Supreme Court overturns Court of Appeal on "reasonable endeavours" in force majeure

The Supreme Court has confirmed that a party affected by a Force Majeure Event (“FME”) is not required by a “reasonable endeavours” condition in a force majeure clause to accept an offer of non-contractual performance, without clear wording to that effect (RTI Ltd v MUR Shipping BV [2024] UKSC 18). 

In a unanimous decision, the Supreme Court found that the Court of Appeal had erred by approaching the case simply as an exercise in interpreting the reasonable endeavours proviso in question, rather than as a matter of principle. As such, the Supreme Court’s decision is relevant to force majeure clauses more generally.

The court said that the relevant question is whether reasonable endeavours could have secured the continuation or resumption of contractual performance. The reasonable endeavours proviso is not concerned with steps to secure performance otherwise than in accordance with the parties’ bargain. 

This decision should allow a party with a reasonable endeavours proviso in its force majeure clause to more confidently reject an offer by a counterparty to overcome a FME by way of performance that does not accord with the contract, even if the offer would overcome the FME, subject to any clear wording to the contrary. 

This decision reiterates the importance of clear contractual drafting to ensure that the contract is clear and reflects the parties’ intentions. If parties would like a reasonable endeavours proviso in a force majeure clause to require the acceptance of an offer of non-contractual performance from the other party, the contract should say so.

Facts

In 2016, MUR (the shipowner) and RTI (the charterer) entered into a contract of affreightment for the carriage of bauxite from Guinea to Ukraine between July 2016 and June 2018. Freight payments were to be made in US dollars. The contract included a force majeure clause, which defined an FME by reference to various criteria, including that the event or state of affairs “cannot be overcome by reasonable endeavors from the Party affected”. 

In April 2018, RTI became subject to US sanctions which prevented payment in US dollars. MUR invoked the force majeure clause, but RTI rejected this and offered to make payment in euros, as well as to bear any costs suffered by MUR in converting euros to US dollars. MUR refused the offer, insisting on its contractual right to payment in US dollars and entitlement to suspend performance under the contract.

RTI sought damages for the cost of chartering replacement vessels in the period during which MUR suspended performance.

Supreme Court Decision

The key issue before the Supreme Court was whether the requirement to exercise reasonable endeavours under the force majeure clause required MUR to accept RTI's offer of non-contractual performance, which it made in order to overcome the effects of the FME. 

The majority of the Court of Appeal (decision summarised here) had considered the issue to be one of contractual interpretation and awarded RTI damages on the basis that, in insisting on performance strictly in accordance with the contract’s terms, MUR had missed an opportunity to overcome the effects of the FME. 

The Supreme Court concluded that the Court of Appeal was wrong to frame this simply as an issue of contractual interpretation which turned on the specific terms of the relevant clause. Referring to previous judicial statements and the textbooks, the Supreme Court considered it well established that force majeure clauses will generally be interpreted (or a term will be implied to the same effect) as applicable only if the party invoking it can show that the FME was beyond its reasonable control and could not be avoided by taking reasonable steps.  

This was therefore a matter of general principle and there were a number of reasons why a reasonable endeavours proviso does not require the acceptance of an offer of non-contractual performance.  

Firstly, the object of the reasonable endeavours proviso is to maintain contractual performance, not to substitute for different performance and making arrangements for non-contractual payment does not enable the contract to be performed. Secondly, the freedom to contract includes freedom not to contract and, by extension, includes the freedom not to accept the offer of a non-contractual performance of the contract. Thirdly, it can be regarded as a general principle of contractual interpretation that parties do not forego valuable rights (such as the right to insist on payment in US dollars) without it being made clear that that was their intention. And fourthly, the court emphasised the importance of certainty in commercial contracts. It would introduce considerable factual and legal uncertainty if a reasonable endeavours proviso required the affected party to accept contractual non-performance.  

The court also found that the case law provided “strong, albeit implicit” support for MUR’s case. By contrast, the authorities cited by RTI provided little or no support for their case.