Supreme Court finds no obligation on party seeking to rely on force majeure clause to accept counterparty’s offer of non-contractual performance

The Supreme Court has unanimously overturned the Court of Appeal’s decision that a shipowner was not entitled to rely on a force majeure clause in a shipping contract when its charterer’s parent company became subject to US sanctions. It found that, contrary to the Court of Appeal’s decision, the shipowner did not fail to use reasonable endeavours to overcome the force majeure event as required by the clause: RTI Ltd v MUR Shipping BV [2024] UKSC 18.

The decision will be of interest to financial institutions as it establishes that an obligation in a force majeure clause to use reasonable endeavours to overcome or avoid the effects of the force majeure event (a “reasonable endeavours proviso”) will not require a party who wishes to rely on the clause to accept a counterparty’s offer of non-contractual performance: that party can insist on strict contractual performance by the counterparty and, if that is prevented by the relevant event, the party can assert force majeure to suspend its own obligations under the contract.

While the Court of Appeal’s decision in this case (considered here) was based on the specific wording of the force majeure clause, the Supreme Court addressed the issue as a matter of principle, noting that reasonable endeavours provisos are a common feature of force majeure clauses. Even if there is no express proviso, a force majeure clause will generally only apply (either as a matter of interpretation or by way of implied term) where the force majeure event was beyond the parties’ reasonable control and could not be avoided by taking reasonable steps. Accordingly, the Supreme Court’s decision is of general application to force majeure clauses.

The decision emphasises the importance English law places on certainty and predictability in commercial transactions. The Court of Appeal had found that a reasonable endeavours proviso would require acceptance of non-contractual performance, where that would achieve the same result as contractual performance and would not involve any detriment to the party seeking to invoke force majeure. In the Supreme Court’s view, however, this would introduce an unacceptable degree of uncertainty in circumstances where parties may need to make immediate judgements, and therefore need to know with reasonable certainty whether or not they can rely on a force majeure clause. As the court commented:

“It is not unmeritorious or unjust to insist on contractual performance, all the more so if being precluded from doing so would introduce uncertainty contrary to the expectations of reasonable business people.”

The Supreme Court noted that parties can expressly provide in a force majeure clause for reasonable endeavours to include acceptance of an offer of non-contractual performance – which presumably they would wish to limit to circumstances where that would achieve the same result as contractual performance and would not cause any detriment. If parties are considering such a course, however, they should think carefully about how this may apply and whether additional limits should be specified, such as excluding particular obligations from scope.

For a more detailed discussion of the decision, please see our litigation blog post.