RTI Ltd v MUR Shipping BV

Heard on 6 and 7 March 2024

Lord HamblenANDLord Burrows ( with whomLord Hodge, Lord Lloyd-JonesandLord Richardsagree):

Force majeure clauses relieve a party from its obligation to perform under a contract on the occurrence of a specified event or state of affairs. Such clauses commonly provide, expressly or impliedly, that the clause cannot be relied upon if the effects of what would otherwise be a force majeure event or state of affairs could be avoided by the exercise of reasonable endeavours by the party affected.

The central issue which arises on this appeal is whether the exercise of reasonable endeavours may require the party affected, if it is to be entitled to rely on the clause, to accept an offer of non-contractual performance from the other contracting party in order to overcome the effects of the event or state of affairs. The majority of the Court of Appeal (Males and Newey LJJ) [2022] EWCA Civ 1406, [2023] Bus LR 355, [2023] 1 Lloyd's Rep 463, held that it may do so in certain circumstances and that it did so on the facts found by the arbitrators in this case. Jacobs J in the High Court [2022] EWHC 476 (Comm), [2022] Bus LR 473, [2022] 2 Lloyd's Rep 297, and Arnold LJ, dissenting in the Court of Appeal, held that it could not do so, absent clear wording to that effect. So, according to the majority of the Court of Appeal (overturning Jacobs J, Arnold LJ dissenting), the force majeure clause could not be relied on by the affected party in this case. That party now appeals to the Supreme Court.

On 9 June 2016, MUR Shipping BV (“MUR”), a Dutch company, and RTI Limited (“RTI”), a Jersey company, entered into a contract of affreightment based on an amended Gencon form voyage charterparty. MUR was the shipowner (and is the appellant before us) and RTI the charterer. The contract provided for the carriage of about 280,000 tonnes per month, 15% more or less in RTI's option, of bauxite in bulk in lots of 30,000 tonnes up to 40,000 tonnes, 10% more or less in MUR's option, from Conakry in Guinea to Dneprobugsky in Ukraine, between 1 July 2016 and 30 June 2018. The monthly quantities and the loading rate meant that, in practice, there would be a continuous flow of vessels loading at Conakry, and a corresponding flow of freight payments from RTI to MUR. The specified freight payments were to be made in US dollars.

Clause 36 of the contract provided as follows:

“36.1. Subject to the terms of this Clause 36, neither Owners nor Charterers shall be liable to the other for loss, damage, delay or failure in performance caused by a Force Majeure Event as hereinafter defined. While such Force Majeure Event is in operation the obligation of each Party to perform this Charter Party (other than an accrued obligation to pay monies in respect of a previous voyage) shall be suspended.

36.2. Following the end of the Force Majeure Event, the Parties shall consult in good faith to make such adjustments as may be appropriate to the shipment schedule under this Charter Party.

36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria:

(a) It is outside the immediate control of the Party giving the Force Majeure Notice;

(b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;

(c) It is caused by one or more of acts of God, extreme weather conditions, war, lockout, strikes or other labour disturbances, explosions, fire, invasion, insurrection, blockade, embargo, riot, flood, earthquake, including all accidents to piers, shiploaders, and/or mills, factories, barges, or machinery, railway and canal stoppage by ice or frost, any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges;

(d) It cannot be overcome by reasonable endeavors from the Party affected.

36.4. A Party wishing to claim force majeure in respect of a Force Majeure Event must give the other Party a Force Majeure Notice within 48 hours (Saturdays, Sundays and holidays excepted) of becoming aware of the Force Majeure Event. Such Force Majeure Notice shall be a notice in writing which:

(a) sets out or attaches details of the Force Majeure Event, and

(b) states that the Party giving the Force Majeure Notice wishes to claim force majeure in respect of such Force Majeure Event.

(c) give reasonable estimated duration of the Force Majeure Event to the extend [sic] it is reasonably possible to do so at the time of giving the Force Majeure Notice.

