MUR Shipping BV v RTI Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Jacobs |
| Judgment Date | 03 March 2022 |
| Neutral Citation | [2022] EWHC 467 (Comm) |
| Docket Number | Case No: CL-2021-000044 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 467 (Comm)
Mr Justice Jacobs
Case No: CL-2021-000044
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Nigel Eaton QC and Adam Woolnough (instructed by Rosling King LLP) for the Claimant
Vasanti Selvaratnam QC and James Shirley (instructed by Clyde & Co) for the Defendant
Hearing dates: 9 th, 10 th February 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
A: The appeal and the issues in outline
Mur Shipping BV (“the Owners” or “MUR”) concluded a Contract of Affreightment (“COA”) with RTI Ltd (“the Charterers” or “RTI”) in June 2016. Under the COA, the Charterers contracted to ship, and the Owners contracted to carry, approximately 280,000 metric tons per month of bauxite, in consignments of 30,000 – 40,000 metric tons, from Conakry in Guinea to Dneprobugsky in Ukraine. On 6 April 2018, the US Department of the Treasury's Office of Foreign Assets Control (“OFAC”) applied sanctions (“the sanctions”) to RTI's parent company, adding them to the Specially Designated Nationals and Blocked Persons List. This led to the Owners invoking a force majeure clause in the COA by sending a force majeure notice (“FM Notice”) on 10 April 2018.
In the FM Notice, whose material terms are set out below, the Owners said that it would be a breach of sanctions for the Owners to continue with the performance of the COA. The Owners also noted that the “sanctions will prevent dollar payments, which are required under the COA”. The Charterers responded by saying that sanctions would not interfere with cargo operations, that payment could be made in Euros, and that the Owners, being a Dutch company, were not a “US person” caught by sanctions. The Owners' response was that the freight in the COA was to be paid in US dollars, and that there had been a force majeure event which might prevent loading and discharging in consequence of the sanctions. They said that this was for the “very good reason” that if monetary transfers from Charterers to Owners were restricted, Owners could not be expected to load and discharge the cargo without receiving payment in accordance with the COA. The Owners then declined to nominate ships under the COA for a relatively short period of time, relying upon force majeure. The Charterers obtained alternative tonnage and brought a claim for the additional costs incurred.
The arbitration tribunal comprised Mr Jeremy Russell QC, Mr Mark Hamsher and Ms Sarra Kay. The tribunal accepted that the effect of both “primary” and “secondary” sanctions was drastic. Thus, normal commercial counterparties would be frightened of trading with the party that has been sanctioned, bank finance was likely to be frozen, and underwriters would be reluctant to insure normal trading activities. The tribunal also held that sanctions had an impact on the ability of the Charterers to make US dollar payments to the Owners. In paragraph 45 of its First Partial Award dated 23 December 2020 (“the Award”), they record that the experts in the case were agreed as follows:
“In the event RTI was required, between April 6 and April 23, 2018, to make any U.S. Dollar payments to MUR that passed through an intermediary bank in the U.S. (which is highly likely), it is highly probable that the U.S. intermediary bank would have initially stopped the transfer on the basis of RTI's status as a blocked party until the bank could investigate whether the transaction complied with U.S. sanctions requirements.”
In paragraph 46, the tribunal said that the evidence was that in practice virtually all US dollar transactions are routed through US banks, and that “common sense indicates that any US bank would exercise extreme caution before making a payment that could conceivably fall foul of sanctions legislation”.
The tribunal held that, but for one point, the Owners' case on force majeure succeeded. The point on which it failed was that, applying the terms of the force majeure clause, it could have been “overcome by reasonable endeavours from the Party affected.” This was because the tribunal considered that the exercise of reasonable endeavours required the Owners to accept a proposal made by the Charterers to make payment in €. The tribunal described this as a “completely realistic alternative” to the payment obligation in the COA, which was to pay in US dollars. The Owners could have adopted this alternative with no detriment to themselves, because the Charterers had made it clear in correspondence that they would bear any additional costs or exchange rate losses in converting € to US$, and also because a number of payments were in fact made by RTI in € and converted on receipt by the Owners' bank, with no evidence that the Owners rejected those payments.
