Difference between revisions of "MUR Shipping BV v RTI Ltd - Supreme Court Decision"

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MUR Shipping BV v RTI Ltd

United Kingdom Supreme Court: Lords Hodge, Lloyd-Jones, Hamblen, Burrows and Richards: [2024] UKSC 18: 15 May 2024

Judgment Available on BAILII @ https://www.bailii.org/uk/cases/UKSC/2024/18.html

Nigel Eaton KC and Adam Woolnough (instructed by Rosling King LLP) for MUR (Appellant-Owners)

Vasanti Selvaratnam KC and James Shirley (instructed by Campbell Johnston Clark Ltd) for RTI (Respondent-Charterers)

CONTRACT OF AFFREIGHTMENT (“COA”): US RUSSIAN SANCTIONS PROVISIONS PREVENTED PAYMENT OF FREIGHT IN US DOLLARS, AS PROVIDED BY THE COA: FORCE MAJEURE EVENT: WHETHER FORCE MAJEURE EVENT COULD HAVE BEEN “OVERCOME BY REASONABLE ENDEAVOURS”: WHETHER “REASONABLE ENDEAVOURS” EXTENDED TO ACCEPTING FREIGHT PAYMENTS IN (NON-CONTRACTUAL) EUROS INSTEAD OF (CONTRACTUAL) US DOLLARS: ARBITRATION ACT 1996 SECTION 69 APPEAL ON A POINT OF LAW

Summary

By unanimous decision, the UK Supreme Court, in allowing Owners’ appeal from the Court of Appeal held that the force majeure provision at clause 36.3 (fn.1) of the COA did not in this case require Owners, as the party affected by the force majeure event (Charterers being subjected to US sanctions), to accept non-contractual performance in the exercise of “reasonable endeavours” to “overcome” the force majeure event by receiving the freight payment in a different currency.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Registered Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes

Background

MUR (“Owners”), a Dutch company, agreed a COA with RTI of Jersey, part of the United Kingdom, (“Charterers”) for the shipment of consignments of bauxite from Conakry, Guinea to Dneprobugsky, Ukraine, on vessels nominated by MUR.

During the course of the performance of the COA, the US Department of the Treasury’s Office of Foreign Assets Control applied sanctions to RTI’s majority owner parent company, United Company Rusal plc of Jersey, adding them to the Specially Designated Nationals and Blocked Persons lists, as part of the US’s retaliatory response, in this instance targeted against Oleg Deripaska (the majority owner of Rusal at the time), to Russia’s annexation of Crimea.

MUR served a force majeure notice on RTI, stating that MUR would be in breach of US sanctions if it continued to perform the COA. MUR noted in particular that the “sanctions will prevent dollar payments, which are required under the COA”.

RTI pointed out that MUR was a Dutch company, so was not a “US person” caught by the sanctions. However, MUR responded that freight under the COA was to be paid in US dollars, which would have to be processed via the US banking system. Such payments would be blocked. Accordingly, MUR could not be expected to load and discharge cargo without receiving payment in accordance with the COA. MUR then declined, for a relatively short period, to nominate vessels under the COA, relying upon the force majeure event. RTI obtained alternative tonnage and brought a claim against MUR for the additional costs incurred.

The arbitral tribunal appointed determined that, in applying the terms of the force majeure clause in the COA, the problem could have been “overcome by reasonable endeavours from the Party affected”. This was on the basis that, in this case, “reasonable endeavours” required MUR to accept RTI’s proposal to pay in Euros and to bear the costs of immediately exchanging the Euros into US dollars. The Tribunal viewed this as a “completely realistic alternative” to payment in US dollars. As a result, the tribunal found in favour of RTI.

MUR obtained leave to appeal under section 69 of the Arbitration Act 1996 on a question of law, namely whether “reasonable endeavours” extended to obliging MUR to accept the payment of the freight by RTI in (non-contractual) Euros instead of (contractual) US dollars. The High Court allowed MUR’s appeal, the Court of Appeal by a majority allowed RTI’s cross-appeal, and MUR in turn appealed to the UK Supreme Court. The case notes on the High Court and the Court of Appeal judgments can be found hereLink title and here, respectively.

