Case review: RTI v MUR Shipping BV
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Emma Bibby and Alejandro Birsan, our DRS summer interns in 2024, have written a blog post on the recent case of RTI v MUR Shipping BV.
In the recent case of RTI v MUR Shipping BV, the Supreme Court overturned the Court of Appeal and found that “reasonable endeavours” wording in a force majeure clause cannot force the affected party to perform or accept any non-contractual offers.
MUR Shipping BV (“MUR”), the shipowner, agreed to make monthly shipments of bauxite, a rock with high aluminium content, from Conakry in Guinea to the port of Dneprobugsky in Ukraine. In return RTI agreed to make monthly payments to MUR, in US dollars. The vessels would be loaded with bulks of 30,000 tonnes to 40,000 tonnes, meaning that there would be a continuous flow of vessels.
Clause 36 of their trading contract, which is a force majeure clause, stipulates that neither owner should be liable for the loss, damage, delay or failure in performance caused by a “force majeure event”.
On 6 April 2018, the Office of Foreign Assets Control (“OFAC”) sectioned RTI’s parent company meaning that they could not pay MUR the monthly payment in US dollars. This led to MUR sending a force majeure notice under Clause 36 which was rejected by RTI, who offered to pay in euros instead as well as bearing any additional costs of exchange rate. MUR insisted on maintaining their right to payment in US dollars and entitlement to suspend performance.
On 23 April 2018, OFAC allowed parties to carry out activities in contracts that were subject to sanction. Although the sanctions did not prohibit payment of US dollars, there would have been difficulties in RTI making payments on time to MUR due to the regulatory screening of the money by US intermediary banks. These checks investigate the transactions compliance with their requirements before the release of the money.
What are force majeure clauses?
A force majeure clause is a common provision in contracts that frees both parties from their contractual liability and obligation when extraordinary events beyond their control occur. It safeguards against unexpected disruptions that prevent one, or both of the parties from fulfilling their contractual duties. The inclusion of such a clause in contracts protects parties from liability when events such as natural disasters, epidemics, war, etc… occur and allows them to suspend or terminate the contract without a penalty.
The Supreme Court’s decision in RTI v MUR demonstrated that the English courts are reluctant to step in to impose solutions that have not been expressly provided for within contracts, even if it would make commercial sense to do so. When including the force majeure clause, parties can agree on how to respond to future events and set up procedures that protect them both. These procedures must be detailed and specific as well as outline all possible responses.
As recently found by the Supreme Court a force majeure clause in its usual form does not have the effect of forcing parties to accept non-contractual performance.
There are four compelling rationales for these:
- Reasonable steps to avoid force majeure does not mean taking steps outside of a contract.
- Parties have freedom to contract with anyone that also applies to parties having the right to not contract with someone.
- Clear right to be paid in a certain currency meant that a party is entitled to refuse payment in other currencies.
- There would be uncertainty regarding force majeure clauses if parties would need to take steps out of a contract to fulfil ‘all reasonable steps’ imposed by ISDA which was supported by the Court of Appeal decision in B&S Contracts and Design Ltd v Victor Green Publication Ltd [1984] ICR 419. Parties must be able to know with reasonable confidence whether they can rely on a force majeure clause, not after retrospective inquiry.
Impacts on the ISDA Master Agreement
In the context of an ISDA Master Agreement, the imposition of sanctions, could be categorised as an Illegality Termination Event (if parties are forbidden from facing their counterparty due to sanctions) or a Force Majeure Termination Event (for example, parties not being able to complete payments in Euros to each other).
One crucial factor to consider is Section 8(a) of the ISDA Master Agreement which permits parties to make payments in a currency that is not stipulated in the contract. These payments can be made if parties are acting in good faith and are using reasonable procedures to ensure the other party receives payment in full in the contractual currency. However, it is worth asking whether this section overrides any of the previous analysis. The answer is that, whilst it does allow for payments in other currencies other than the contractual currency that party is not obligated to accept any payment in other currencies outside of the contractual currency.
As previously mentioned, this ruling only reinforces the importance of contractual certainty and that force majeure clauses are put in place to maintain contractual performance, not exchange it for other types of performance. Clear wording such as explicitly stating that reasonable endeavours can include non-contractual performance would help avoid future disputes. This decision may impact how similar clauses under the ISDA may be interpreted and how they may be negotiated.
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