By leave of Calver J granted on 7 th May 2021, the Owners appeal under section 69 of the Arbitration Act 1996 on a question of law arising out of the Award. The appeal raises a short question of law, namely whether reasonable endeavours extended to accepting payment in (non-contractual) € instead of (contractual) US$.
The Owners' case was that under force majeure clauses in general, including the clause in the present case, the exercise of “reasonable endeavours” does not require the affected party to agree to vary the terms of the contract or agree to a non-contractual performance.
The Charterers contend that there is no reason in principle why the exercise of reasonable endeavours should not involve a variation of contractual terms. The existence of a relevant contractual term was simply one matter to be considered in the overall assessment of what is reasonable in all the circumstances. That assessment was for the tribunal to make, and their conclusion that Owners should have accepted € was plainly sensible. If payment had been made in €, the Owners' bank would have credited them with the equivalent in US$, with any exchange loss or shortfall being made up by the Charterers.
The issue raised by the appeal concerned the effect of sanctions on the Charterers' ability to make payment under the COA: Mr Eaton for the Owners described this as the “payments” aspect of the Owners' force majeure case. Another aspect of the Owners' force majeure case concerned “penalties”: the risk that the Owners, as the counterparty of a party which has been sanctioned, would be penalised by continuing to perform a contract with a sanctioned party. The two aspects of the case are to some extent related. It is apparent from the Award that US sanctions are aimed at preventing or at least disrupting the ordinary business activities of the directly or “primary” sanctioned party. This is because of the potential impact of sanctions on the “secondary” party. Banks are (potentially) “secondary” parties, and the tribunal said that common sense indicated that any US bank would exercise extreme caution before making a payment that could conceivably fall foul of the sanctions legislation. The Owners themselves were (potentially) “secondary” parties as well, and the tribunal considered that the Owners were entitled to “take time to review the position and opt for caution”.
By a Respondent's Notice, the Charterers raised a number of arguments in support of a contention that, if necessary, the Award should be upheld for reasons not expressed or not fully expressed in the Award. In the event, four arguments were pursued at the hearing. These were, in summary, as follows.
i) The COA did not require payment of freight in US$. It was contractually permissible for the Charterers to pay in €. This argument directly challenged the tribunal's conclusion (in paragraph 50 of the Award) that: “RTI could of course not insist as of right on making payments in euros, because their payment obligations in the COA were to pay US dollars”. If accepted, the argument would mean that there was no relevant force majeure event which affected the Charterers' payment obligations. This argument had not been identified in the Charterers' Respondent's Notice served prior to the hearing, nor in their skeleton argument. It was addressed comparatively briefly at the hearing itself, principally by reference to the facts set out in paragraph [50] of the Award. It was then further developed in a post-hearing submission after I had invited the parties to address certain issues.
ii) Clause 36 of the COA was not engaged in any event, because any practical difficulty for the Charterers in making US$ payments did not, on the true construction of the COA, amount to a force majeure event. There were various aspects of this argument. They were, however, ultimately directed towards the question of whether there was the necessary causation required by the force majeure clause. The Charterers submitted that the tribunal was wrong to accept the Owners' argument that restrictions on payments, in consequence of sanctions, would result in loading or discharging being prevented or delayed.
iii) The tribunal's conclusion on causation, and hence the applicability of the force majeure clause, was infected by the tribunal's erroneous view that the Owners were entitled to take time to review the position and opt for caution in the period after sanctions were imposed.
iv) Clause 36 identified certain requirements for an effective FM Notice, and these were not complied with by the Owners' notice sent on 6 April 2018.
Oral submissions were made by Mr Eaton QC for the Owners, and Ms Selvaratnam QC and (on the argument in paragraph [10 (iv)] above) Mr James Shirley for the Charterers. At one stage, there was a dispute as to the potentially admissible material for...
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