Judgment

Lords Hamblen and Burrows delivered the unanimous judgment of the Court, which held, in allowing the appeal, that MUR’s rejection of RTI’s offer of non-contractual performance did not constitute a failure by MUR to exercise “reasonable endeavours”; the “reasonable endeavours” proviso did not prevent MUR from relying on the force majeure clause to excuse its non-performance of the COA for shipments to which the USD freight payments would have been blocked by the US banking system due to the US Russian sanctions.

While the Court treated the case as turning on the wording of the specific force majeure clause, in particular the use of the word “overcome” in the “reasonable endeavours” proviso, such provisos were commonly to be found in such clauses (expressly or impliedly), which raised an issue of general application that should be addressed as a matter of principle, which is what the Court proceeded to do.

The Court agreed with MUR that, absent express and clear wording to the contrary in the contract in question, such a proviso did not require a party affected to accept an offer of non-contractual performance; this conclusion was supported by both principle and the authorities, for the following reasons.

First, a failure to perform meant a failure to perform in accordance with the contract terms. The causal question involved with making the assessment was to be addressed by reference to the parameters of the contract. As such, the object of a “reasonable endeavours” proviso was to maintain, not alter, that contractual performance.

Second, the principle of freedom to contract, to which English law gave much importance, included the freedom not to contract, which itself extended to the freedom not to accept non-contractual performance if it were offered.

Third, clear words were required to forgo valuable contractual rights, and here MUR had an undoubted right to insist on payment being made by RTI in US dollars and to refuse to accept payment in any other currency. RTI’s approach was contrary to the general principle that clear words were required to forgo such rights.

Fourth, certainty and predictability were very important under English commercial law. MUR’s case had the benefit of being straightforward, with the focus of the “reasonable endeavours” enquiry being on what steps could reasonably be taken to ensure performance within the limits of the terms of the contract. RTI’s approach, by contrast, begged many questions giving rise to substantial legal and factual uncertainty; it lacked justification in needlessly departing from the standard of performance provided by the contract terms.

The Court considered that Bulman v Fenwick (fn.2) and the Vancouver Strikes case (fn.3) provided strong support for the position MUR had taken on the “reasonable endeavours” proviso, whereas the cases on which RTI relied for its position were distinguishable and did not provide support for its case.

Comment

This judgment provides, in the author’s view (in line with the dissenting opinion of Arnold LJ in the Court of Appeal, and the first instance judgment of Jacobs J), a welcome reversal of the awkward twist imposed by the majority in the Court of Appeal, in seeking to do what was considered to be justice in this case.

The floodgates have now been closed. This avoids the unnecessary complications of trying to determine if the expansive approach of the majority of the Court of Appeal, that there be no disadvantages or detriment to the affected party accepting alternative performance, applies. In the real world, this would have been vague and difficult to determine in situations where prompt and dependable legal advice is needed to decide whether or not a party is obliged to perform a contract by other means.

Accordingly, the desire for certainty in commercial matters has once again prevailed. The UK Supreme Court has made it plain that, if the intention of the parties is to obligate the performance of payment, or of other obligations under the contract, by alternative means, then clear wording to achieve that result must be used.

Footnote 1:

“36.1. Subject to the terms of this Clause 36, neither Owners nor Charterers shall be liable to the other for loss, damage, delay or failure in performance caused by a Force Majeure Event as hereinafter defined. While such Force Majeure Event is in operation the obligation of each Party to perform this Charter Party … shall be suspended. … 36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria:

a) It is outside the immediate control of the Party giving the Force Majeure Notice;

b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;

c) It is caused by one or more of … restrictions on monetary transfers and exchanges;

d) It cannot be overcome by reasonable endeavours from the Party affected.

36.4. A Party wishing to claim force majeure in respect of a Force Majeure Event must give the other Party a Force Majeure Notice within 48 hours (Saturdays, Sundays and holidays excepted) of becoming aware of the Force Majeure Event. …”

Footnote 2:

[1894] 1 QB 179

Footnote 3:

[1963] AC 691