Force majeure clauses which relieve a party from performing its obligations under a contract during the occurrence of an extraordinary event beyond the control of the parties such as war, riot or sudden legal change (Force Majeure Event) have for many years been a perennial feature of construction, and often other services, contracts.
Whilst precise terms vary, force majeure relief usually applies where a Force Majeure Event has occurred despite parties using reasonable endeavours to prevent the Force Majeure Event from affecting contract performance or to mitigate its effects where it does. The recent judgement by the Supreme Court in RTI Ltd v MUR Shipping BV [2024] UKSC 18 suggests however, that in the absence of further drafting, the obligation to avoid or mitigate is significantly narrower than previously thought.
Factual Background
The case concerned a dispute between a shipowner, MUR Shipping BV (MUR), and a charterer, RTI Ltd (RTI) regarding the carriage of monthly cargoes from Guinea to Ukraine to be paid by RTI in US dollars. However, due to US sanctions RTI became unable to pay in US dollars so offered to pay in Euros, with RTI indemnifying MUR against any additional costs or exchange rate losses incurred thus ensuring that RTI suffered no loss as a result of those sanctions.
MUR declined RTI’s offer and claimed that failure to pay in the specified currency was A Force Majeure Event entitling them to terminate the contract.
Initially, arbitrators held that RTI’s offer represented “reasonable endeavours” to avoid or mitigate the Event and, as this was upheld by the English Court of Appeal, MUR appealed to the Supreme Court which held that RTI’s offer did not represent reasonable endeavours to avoid or mitigate so did not prevent MUR from relying on the force majeure clause.
This was because in the view of the Supreme Court the object of the “reasonable endeavours” proviso is to maintain contractual performance and not to substitute it with a different performance even if that achieved a substantively equivalent result.
Why is this case important?
This judgement demonstrates that contractual obligations imposed on a party to, for example, construct, supply or pay for work and/or materials in a specified manner will not enable those obligations to be carried out in an alternate manner due to a Force Majeure Event that either prevents those obligations from being fulfilled or makes them substantially more onerous by arguing that those alternative arrangements achieve a substantively equivalent result unless these obligations are qualified by a force majeure clause which sets out those rights in very clear language.
Accordingly, RSLs and others who regularly enter into contracts for work or supplies whether in the building industry or elsewhere may wish to review the force majeure provisions in these contracts to ensure they reflect precisely what they intend to happen should a Force Majeure Event arise.
For more information or advice on contracts, please contact one of our team.
