In RTI Ltd v MUR Shipping [2024] UKSC 18, the Supreme Court considered whether - on the interpretation of a force majeure clause - reasonable endeavours required non-contractual performance to “overcome” the impact of a performance impediment.
In 2016, MUR (as shipowner) entered into a contract of affreightment with the charterer RTI. The contract involved the carriage of bauxite over a 2-year period and stipulated payment of freight in US dollars. The contract also contained a force majeure clause. In 2018, RTI became subject to US sanctions. This caused difficulties with respect to timely payments of freight under US dollars. MUR then served notice invoking the force majeure clause. RTI rejected it and offering (1) to pay in euros instead and (2) to bear any additional expense associated with conversion of euros into US dollars. The owners refused affirming their right to suspend performance.
The force majeure clause was as follows:
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;
...
(d) It cannot be overcome by reasonable endeavors from the Party affected.
The issue was whether MUR were entitled to reject the offer of an alternative non-contractual performance and thus rely on the force majeure clause.
Lords Hamblen and Burrows (Lords Hodge, Lloyd-Jones and Richards agreeing) held, on principle, that the exercise of reasonable endeavours to overcome a force majeure event did not require acceptance of non-contractual performance from the counterparty.
In the realm of interpretation?
Lords Hamblen and Burrows (abridged henceforth as Lord Hamblen) agreed with MUR that clause 36.3(d) was (1) commonly found in force majeure clauses in similar terms, and (2) that its interpretation should be “addressed as a matter of principle”. As such, the word “overcome” should mean no more and no less than its equivalent usage and understanding under the general law.
To my mind, the approach of Lord Hamblen is correct. The particular clause is entirely boilerplate. In fact, the same word “overcome” is used exactly as in Chitty on Contracts. There are no distinct or unconventional phrases which suggest that parties had intended their force majeure provision to be governed other than in the usual standard way under English law.
However, Lord Hamblen took a view of interpretation (at [25]-[26]) which appeared to sidestep the customary post-Wood “unitary” approach. Only Newey LJ in the Court of Appeal (at [78]) cited Wood v Capita Insurance [2017] UKSC 24 and ICS v West Bromwich [1998] 1 WLR 896. The Supreme Court did not identify what the reasonable person would have understood the provision to mean, considering the contract as a whole, while checking each suggested interpretation against its consequences.
Lord Hamblen could have adopted a logic comparable to Lord Sumption’s argument (in the 2017 Harris Society Annual Lecture) vis-a-vis “properly drafted language [having] an autonomous meaning.” Lord Hamblen could have drawn a distinction between generic and commonplace provisions in which parties are presumed to have intended them to be interpreted under the general principles of contract law, and those which do not. Alternatively, His Lordship could have fastened his interpretation, admittedly somewhat, on Lord Hodge’s qualification (in Wood at [13]) that contextualism could be sidelined (and textualism taking precedence) if both parties were represented by lawyers and the contract appeared well drafted. (Although, even then, the courts can adopt a purposive contextualism).
Either way, the Supreme Court should have made its rationale plain with respect to the circumstances when the court will adopt an interpretation that yields to general contractual legal principles over the particulars of a given case.
Causation as the object of reasonable endeavours provisos
Lord Hamblen held (at [38] agreeing with Mr Nigel Eaton KC) that “force majeure clauses in general, and reasonable endeavours provisos in particular, concern the causal effect of impediments to contractual performance.” The force majeure event was the banking delay caused by US sanctions. MUR would have been excused from performance unless it could be shown that it could have reasonably prevented the failure of performance.
Lord Hamblen’s reasoning was that MUR’s acceptance of payment in euros would have had no causal effect on the impediment. The banking delay, arising from US sanctions, would have remained in place despite payment in euros.
To my mind, Lord Hamblen’s analysis on the centrality of causation vis-a-vis the purpose of reasonable endeavours provisos has to be correct. The corollary net effect would be that reasonable endeavours provisos (which act as an exception to the blanket-rule of excusing performance) would allow the affected party to find ways around the impediment to secure the contractual performance by not securing that performance. As Lord Hamblen held (at [38]) “the object of the reasonable endeavours proviso is to maintain contractual performance, not to substitute a different performance.”
The Gilbert-Ash principle
Lord Hamblen emphasised (at [44]) the importance of parties making it clear (expressly or by necessary implication) that they intend to forego valuable rights. This is so even in the face of reasonable performance to circumvent a problem (as per authorities cited; Bulman & Dickson v Fenwick [1894] 1 QB 179 etc.)
However, His Lordship made interesting obiter comments about the Gilbert-Ash rule (Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689). That rule was regarded as a presumption that if a party elects to surrender some particular remedies, clear words are needed to that effect. That used to mean statute, or tortious rights, or the general law of remedies that apply irrespective of what parties agreed. However, Lord Hamblen (at [45]) held, albeit obiter, that it may extend to valuable contractual rights (within the broader contract as a whole):
We do not think it greatly matters whether the applicable principle is that set out in Gilbert-Ash or an analogous principle applicable to valuable contractual rights.
This is interesting because it seems to be a new rule introduced by analogy. It suggests that parties to a contract with valuable rights in a given section need to bear in mind the need to expressly forgo them in a different section.
Freedom of contract and certainty
Lord Hamblen’s emphasis on party autonomy and certainty are a salutary and valuable reminder of the much preferred approach to contract law. As His Lordship held (at [42]) that the “freedom not to contract includes freedom not to accept the offer of a non-contractual performance.” It is interesting that this critical point of non-contractual obligations eroding party autonomy was not made in the Court of Appeal or by Jacobs J.
With respect to certainty, MUR’s approach was crystal-clear. In contrast, RTI’s two-limb test would involve an assessment of whether (1) acceptance of non-contractual performance involved no detriment to the party seeking to invoke force majeure, and (2) achieved the same result as the contractual performance.
Lord Hamblen sensibly noted the inherent uncertainty and vagueness in these tests. What counts as detriment? How much detriment? Over what time scale of detriment (i.e. long-term consequential losses)? What if there are more than one result or purpose to an obligation? Is it the main or the dominant purpose which we are concerned with? These are difficult questions of evaluation which hinder parties ability to predict reasonably where they stand in the event of force majeure.
