• MUR insisted on its contractual right to receive payment in U.S. dollars and rejected RTI’s offer. It maintained its right to suspend performance under the Contract pursuant to the force majeure provision.
• RTI commenced arbitration, claiming the cost of chartering replacement vessels during the period of MUR’s suspension of performance under the Contract. The tribunal found for RTI on the basis that MUR could not rely on the force majeure clause. The tribunal reasoned that the force majeure event could have been overcome by MUR’s acceptance of RTI’s offer to pay freight in euros.
• MUR appealed the arbitration award on a point of law (under section 69 of the Arbitration Act 1996) to the English High Court. The High Court set aside the arbitration award. However, on appeal to the CoA, the award was upheld by a majority decision.

Proceedings in the English courts

The appeals to the English courts concerned one central question, namely, whether, in the context of force majeure, the exercise of reasonable endeavours may require the party affected, if it is to be entitled to rely on a force majeure clause, to accept an offer of non-contractual performance from the other party in order to overcome the relevant events.

MUR’s position throughout the various appeals was that, in the absence of express wording to the contrary, a reasonable endeavours proviso does not require a party to accept an offer to perform the Contract other than in strict accordance with its terms (i.e., through non-contractual performance). MUR’s position was that without an express term to the contrary, the reasonable endeavours proviso is directed at a situation where the force majeure event or its impact can be surmounted, so that the Contract can be performed in accordance with its existing terms.

RTI argued that the question of whether a party may be required to accept non-contractual performance to satisfy the reasonable endeavours proviso is one of fact. It is a question that must be addressed on a case‑by‑case basis. RTI argued that it was reasonable for the affected party to accept non-contractual performance if such performance would cause it no detriment or other prejudice and would achieve the same result as contractual performance.

The High Court accepted MUR’s submissions and allowed the appeal against the arbitration award. As discussed in our client alert dated 12 January 2023, that decision was overturned in the CoA, which held that MUR was obliged to accept RTI’s offer to pay in euros as part of its exercise of reasonable endeavours to overcome the force majeure event.

By its unanimous decision delivered on 15 May 2024, the Supreme Court allowed MUR’s appeal against the CoA’s decision. The Supreme Court held that MUR was entitled to refuse to accept payment in euros instead of U.S. dollars, and therefore it could rely on the force majeure clause and suspend the performance of the Contract.

The reasonable endeavours proviso does not require a party to accept non-contractual performance

The Supreme Court agreed with MUR that a standard reasonable endeavours proviso does not require acceptance of the other party’s non-contractual performance. The reasoning for the Supreme Court’s decision is summarised below.

• The objective of a reasonable endeavours proviso: The underlying reason for including a reasonable endeavours proviso concerns causation. It is intended to ensure that a party’s failure to render contractual performance was genuinely caused by a force majeure event, rather than by its own failure to take reasonable steps to overcome a force majeure problem. The reasonable endeavours that may need to be taken must aim to achieve performance of the contract according to its terms, not by some other method that cuts across the contractual terms. This applies even if the practical results of such non-contractual performance appear, on the face of things, to be the same as the practical results of contractual performance.
• Freedom of contract: The fundamental English law principle of freedom of contract extends to the freedom not to contract. Parties must, generally, be free not to accept an offer of non-contractual performance without potentially prejudicing their other rights, such as the right to rely on force majeure.
• Clear words are needed to forego valuable rights: Parties should not be required to forego valuable contractual rights (such as a right to receive payment in a particular currency) and accept an offer of non-contractual performance, unless there is clear language in the contract requiring this.
• Importance of certainty in commercial contracts: Certainty and predictability are of particular importance in the context of English commercial law. MUR’s position was to be preferred over RTI’s in the interests of certainty and predictability. MUR’s formulation of the reasonable endeavours proviso is straightforward, as it focuses on the terms of the Contract. RTI’s position would require a complex inquiry about each offer of non-contractual performance, on a case-by-case basis. It would require an inquiry into whether the offer would cause any detriment or prejudice to the party invoking force majeure and whether it would achieve the same outcome as contractual performance. This would give rise to “considerable legal and factual uncertainty”. For example, it was unclear whether the existence of any detriment whatsoever would make non-contractual performance unreasonable, or whether there should some minimum level of materiality. If so, then what that minimum should be? It was also unclear whether (at least minor) detriments should be capable of being overcome by the other party’s offer of compensation or indemnity, and, if so, then what form an offer would need to take.

