Supreme Court reinforces importance of contractual certainty in RTI v MUR

This case review was co-authored by Mallory Pradel-Weisz, Litigation Assistant.

This Supreme Court decision is the first judgment to rule on whether or not charterparty force majeure clauses require the affected party to accept an offer of non-contractual performance from party declaring force majeure. The Supreme Court held that they do not.

Background

RTI (the Charterer) had become unable to fulfil its contractual obligation under a charterparty to pay freight to MUR (Shipowner) in US dollars as a result of sanctions imposed on its parent company.

The Charterer offered instead to pay freight in euros and to bear any additional cost and exchange rates losses. The Shipowner maintained its right to payment in US dollars and suspended performance under the force majeure clause.

The Charterer claimed damages for the suspension on the grounds that refusal of the offer to pay the outstanding freight in euros constituted failure to exercise reasonable endeavours to overcome force majeure; had this been accepted, the Shipowner would have suffered no detriment and the same result would be achieved.

Early proceedings

The dispute was referred to arbitration, and the tribunal found  the Shipowner liable on the grounds that accepting the offer would have resulted in no detriment to the Shipowner.

The Shipowner appealed the tribunal’s award and the High Court ruled in its favour, considering that the reasonable endeavours were to be directed towards performance of the contractual obligation, not towards a different result.

The Charterer appealed, and the Court of Appeal agreed with the tribunal, finding that it was sufficient that reasonable endeavours allowed the force majeure event to be overcome in a practical sense.

Supreme Court decision

The Supreme Court took a different view to that of the Court of Appeal and held that the object of the reasonable endeavours provisions is to maintain contractual performance, not to substitute a different performance. In this case, payment in euros was the non-contractual substitution to the contractual performance obligation of payment in US dollar.

The Supreme Court relied on the principal of freedom of contract, whose corollary, freedom not to contract, includes freedom not to accept the performance of a non-contractual performance of the contract. The Court preferred the certainty and predictability of this position to introducing the test proposed by charterer’s counsel, especially in the context of force majeure clauses which require immediate judgement to be at all useful.

The Court however remarked that by clear wording, parties could provide that reasonable endeavours can include non-contractual performance, and that its position would have been different had the contract provided for payment in either US dollars or euros.

Comment

Although the outcome appears very harsh on the Charterer, nevertheless this judgment is a further manifestation of the importance attached by the courts to contractual certainty between parties. It is a salient reminder to shipowners and charterers to ensure that contractual wordings should be clear and unambiguous, and will impact future disputes regarding the interpretation of force majeure clauses, and of reasonable endeavours provisions.

Related items: https://kennedyslaw.com/en/thought-leadership/article/2024/force-majeure-the-golden-ticket-to-contractual-disputes/