MUR v RTI (2022) – The rocky shores of force majeure clauses and non-contractual performance

MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406

Case handed down in the Court of Appeal on 27^th October 2022. The judgement can be found here.

Route through the courts

• The case was initially referred to an arbitration tribunal, which awarded for RTI.
• On appeal to the High Court (Commercial) at first instance, Jacobs J held for MUR, although allowing the appeal on the basis that it had a reasonable chance of success in the higher courts.
• A 2-1 split decision in the Court of Appeal found for RTI once more, reinstating the arbitrators’ award in their favour.
• It is possible that MUR decide to take the case to the Supreme Court, although they have not yet indicated that they will do so.

Facts

MUR are a Dutch shipping company. RTI are a chartering company that form part of a Russian-owned group. The contract of affreightment (COA), signed in 2016, concerned monthly shipments of bauxite from Guinea to Ukraine, onboard seven vessels managed by MUR.

The USA imposed economic sanctions against RTI’s Russian guarantor and majority owner, UC Rusal, on 6^th April 2018 [7], constituting the force majeure event (FME). This affected RTI’s ability to transfer US Dollars in due time to MUR, as required by the COA.

MUR invoked force majeure clause 36 (the FMC) of the COA on 10^th April 2018 [8]. However, on the 14^th of April, RTI replied that they rejected the force majeure notice (FMN) for these reasons [9]:

• The sanctions applied to their parent company would not interfere with the practicalities of cargo movement.
• The payment could be made in Euros not US Dollars. RTI were willing to bear any cost of the exchange.
• MUR was a Dutch company, not American, so would not be scrutinised for dealing with a Russian-owned company by US authorities.
• MUR had not sent the FMN within the 48-hour period detailed by clause 36.4 of the COA.

Submissions

By the time that the case came before the Court of Appeal, the issues had been narrowed only to the second point, that the payment could be made in Euro and then converted on MUR’s side to US Dollars, in order to avoid the sanctions imposed on UC Rusal.

MUR argued that accepting payment in Euros was non-contractual performance and would go against their contractual rights. This argument was accepted in the High Court on the general point that a party should not be forced to accept non-contractual performance.

RTI argued that the change of contractual currency (and payment of any related costs) was an example of reasonable endeavours that would satisfy clause 36.3.d, especially as it resulted in zero detriment to MUR.

Judgment

The Court of Appeal stated that a common sense reading of the wording of the FMC 36 was necessary, rather than a theoretical discussion about force majeure clauses in general, or the concept of ‘reasonable endeavours’ [47]. Similarly, the court specifically avoids philosophising about the law on mitigation of damage and frustration [53]. As Males LJ explains at [51], the FMC is not concerned with ‘reasonable endeavours in the abstract’, but whether the relevant event can be overcome through reasonable endeavours. Therefore, if the endeavours do not overcome the event in question, it does not matter how reasonable they are.

Males LJ’s decision regarding non-contractual performance was this: while payment in US Dollars was required, this consisted of providing MUR with ‘the right quantity of dollars in its account at the right time’. RTI’s proposal to pay in Euros and cover RTI’s currency exchange costs therefore fulfilled this aspect of the contract [60]. The judge then notes that the MUR simply no longer wanted to perform the contract, so were attempting to use the courts to avoid obligation.

The majority (Males LJ and Newey LJ) therefore held that RTI should receive the award that the arbitration tribunal considered just, covering the costs of finding alternative shipping for the cargo.

Arnold LJ dissented from the majority decision. He found that the imposition of a non-contractual resolution on MUR would impinge on their contractual rights, regardless of the reasonableness of the solution – they were under no obligation to accept non-contractual performance.

Takeaways

The court will construe a FMC in its specific wording, rather than relying on more general concepts of force majeure and performance. If the offered solution by the affected party is enough to overcome the FME and comes at zero cost to the non-affected party, then the court is unlikely to accept the non-affected party’s argument that it constitutes non-contractual performance. This should be considered on a case-by-case basis rather than a blanket instruction that non-contractual performance must be accepted.

Having said that, the Court of Appeal in this case has effectively stated that a non-affected party should have accepted something that was not contained in the contract. With both the Commercial Court and Arnold LJ, dissenting, holding that the non-affected party’s rights still took precedence, and a possible escalation to the Supreme Court, there may be more on this topic.

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