Important Supreme Court decision on “reasonable endeavours” in force majeure

The Supreme Court decision of RTI Ltd v MUR Shipping BV [2024] UKSC 18 will be of interest to anyone drafting or operating force majeure clauses.

Force majeure clauses relieve a party from its obligation to perform under a contract when a specified event occurs.

They often provide, expressly or impliedly, that the clause cannot be relied upon if the effects of the event could be avoided by the party affected exercising reasonable endeavours. This decision involved a shipping contract under English law and considered specific force majeure clause wording. However, that wording is commonly seen in force majeure clauses and the decision has implications for the construction sector (and others) across the UK, where force majeure clauses are well used.

The case involved a shipowner MUR and a charterer RTI. Under the charterparty between them, MUR nominated vessels for shipments of bauxite and RTI made corresponding freight payments to MUR in US dollars. Clause 36 of the charterparty was a force majeure clause. Clause 36.3(d) expressly included a reasonable endeavours proviso i.e. it said that a specified event would only be a force majeure event if “it cannot be overcome by reasonable endeavours from the Party affected”. When RTI was impacted by US sanctions on its parent company, it was effectively prevented from making payment to MUR in US dollars.  MUR therefore gave notice invoking the force majeure clause 36, claiming it was the affected party. RTI rejected the notice and made an offer of “non-contractual performance” i.e. for MUR to accept payment in Euros rather than US dollars, plus RTI to bear any additional costs or exchange rate losses suffered by MUR. MUR refused to accept that offer, or to nominate any more vessels and RTI had to charter replacement vessels.  At arbitration, it was held MUR was in breach of contract – it could not rely on the force majeure clause, because the event could have been overcome by MUR’s reasonable endeavours.  MUR appealed and the case went all the way to the Supreme Court.

The question before the Supreme Court was whether the reasonable endeavours proviso meant MUR should have accepted the offer of non-contractual performance, in order to overcome the effects in question and for MUR to be entitled to rely on the force majeure clause.  In short, the answer was no. MUR’s rejection of RTI’s offer was not a failure to exercise reasonable endeavours. Therefore the proviso did not prevent it from relying on the force majeure clause and it was not in breach of contract.

This is an important decision to bear in mind when drafting or operating force majeure clauses, especially ones which contain express reasonable endeavours provisos.  The Supreme Court emphasised:

• that the object of a reasonable endeavours proviso is to maintain contractual perfomance, not to substitute a different performance;
• the fundamental principle of freedom of contract, which includes freedom not to contract and not to accept the offer of a non-contractual performance;
• that clear words are needed to forego valuable contractual rights (such as a right to payment in a certain currency); and
• the importance of certainty in commercial contracts (which favoured MUR’s arguments, rather than inquiries into the effects of non-contractual performance).

Taken together, this means where “reasonable endeavours” are required to overcome a force majeure event, a party will not be required to accept non-contractual performance, even as a minor variation to the contract terms. Clear drafting is required to mean otherwise.

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