36.5. A Party which fails to give a Force Majeure Notice upon the occurrence of a Force Majeure Event in accordance with Clause 36.4 shall not be permitted to claim force majeure in respect of such Force Majeure Event.

36.6. Without prejudice to the generality of this Force Majeure Clause, time lost while waiting for berth at or off the loading port or discharge port and/or time lost while at berth at the loading port or discharge port by reason of a Force Majeure Event or one or more of the port authority imposing restrictions in relation to safe navigation in the port, the restraint of Princes, strikes, riots, lockouts of men, accidents, vessel being inoperative or rendered inoperative due to the terms and conditions of employments of the Officers and Crew, shall not count as laytime or time on demurrage.”

On 6 April 2018, the relevant US authority (the US Department of the Treasury's Office of Foreign Assets Control, “OFAC”) applied sanctions to RTI's parent company (United Company Rusal plc). Although RTI itself was not listed, a majority-owned subsidiary of a listed entity was subject to the same restrictions as its parent.

On 10 April 2018, MUR sent a force majeure notice invoking clause 36 and noting that payment in US dollars (as required under the contract) was prevented by the sanctions. For the purposes of clause 36.3(a) and 36.4, MUR was the party “giving the force majeure notice”; and MUR was alleging that, under clause 36.3(d), it was the “party affected”.

RTI rejected the force majeure notice and offered to pay in euros instead of US dollars and to bear any additional costs or exchange rate losses suffered by MUR in converting euros to US dollars. MUR maintained its right to payment in US dollars and insisted that it was entitled to suspend performance under clause 36. It therefore refused to nominate vessels.

On 23 April 2018, OFAC extended permission for parties to carry out activities ordinarily incident and necessary to the maintenance or wind down of operations or contracts that were subject to sanctions until 23 October 2018. On 25 April 2018, MUR resumed nominations of vessels under the contract of affreightment and henceforth did accept payments from RTI of euros which were converted into US dollars by MUR's bank on receipt.

It is now common ground that, although the sanctions did not prohibit payment of US dollars under the contract, it was highly probable that there would have been difficulties in RTI making timely contractual payments in US dollars and that any such payments would have been delayed. Any US dollar transfer would have had to pass through a US intermediary bank which would have initially stopped the transfer on the basis of RTI's status as a sanctioned party until the bank could investigate whether the transaction complied with the US sanctions requirements. It would not have been practicable to avoid these difficulties in making timely contractual payments in US dollars by using a bank located outside the USA.

The contract contained an arbitration clause and RTI commenced arbitration claiming damages for the cost of chartering-in seven replacement vessels in the period during which MUR suspended performance. MUR argued that it had been entitled to suspend performance under the force majeure clause (clause 36).

The arbitrators (dealing briefly with this issue in two paragraphs in an award comprising 156 paragraphs, and without any reference to case law) decided that, although the imposition of sanctions on RTI's parent company causing probable delay by RTI in paying US dollars would otherwise constitute a force majeure event or state of affairs, MUR could not rely on the force majeure clause because that event or state of affairs could have been overcome by MUR's reasonable endeavours (applying clause 36.3(d)). That was because, although RTI's contractual obligation was to pay US dollars, MUR should have accepted RTI's offer to pay in euros which would have been credited to MUR in US dollars as soon as the euros were received. There would have been no detriment to MUR because, as has been explained in para 7 above, RTI had made clear that it would bear any additional costs or exchange rate losses in converting euros to US dollars.

The arbitrators therefore decided that RTI was entitled to damages for breach of contract by MUR in failing to nominate vessels thereby causing RTI to incur the cost of chartering-in replacement vessels.

Before Jacobs J, MUR submitted that a reasonable endeavours proviso, whether express or implied, was directed to a situation in which the impediment could be surmounted so that the contract could be performed according to its terms. Such a proviso did not extend to varying the terms of the contract and/or performance. Reliance was...