‘Force majeure’ contract performance duties clarified by UK Supreme Court

The court ruled last Wednesday that, unless there is clear wording in contracts to the contrary, businesses cannot be forced to accept non-contractual solutions as part of their duties to exercise ‘reasonable endeavours’ to counter the effects of a ‘force majeure’ event.

Force majeure clauses are contractual clauses which alter parties' obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations.

Depending on their drafting, such clauses may have a variety of consequences, including: excusing the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time for performance; or giving that party a right to terminate.

Often, however, force majeure clauses will include a proviso that stops parties from ending their performance of a contract owing to a force majeure event if the effects of that event can be avoided using ‘reasonable endeavours’.

A clause with a proviso of this kind was at the heart of a dispute that came before the Supreme Court.

The case before the court concerned the consequences of US sanctions placed in 2018 on the parent company of a charterer, RTI Ltd, which was obliged to make payment to ship owners Mur Shipping in US dollars. Mur invoked the force majeure clause in the contract on the basis that it would be a breach of the sanctions for it to continue performing the contract, and that the sanctions prevented it accepting dollar payments. RTI said it could make payment in euros instead.

An arbitration tribunal confirmed that the sanctions prevented payment in US dollars. However, the tribunal also said Mur’s obligation to exercise reasonable endeavours to overcome the force majeure event meant it should have accepted RTI’s proposal to make payment in euros – including the cost of converting the euros into US dollars – which would have overcome the effect of the sanctions.

In a relative rarity, the High Court considered Mur’s appeal against the tribunal’s decision. The High Court said the reasonable endeavours provision did not require the owners to accept non-contractual performance and did not oblige them to accept payment in euros instead of dollars. The Court of Appeal overturned that finding, however, in 2022.

Mur raised a further appeal, and the UK Supreme Court has now confirmed that Mur’s rejection of RTI’s offer of non-contractual performance did not constitute a failure to exercise reasonable endeavours. Therefore, the Supreme Court overturned the Court of Appeal’s judgment, holding that Mur were entitled to rely on the force majeure clause and that RTI’s payment in euros did not constitute performance.

Michael Fletcher, expert in dispute resolution at Pinsent Masons, said: “The Court of Appeal had adopted a flexible approach, by permitting RTI to find and rely upon a non-contractual solution to the issue. However, the Supreme Court held that performance must be as required by the contract, in the absence of clear wording permitting an alternative. The Supreme Court’s ruling reinforces the primacy of the contractual wording. The emphasis is on contractual certainty – parties should assume that courts will follow the wording of the contract, rather than permit pragmatic solutions that have not been provided for.”

Chris Dryland, also of Pinsent Masons, added: “It will be interesting to see if, as a result, parties start to cater for alternative modes of performance in a force majeure scenario, or whether, in reality, the inherent nature of a force majeure scenario will make it difficult for drafters to anticipate what alternative modes of performance may be viable.”