Force majeure cannot be invoked if it could have been overcome

Force majeure cannot be invoked if it could have been overcome

The shipowner could not invoke force majeure as he had not even tried to overcome it. Force majeure could have been overcome by accepting payment in euros rather than in US dollars (as provided in the charter). This was concluded by the Court of Appeal in MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406.

Background

In June 2016, the Dutch shipowner MUR Shipping BV ("MUR") chartered a Jersey-based charterer RTI Ltd ("RTI") to ship bauxite from Guinea to Ukraine. In April 2018, the US imposed sanctions on a company associated with RTI, which was registered in Russia.

MUR sent a force majeure notice to RTI due to the possible blocking of freight payment by a US bank because of sanctions.

RTI refused to accept force majeure and offered payment in euros with its subsequent conversion to US dollars upon receipt by the MUR bank. RTI also offered to indemnify MUR against any costs of conversion.

MUR refused to accept payment in euros. Because of MUR's refusal to perform its obligations under the charter due to alleged force majeure, the charterer had to hire another vessel and then apply for arbitration against MUR to recover damages.

Key issue of the dispute

Could a payment in euros overcome force majeure?

Positions of the parties

The charterer argued that non-acceptance of payment in euros deprived MUR of the right to invoke force majeure. RTI justified this by the shipowner's failure to comply with the force majeure clause of the charter (p. 36.3 d): "It [Force Majeure Event] cannot be overcome by reasonable endeavours from the Party affected."

The shipowner insisted that it was not obliged to accept the non-contractual performance of the charter obligation (payment in euros rather than US dollars) and, therefore, justifiably applied force majeure.

LMAA award and High Court of Justice judgment

LMAA arbitration ruled in favour of the charterer — MUR improperly justified the non-performance of the charter as force majeure, as it did not take reasonable steps to overcome it and is accordingly liable to compensate RTI for the loss.

MUR appealed the award to the High Court of Justice based on a question of law under section 69 of the Arbitration Act 1996.

The High Court upheld the MUR's appeal, reasoning that "the exercise of reasonable endeavours did not require a party to accept non-contractual performance", i.e. to accept payment in euros rather than US dollars.

RTI appealed this judgment to the Court of Appeal.

Court of Appeal judgment

The Court of Appeal reversed the judgment of the High Court of Justice and ruled in favour of the charterer.

Firstly, the Court of Appeal disagreed with the High Court's approach to interpreting the force majeure clause: the freight was to be paid in US dollars, and this condition could not be overcome by non-contractual payment in euros.

Secondly, the Court of Appeal found that payment in euros would not have caused any adverse consequences for MUR. There was no doubt about RTI's willingness to pay the freight and compensate for the conversion costs.

In the judgment, Lord Justice Males of the Court of Appeal summed it up:

"Terms such as “state of affairs” and “overcome” are broad and non-technical terms and clause 36 [the force majeure clause] should be applied in a common sense way which achieves the purpose underlying the parties’ obligations – in this case, concerned with payment obligations, that MUR should receive the right quantity of US dollars in its bank account at the right time. I see no reason why a solution which ensured the achievement of this purpose should not be regarded as overcoming the state of affairs resulting from the imposition of sanctions. It is an ordinary and acceptable use of language to say that a problem or state of affairs is overcome if its adverse consequences are completely avoided."

The Court of Appeal ruled that the shipowner's acceptance of payment in euros could overcome the force majeure caused by the sanctions, so the shipowner had wrongfully refused to perform the charter and was obliged to compensate the charterer's losses.

The court noted the importance of interpreting the contract individually in light of the particular circumstances of the case: the outcome of the dispute could have been different if the force majeure clause had been different or if the shipowner had been prejudiced by the currency change.

Comment

The general rule is that force majeure can be invoked if the event is proven to be unforeseeable and unavoidable. In this case, RTI's offer to pay in euros and cover all expenses, thereby overcoming force majeure, played a decisive role. Otherwise, the judgment would probably be in favour of MUR.

If you need to analyse the prospects of your dispute under English law, contact our English solicitor Danil Hristich ([email protected]) or junior associate Yana Zdioruk ([email protected]).

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