Narrow question of contractual interpretation or a general principle?

Throughout the appeals, the parties disagreed on whether the issue should be addressed as a narrow question of interpretation of the force majeure provision in the Contract or whether it was a question of general application affecting all force majeure provisions.

The Supreme Court confirmed that, absent express wording to the contrary, an obligation to use reasonable endeavours to overcome a potential force majeure event applies, by implication, to all force majeure provisions, even where such obligation is not explicitly stated in a contract. The Supreme Court also observed that the word “overcome” in the context of force majeure provisions had the same meaning as “nullify”, “defeat” or “prevent”.

The Supreme Court’s findings will therefore have far wider implications across force majeure provisions contained in commercial contracts of all varieties.

What constitutes contractual performance?

The Supreme Court did not directly address the issue of what constitutes contractual performance. However, the following observations can be drawn from its comments on the legal authorities cited by the parties:

• The Supreme Court took the view that the Vancouver Strikes case¹ “implicitly, and strongly” supported MUR’s position. There, the question was whether charterers were required to exercise their option to load an alternative cargo in response to a strike at the load port. The court found that the charterers were entitled not to exercise that option, because it was their “business option” (or a “true option”): the charterparty prescribed one method of performance but provided the charterers, as obligors, with a right to perform in a different manner at their convenience. This had to be contrasted with contractual provisions which allow multiple methods of performance with optionality operating for the benefit of both parties. In case of the latter kind, if one method of performance becomes unavailable, performance by another contractual method may still be required. Distinguishing between “business options” and provisions creating a mutual obligation to perform in alternative ways may not always be simple in practice.
• In the B & S Contracts case² the claimants’ workers threatened to go on strike if not paid more. The claimants were willing to make an additional payment to stop the strike. However, they said they lacked the required funds. The defendants offered the claimants an advance payment of a portion of the agreed contract price to supply the needed funds. The court held that the claimants acted unreasonably when rejecting that offer. The Supreme Court in the MUR case decided that the B & S Contracts decision did not assist RTI, because there “the offer made [by the defendants] was not to render a non-contractual performance in any real sense. Rather it was to render the contractual performance earlier than required.” It appears, therefore, that an offer of performance which exceeds some contractual requirement, but is contractual in all other respects, will not generally be treated as non-contractual performance. A party seeking to rely on force majeure may, therefore, be required to accept an offer of early performance, such as an advance payment, pursuant to its duty to exercise reasonable endeavours.

What does this decision mean for you?

Unless expressly provided for in a contract, a party seeking to invoke force majeure protection is not required to accept non-contractual performance by the other party in order to avoid it – even where the contract requires the parties to use reasonable endeavours to overcome force majeure or its effects.

This has implications for all commercial contracts containing force majeure or similar exemption clauses. As is apparent from the facts, which were specific to the MUR case, it has an additional layer of implications given the constantly changing sanctions regimes currently affecting global commerce.

It is not uncommon for parties to disagree about facts relating to the question of whether force majeure exemptions apply upon the occurrence of particular events. However, the Supreme Court’s decision serves to narrow the scope of the inquiry that is necessary to determine, at speed, whether a situation gives rise to a force majeure event.

The Supreme Court having addressed the question of whether, pursuant to a party’s duty to act reasonably, a party is obliged to do something that goes beyond the terms of the contract, we now know that, in the context of a provision of the present kind, it does not.

The Supreme Court recognised that, by clear wording, parties to a contract can still provide for the reasonable endeavours proviso to include an obligation to accept an offer of non‑contractual performance. While this brings welcome clarity in some respects, it is likely that parties entering into long-term commercial contracts, and long-term commercial relationships in particular, may now revisit their standard force majeure provisions to include express terms which expressly expand the scope and extent of duties to avoid or mitigate force majeure and/or its effects when unexpected events occur.

1. Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries and Food [1963] AC 691.
2. B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419.

In-depth 2024-109