INTRODUCTION
Commercial shipping contracts are specialized agreements that play a crucial role in the global transportation of goods by sea. These contracts, typically between a shipowner (carrier) and a charterer (cargo owner), outline the terms and conditions governing the shipment of goods, aiming to establish clear rights and obligations to minimize disputes. In the landmark case of RTI Shipping Ltd v MUR Shipping BV1, the United Kingdom Supreme Court provided crucial guidance on the interpretation of "reasonable endeavours" in force majeure clauses within commercial contracts. The ruling highlights the importance of clear contractual terms and underscores that parties are not obliged to accept non-contractual performance unless explicitly stated in their agreements. This decision reflects a growing need for precision in force majeure clauses, especially in light of global instability and commercial unpredictability. This article will delve into the significance of the Supreme Court's ruling, emphasizing the necessity of clear and comprehensive force majeure clauses in commercial contracts. It will also explore the implications of this decision for West African countries, where frequent government sanctions and military interventions have created a volatile business environment. By examining the RTI Shipping Ltd's case, the article will offer insights into how West African businesses can better protect themselves through proactive contract drafting.
THE CASE OF RTI SHIPPING LTD V MUR SHIPPING BV
The case revolves around the interpretation of a force majeure clause in a contract of affreightment (the "Contract"), specifically focusing on what qualifies as reasonable endeavours in this context.
Brief facts
MUR Shipping BV ("MUR or Appellant") as shipowner entered into the contract with RTI Shipping Ltd ("RTI or Respondent"), under which MUR agreed to make monthly shipments of bauxite for the Respondent from Conakry, Guinea to Ukraine from 1st July, 2016 to 30th June, 2018, in exchange for monthly payments made in US Dollars by RTI. The contract contained a force majeure clause which had a reasonable endeavours proviso requiring the affected party to exercise reasonable endeavours to overcome a force majeure event. On 6th April 2018, the United States (US) imposed sanctions on RTI's parent company, which seriously impaired RTI's ability to make payments in US Dollars. Following this, MUR invoked the force majeure clause and served a force majeure notice on 10th April 2018 stating that RTI's inability to make timely payment in US Dollars to MUR amounted to a force majeure event. RTI rejected the notice and offered to pay MUR in Euros instead, also proposing to cover the cost of converting the payment from Euros to US Dollars. MUR rejected this offer and suspended operations under the Contract, thus forcing RTI to incur the additional costs for chartering substitute vessels to ship the bauxite.
Arbitration proceedings
RTI commenced arbitration under the contract in June 2018 seeking damages for the additional charter costs, arguing that MUR's suspension of performance amounted to a breach of contract. A key issue for determination was whether the force majeure clause's requirement for reasonable endeavours could compel the affected party to accept non-contractual performance. The Arbitral Tribunal found that US dollar payments by RTI would have been delayed due to the US banks' reaction to sanctions, but that accepting payments in Euros was a realistic alternative for MUR. Consequently, the Tribunal concluded that MUR's force majeure claim failed as it could have been overcome by reasonable endeavours and ordered MUR to pay damages.
Appeal at the High Court
MUR dissatisfied by the decision of the Tribunal appealed to the High Court pursuant to section 69 of the Arbitration Act 1996.3 This appeal was based on the fact that the Tribunal erred on a point of law on its interpretation of the reasonable endeavour term of the Contract. The High Court allowed the appeal against the Arbitral Tribunal's decision and held that reasonable endeavours under the Contract did not extend to accepting payment in Euro rather than USD.
Appeal at the Court of Appeal
The Court of Appeal (by a majority) allowed RTI's appeal and reversed the High Court's decision. The Court of Appeal reinterpreted reasonable endeavours to mean overcoming a problem by entirely avoiding its adverse consequences, concluding that RTI's offer to pay MUR in Euros and indemnify MUR would have effectively resolved the sanctions issue.
Appeal at the Supreme Court
On further appeal to the Supreme Court, the Supreme Court had to decide whether a shipowner was required to accept payment in a currency other than US dollars when it became practically impossible for the charterer to pay in dollars (because of sanctions). The Supreme Court's decision favoured MUR's appeal unanimously. The Supreme Court reversed the Court of Appeal's decision and held that, as a matter of general principle and as strongly supported by authority (including Bulman v Fenwick4 and the Vancouver Strikes case5), the requirement to exercise reasonable endeavours did not extend to accepting an offer of non-contractual performance unless the contract explicitly requires it. Four key reasons supported the decision of the Apex Court, they are that: Reasonable endeavours aim to continue contractual performance according to its terms not to accept non contractual terms; Freedom of contract allows parties to refuse performance not in accordance with the contractual agreement; Clear contract language is vital to relinquish rights; Certainty in commercial contracts is crucial,6 and uncertainty surrounds RTI's stance on accepting non contractual performance.
Footnotes
1 [2024] UKSC 18
2 These are clauses that identifies identify the rights of the parties in the event of non-performance of obligations under the contract due to a force of nature, such as a natural disaster.
3 This section gives a Party to an arbitration the right to appeal to a Court of law upon points of law arising out of an Award, subject to the conditions contained in the section.
4 [1894] 1 QB 179.
5 [1963] AC 691.
6 See JTI Polska sp z oov Jakubowski[2023] UKSC 19).
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