Force majeure: understanding the Supreme Court's stance on 'reasonable endeavours'

Force majeure clauses

In the realm of commercial contracts, “force majeure” is a term you will encounter often. A force majeure clause is a clause which protects against unforeseeable circumstances that prevent, hinder or delay a party from fulfilling a contract. A carefully drafted force majeure clause can operate as a 'get out of jail free' card when things go wrong for reasons outside of your control.

The ability to rely on the 'get out of jail free' card usually comes with some caveats. Generally, you can rely on a force majeure provision if you can demonstrate that the force majeure event could not be avoided by the taking of reasonable steps. This is widely known as a "reasonable endeavours" proviso and is usually expressly included in a force majeure clause in the terms of a contract, or if the relevant clause is silent then the "reasonable endeavours" proviso can be implied by the courts.

The Supreme Court’s recent judgment in the case of RTI Ltd v MUR Shipping BV ⁽¹⁾, has brought clarity to the use of "reasonable endeavours" within force majeure clauses.

RTI v MUR Shipping – the facts of the case

The case involved a shipping contract for the supply of Bauxite with an agreed US$ rate. In 2018 sanctions were applied to the parent company of the charterer, RTI. The shipowner, MUR Shipping, suspended shipments and issued a force majeure notice to the charterer, saying that force majeure applied since the charterer could no longer pay in US dollars (USD). In response, RTI offered to pay MUR Shipping in Euros (EUR) (and to indemnify MUR Shipping for any losses suffered as a result of MUR Shipping having to then convert the currency). MUR Shipping refused to accept payment in EUR insisting on its contractual right to payment in USD.

The case has been on a two year journey, ending up in the Supreme Court. In each case the courts had to look at whether a requirement to use reasonable endeavours to overcome a force majeure event extended to obliging the affected party to agree something other than contractual performance. In other words, was MUR Shipping obliged to accept payment in EUR when the contract specifically provided for payment in USD?

Supreme Court's decision

The Supreme Court's decision clarified that in the absence of clear wording, a duty to use reasonable endeavours in a force majeure clause does not extend to accepting an offer of non-contractual performance from the other contracting party.

This meant that MUR Shipping BV was not required to accept payment in EUR. The fact that acceptance of the offer would have achieved the same outcome and MUR Shipping would not have suffered damage as a result of payment in a different currency made no difference. RTI was only required to exercise reasonable endeavours to achieve contractual performance on the contract terms ie payment in USD. Payment in EUR would amount to different performance.

In this decision, the Supreme Court judges reinforced the principle of certainty in commercial contracts. They confirmed that if a force majeure clause refers to a party using "reasonable endeavours", those steps are limited to the framework of the contract. A party will not be required to accept non-contractual performance unless clear wording is used.

Drafting tips

When negotiating a contract, here are some tips to consider in light of the recent Supreme Court decision:

• Clarity is key: Make sure the force majeure definition and clause are crystal clear. What counts as a force majeure event should be as specific as possible.
• Plan for the worst: consider all possible scenarios that could go wrong, and how the force majeure clause would play out in real life. For example, if your business relies on a particular machine for production consider whether a breakdown or fault in that machine could constitute a force majeure event. 
• Consequences of force majeure: If you want a party to take certain steps, which are outside of the contract terms, you need to expressly state this in the contract. To avoid introducing uncertainty into the contract, you should specify what the steps are.
• Sanctions clauses: If your transaction carries a potential sanctions risk, it is advisable to include a dedicated sanctions clause in your contract. A force majeure clause that references sanctions may not give you the immediate and unqualified termination rights needed to comply with sanctions.

Do you want to know more about force majeure clauses and how they might impact your contracts?

Simply reach out to Afroditi Christodoulou, Nathalie Romain or Stephen Anderson.

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⁽¹⁾ [2024] UKSC 18.