Logo

 Claims Emergency

London Branch

+44 203 829 5858

Singapore Branch

+65 8683 3190

The claims response service is available 24 hours a day, 7 days a week and provides immediate global assistance to all of our Members.

Calling the emergency contact number provides a quick and effective way to speak directly to a duty Shipowners’ claims handler in the event of an incident or casualty involving an entered vessel.

During office hours the emergency number will redirect to the relevant corresponding office switchboard.

Alternatively, Members can request assistance from our network of correspondents located around the world.

Correspondents

3 Jul 2024

View PDF

Following on from the Club’s article, Paul Smit: Relying on Force Majeure Clause in the Face of International Sanctions, set out below is an update reflecting the landmark decision of 15 May 2024, where the UK Supreme Court delivered its judgment in the case of RTI Shipping Ltd v MUR Shipping BV[1]. As discussed below, this judgment provides useful clarity on the application of force majeure clauses in the context of international sanctions and alternative payment methods.

Background

As a brief summary of the background to the case, the dispute arose out of a Contract of Affreightment (COA) concluded in 2016 between MUR Shipping BV (the Shipowner) and RTI Shipping Ltd (the Charterer) for the carriage of bauxite between Guinea and Ukraine. Payment of freight due under the COA was to be made by the Charterer in U.S. Dollars. However, in 2018, as a result of U.S. OFAC sanctions imposed on the parent company of the Charterer, the Shipowner invoked the COA’s Force Majeure (FM) Clause. The FM Clause required that for an event to fall within the ambit of the FM Clause, it must not be capable of being “overcome by reasonable endeavours” from the affected party.  The Charterer sought to argue that the imposition of sanctions was not an FM event as it could be overcome by reasonable endeavours, through the payment of freight in Euros.

The Charterer then commenced arbitration; and their claim was successful as it was found by the arbitrators that the acceptance of payment in Euros constitute reasonable endeavours to overcome the event of the US Sanctions. The Shipowner appealed the decision to the Commercial Court. The Commercial Court, in overturning the award and finding in favour of the Shipowners’ appeal, said that contractual obligations are paramount in determining the question of reasonableness.

The Charterer then took the case to the Court of Appeal, where the decision of the Commercial Court was overturned. The Court of Appeal found that the FM Clause should be interpreted in a “common sense” fashion and that the payment in Euros would have overcome the event.  The case was then appealed to the Supreme Court.

Decision

The Supreme Court unanimously allowed the Shipowner’s appeal. The decision was based upon the following grounds:

  1. Reasonable Endeavours - The Supreme Court held that reasonable endeavours refer to the securing of contractual performance. In this case, reasonable endeavours would be to secure the swift payment in US$, not reasonable endeavours to pay in a non-contractual currency as suggested by the Charterer.  An acceptance of payment in Euros was seen as an amendment to the performance of the COA by the Charterer. The purpose of reasonable endeavours is to maintain the contractual performance, and not to substitute a different performance.
     
  2. Freedom of Contract – Under English law the parties are free to contract on whatever terms they choose, and this extends to the right not to contract upon certain terms. Had the Charterer been allowed to effectively force the Owner to accept payment in Euro, this would have deprived Owners of their rights of freedom of contract. 
     
  3. Commercial Certainty – In this case, the contract was on clear wording that payment should be in U.S. dollars. Thus, if the contract between the parties had been on clear wording that payment of freight is acceptable in U.S. dollars or Euros, the contract could be performed by payment in Euros, despite the U.S. sanctions. 

Summary

The United States Dollar is perhaps the most common currency used in global commercial contracts. This in turn means that U.S. Sanctions (which can apply in any situation in which US$ is used) can prohibit contractual performance in a wide variety of situations.

As global insecurity grows and thus the number of entities sanctioned by the U.S. expands, the risk of contracts being unperformable will likely grow. Following the Supreme Court decision, a party cannot rely on alternative performance (such as payment in Euros) to save the contract from Force Majeure, unless all parties agree. Parties need to carefully consider the terms of their contracts when drafting to ensure the performance of contract in light of sanctions. It is clear from the UK Supreme Court’s decision that the purpose of “reasonable endeavours” within a Force Majeure clause is only to maintain performance according to the contractual terms, and not (as the Charterer tried to argue here) to allow for entirely different performance.

 

[1] RTI Shipping Ltd v MUR Shipping BV [2024] UKSC 18

Sign up for alerts

Emergency Contact