasonable course of action to achieve the objective of the contract. It is often included in commercial contracts but not regularly tested before the courts.

Facts of the case

• In June 2016, MUR and RTI entered into a shipping contract. MUR was the shipowner and RTI the charterer of the goods to be shipped.
• The contract provided that:-
• MUR would make monthly shipments of bauxite from Guinea to Ukraine between 1 July 2016 to 30 June 2018.
• RTI would make monthly payments in US dollars to MUR.
• There was a force majeure clause in the contract which provided for the parties to use “reasonable endeavours” if a force majeure event arose.
• On 6 April 2018, the US government sanctioned RTI’s parent company, making it difficult for RTI to make payments in US dollars.
• MUR said this created a force majeure event and suspended the shipments of bauxite.
• RTI disputed this and offered to (1) make payment in Euros, which MUR could convert into US Dollars; and (2) to indemnify MUR for any loss it suffered as a result.
• MUR rejected RTI’s offer and continued to suspend shipments. RTI commenced arbitration against MUR for breach of contract.
• MUR asserted that it was able to suspend the shipping because of the force majeure clause in the contract.
• RTI argued that MUR couldn’t rely on the force majeure clause because in suspending shipments, it had not complied with the ‘reasonable endeavours’ provision. The arbitrators agreed with RTI.
• MUR appealed to the high court and MUR’s appeal was allowed on the basis that the reasonable endeavours provision did not require MUR to accept RTI’s offer of ‘non-performance.’
• RTI appealed and the majority of the Court of Appeal decided that the force majeure event could have been ‘overcome’ by accepting RTI’s offer. MUR made a final appeal of this decision to the UK’s Supreme Court.

What did the Supreme Court decide?

It was held that MUR’s rejection of RTI’s offer was not a failure to exercise ‘reasonable endeavours’. MUR was entitled to rely on the force majeure and it was able to suspend the shipping of bauxite.

The court gave four reasons for its decision and they can be briefly summarised as follows:

1. Maintaining, not substituting, contractual performance – making arrangements for non-contractual payments (i.e. Euros instead of US Dollars) would not amount to a ‘reasonable endeavour’ to enable a maintained performance of the contract on its terms but would instead introduce performance of the contract on new terms. The court said it would be ‘absurd’ to suggest that MUR caused the non-performance of the contract by failing to accept non-contractual payments;
2. Freedom to contract – freedom to contract is a fundamental pillar of English law and also includes the freedom not to contract and freedom not to accept non-contractual performance of a contract;
3. Clear words needed to forego valuable contractual rights – RTI’s obligation was to pay for freight and as is common in shipping contracts, the contractual rate was US Dollars. The Supreme Court stated that MUR was entitled to refuse payment not in US Dollars, subject to the ‘reasonable endeavours’ proviso. The court then added that to accept Euros would have meant MUR giving up a valuable right and instead accepting a non-contractual payment; and
4. The importance of certainty in commercial contracts – The court re-emphasised the importance of certainty of contracts, particularly in the context that the law of England and Wales is regularly used as the governing law in commercial contracts. The court noted that MUR’s case is “straightforward” and that in the absence of clear wording, a ‘reasonable endeavours’ clause does not require the acceptance of a non-contractual right.

Comment

Although it may appear the court had to grapple with a technical point, in reality, the case was straightforward.

RTI felt that when it offered to pay in Euros and to indemnify MUR (compensate MUR for any loss when converting Euros to US Dollars), that it had made sufficient efforts to ‘save’ the contract through a practical solution to the problem faced.

However, the UK Supreme Court disagreed and said that MUR was not compelled to accept a form of payment that wasn’t contained in the contract. This reiterates the court’s general reluctance to ‘meddle’ in commercial contracts agreed between businesses.

The decision serves as a timely warning to parties at risk of non-performance under a contract – even apparently sensible, commercial ‘work-around’ proposals may not overcome a party’s right to contractual certainty. It is therefore worth taking legal advice where non-performance arises.