As businesses grapple with performance obligations in the light of war, sanctions and the economic challenges of spiralling gas and oil prices and inflation, a recent High Court clarifies “reasonable endeavours” in the context of a contractual force majeure provision.
Force majeure terms excuse non-performance in the event of certain occurrences. They can be caveated by language requiring a workaround to be found if possible.
Interestingly in MUR Shipping BV v RTI Ltd, it was the counterparty who called force majeure, refusing to accept the “work around” where it constituted non-contractual performance in the form of payment in Euros as opposed to US dollars.
The dispute was between ship owner and charterer. Per their contract, one of the required criteria of a force majeure event was that it could not “be overcome by reasonable endeavours from the Party affected”. Sanctions imposed by the US Government in April 2018 on the charterer’s parent company led to the charterer proposing payment in Euros rather than the contractually stipulated US dollars; the owner in turn sought to assert force majeure.
While an arbitration tribunal found in the charterer’s favour (an effective work around had been found which it was reasonable for the owner to accept), the High Court disagreed on appeal, finding that: (i) the charterer was contractually required to pay in US dollars; and (ii) a party is not required, under an obligation of reasonable endeavours, to accept non-contractual performance in order to circumvent the effect of force majeure.
In reaching this decision, the Court was not willing to treat the payment obligation any differently to other types of obligation in the contract such as the place of discharge or the cargo to be loaded.
It's unusual of course to see a dispute arising from an argument about a positive attempt to pay! What is interesting about this case is that it was the non-sanctioned party who could have accepted the payment but didn't want to, and we can see clear parallels with current day as parties assess contracts that might be impacted by the current sanctions regime.