Force Majeure: A reasonable solution will not trump contractual performance

Background

In 2016, MUR and RTI entered into an agreement under which RTI agreed to ship, and MUR agreed to carry, consignments of bauxite from Guinea to Ukraine. It was an express term of the agreement that payments for the freight were to be made in US Dollars (USD).

A contractual dispute arose from the imposition of US sanctions on RTI’s parent company. The sanctions made it difficult for RTI to make its contractual payments in USD to MUR on time, and RTI sought to rely on the force majeure clause in the contract, which stated that neither party would be liable for a failure or delay in performance caused by specified force majeure events. However, the clause also included a proviso that an event would only be a force majeure event if “it cannot be overcome by reasonable endeavours from the Party affected”.

The parties’ positions

MUR claimed the sanctions constituted a force majeure event and, as such, suspended shipments of bauxite. RTI rejected the force majeure notice by offering payment in Euros as well as additional compensation for any costs or exchange rate losses in converting the payments from Euros to USD. It was in RTI’s view that this proposal offered (a) the same result as would be achieved by contractual performance and (b) no detriment for MUR, but MUR rejected it.

The courts’ decisions

The crux of the case hinged on whether the ‘reasonable endeavours’ provision within the force majeure clause required MUR to accept RTI’s offer of commercially reasonable yet non-contractual performance (payment in Euros) to overcome the effects of the force majeure event.

The High Court initially sided with MUR. The Court of Appeal overturned this decision, ruling that MUR could not rely on the force majeure clause because in rejecting RTI’s offer it had not satisfied the ‘reasonable endeavours’ provision. The Supreme Court, however, unanimously reversed the Court of Appeal’s decision, holding that the force majeure clause did not oblige MUR to accept an alternative method of performance offer, and that:

“There are good reasons of principle supporting MUR’s case that “reasonable endeavours” to overcome a force majeure event do not include accepting an offer of non-contractual performance absent clear wording to that effect.”

Comment

This case illustrated the difference between taking a practical, business-oriented approach (where RTI proposed paying in an alternative currency and covering Euro-to-USD conversion costs) and the need to adhere strictly to contractual terms for certainty.

This judgment has significant implications for commercial contracts, particularly in clarifying the obligations of parties under force majeure clauses and the possible limitations of a ‘reasonable endeavours’ provision. It underlines the importance of clear contractual language and affirms the principle that force majeure clauses cannot be interpreted to compel a party to accept alternative performance measures that deviate from the agreed contractual terms.

Drafting considerations

Parties should review existing contracts to ensure that the force majeure provisions are robust and reflect the parties’ intentions accurately. Parties should clearly define what constitutes ‘reasonable endeavours’ within force majeure clauses, and may wish to provide that they include accepting non-contractual performance, where:

• it involves no detriment or other prejudice to the party seeking to invoke force majeure; and
• it achieves the same result as performance of the contractual obligation in question.

Contracting parties should also reassess their risk allocation strategies, considering the potential for events beyond the parties’ control, like sanctions, to disrupt contractual obligations.

Reach out to our Corporate & Commercial team for assistance with drafting or reviewing force majeure clauses to suit the needs of your contractual arrangements.