Paul Bugden, Bugden + Co., London

Ref: MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) Jacobs J.

This recent case in the London Commercial Courts raised an important issue on the extent of a party’s entitlement to serve a force majeure notice in circumstances where an alternative mode of performance, albeit of a non-contractual nature, was available to it.

Mur Shipping BV (“the Owners”) concluded a Contract of Affreightment (“COA”) with RTI Ltd (“the Charterers”) in June 2016. Under the COA, the Charterers contracted to ship, and the Owners contracted to carry, approximately 280,000 metric tons per month of bauxite, in consignments of 30,000 – 40,000 metric tons, from Conakry in Guinea to Dneprobugsky in Ukraine. On 6 April 2018, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) applied sanctions (“the sanctions”) to RTI’s parent company, adding them to the Specially Designated Nationals and Blocked Persons List. This led to the Owners invoking a force majeure clause in the COA by sending a force majeure notice on 10 April 2018.

In the FM Notice the Owners said that it would be a breach of sanctions for the Owners to continue with the performance of the COA. The Owners also said that the sanctions would prevent dollar payments as required under the COA. The Charterers responded by saying that sanctions would not interfere with cargo operations, that payment could be made in Euros, and that the Owners, being a Dutch company, were not a “US person” caught by sanctions. Relying upon force majeure The Owners declined to nominate ships under the COA; the Charterers obtained alternative tonnage and brought a claim in arbitration for the additional costs incurred.

The arbitration tribunal held that, but for one point, the Owners’ case on force majeure succeeded. The point on which it failed was that, applying the terms of the force majeure clause, it could have been “overcome by reasonable endeavours from the Party affected.” This was because the tribunal considered that the exercise of reasonable endeavours required the Owners to accept a proposal made by the Charterers to make payment in €.

The tribunal described this as a “completely realistic alternative” to the payment obligation in the COA, which was to pay in US dollars. The Owners could have adopted this alternative with no detriment to themselves, because the Charterers had made it clear in correspondence that they would bear any additional costs or exchange rate losses in converting € to US$, and also because a number of payments were in fact made by RTI in € and converted on receipt by the Owners’ bank, with no evidence that the Owners rejected those payments.

The Owners appeal under section 69 of the Arbitration Act 1996 on a question of law arising out of the Award raised a short question of law, namely whether reasonable endeavours extended to accepting payment in (non-contractual) € instead of (contractual) US$.

The Owners’ case was that under force majeure clauses in general, including the clause in the present case, the exercise of “reasonable endeavours” does not require the affected party to agree to vary the terms of the contract or agree to a non-contractual performance.

The Charterers’ submission was that when a question arises as to the exercise of reasonable endeavours, although some significance may be attached to the nature of the parties’ contractual obligations, including whether in any particular case reasonable endeavours would require a party to accept non-contractual performance, this is simply one factor to be weighed in the balance in deciding the overall question of reasonableness. That overall question was for the tribunal to determine.

Having considered the case-law in this area and in particular the well-known cases of Bulman v Fenwick and Vancouver Strikes the judge held that there was no authority to support this broad proposition of Charterers and that ultimately he was persuaded that the exercise of reasonable endeavours did not require the Owners to sacrifice their contractual right to payment in US$, and with it their right to rely upon the force majeure clause.

If there was a contractual right to payment in US$, and a contractual obligation to pay in that currency, then this was a right and obligation which formed part of the parties’ bargain. The exercise of reasonable endeavours required endeavours towards the performance of that bargain; not towards the performance directed towards achieving a different result which formed no part of the parties’ agreement. If the loss of a contractual right were to turn purely on what is reasonable in a case, then the contractual right becomes tenuous, and the contract is then necessarily beset by uncertainty which is generally to be avoided in commercial transactions.

A point was also taken by Charterers as to the defective nature of the force majeure notice given by the Owners.  The Notice claimed force majeure and identified the sanctions and their impact on both loading and payment. It did not spell out how the prevention of US dollar payments, in consequence of the sanctions, would impact upon loading and discharge. However the judge held that it is not necessary for a notice to spell out a detailed case in that regard and that a notice need not contain or be equivalent to a detailed legal submission, particularly bearing in mind that it must be served in a short time-frame, namely within 48 hours of a party becoming aware of a force majeure event.

Furthermore, the notice was sufficient to fulfil the purpose of a force majeure notice as described by Aikens J in Mamidoil-Jetoil Greek Petroleum v Okta Crude Oil Refinery [2003] 1 Lloyd’s Rep 1 at [134]:

The reason for requiring notice to be given must be that the “other party” can then investigate the alleged force majeure at the time. It can challenge whether it does prevent performance or delay in performance by the party invoking force majeure. Alternatively it can see if there are other means of enabling performance to be continued.”

That it was sufficient was demonstrated by the Charterers’ response to the notice from which response it was apparent that the notice had indeed enabled them to investigate the alleged force majeure events and to challenge whether it prevented or delayed performance.